Xperi DRS/A Draft registration statement (amended) | XPER 22 Dec 21

Exhibit 99.2

INDEX TO COMBINED FINANCIAL STATEMENTS


	Page Number
*Combined Financial Statements*

Report of Independent Registered Public Accounting Firm		F-1

Combined Statements of Operations		F-2

Combined Statements of Comprehensive Loss		F-3

Combined Balance Sheets		F-4

Combined Statements of Cash Flows		F-5

Combined Statements of Equity		F-6

Notes to Combined Financial Statements		F-7

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Xperi Holding Corporation

Opinion on the Financial Statements

We have audited the accompanying combined balance sheets of Xperi Product (a Business of Xperi Holding Corporation) (the “Company”) as of December 31, 2020 and 2019, and the related combined statements of operations, of comprehensive loss, of equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “combined financial statements”). In our opinion, the combined financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 3 to the combined financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinion

These combined financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s combined financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these combined financial statements in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the combined financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

San Jose, California

October 12, 2021

We have served as the Company’s auditor since 2020.

F-2

Xperi Product

(a business of Xperi Holding Corporation)

COMBINED STATEMENTS OF OPERATIONS

(in thousands)


	Years Ended December 31,
	2020			2019
Revenue	$	376,101		$	198,124
Operating expenses:
Cost of revenue, excluding depreciation and amortization of intangible assets		77,788			7,786
Research and development		163,407			94,627
Selling, general and administrative		172,594			91,408
Depreciation expense		16,666			5,666
Amortization expense		98,209			88,074

Total operating expenses		528,664			287,561

Operating loss		(152,563	)		(89,437	)
Other income and expense, net		1,535			1,012

Loss before taxes		(151,028	)		(88,425	)
Benefit from income taxes		(9,735	)		(6,054	)

Net loss	$	(141,293	)	$	(82,371	)

Less: Net loss attributable to noncontrolling interest		(2,966	)		(1,503	)

Net loss attributable to Xperi Product	$	(138,327	)	$	(80,868	)

The accompanying notes are an integral part of these combined financial statements.

F-3

Xperi Product

(a business of Xperi Holding Corporation)

COMBINED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)


	Years Ended December 31,
	2020			2019
Net loss	$	(141,293	)	$	(82,371	)
Other comprehensive income, net of tax:
Change in foreign currency translation adjustment		1,311			—

Comprehensive loss		(139,982	)		(82,371	)
Less: Comprehensive loss attributable to noncontrolling interest		(2,966	)		(1,503	)

Comprehensive loss attributable to Xperi Product	$	(137,016	)	$	(80,868	)

The accompanying notes are an integral part of these combined financial statements.

F-4

Xperi Product

(a business of Xperi Holding Corporation)

COMBINED BALANCE SHEETS

(in thousands)


	December 31,
	2020			2019
ASSETS
Current assets:
Cash and cash equivalents	$	85,624		$	47,264
Short-term investments		—			1,123
Accounts receivable, net		76,062			23,682
Unbilled contracts receivable		63,851			54,378
Other current assets		31,709			8,221

Total current assets		257,246			134,668
Long-term unbilled contracts receivable		6,411			4,588
Property and equipment, net		60,285			29,319
Operating lease right-of-use assets		72,625			8,681
Intangible assets, net		372,874			204,354
Long-term deferred tax assets		6,749			3,524
Goodwill		532,453			377,900
Other assets		16,236			2,698

Total assets	$	1,324,879		$	765,732

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	11,380		$	2,640
Accrued liabilities		107,501			30,426
Deferred revenue		27,423			720

Total current liabilities		146,304			33,786
Long-term deferred tax liabilities		11,740			11,687
Deferred revenue, less current portion		22,477			—
Noncurrent operating lease liabilities		59,610			5,354
Other long-term liabilities		4,565			935

Total liabilities		244,696			51,762

Commitments and contingencies (Note 14)
Equity:
Net Parent company investment		1,084,630			716,781
Accumulated other comprehensive income		1,311			—
Noncontrolling interest		(5,758	)		(2,811	)

Total equity		1,080,183			713,970

Total liabilities and equity	$	1,324,879		$	765,732

The accompanying notes are an integral part of these combined financial statements.

F-5

Xperi Product

(a business of Xperi Holding Corporation)

COMBINED STATEMENTS OF CASH FLOWS

(in thousands)


	Years Ended December 31,
	2020			2019
Cash flows from operating activities:
Net loss	$	(141,293	)	$	(82,371	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation of property and equipment		16,666			5,666
Amortization of intangible assets		98,209			88,074
Stock-based compensation expense		19,183			17,311
Deferred income tax		(20,116	)		(13,984	)
Provision for credit losses		5,973			(74	)
Other		3,256			(135	)
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable		(10,827	)		6,124
Unbilled contracts receivable, net		3,436			12,547
Other assets		(5,170	)		(1,400	)
Accounts payable		(3,111	)		798
Accrued and other liabilities		12,064			(7,938	)
Deferred revenue		(2,047	)		90

Net cash from (used in) operating activities		(23,777	)		24,708

Cash flows from investing activities:
Purchases of property and equipment		(6,601	)		(6,934	)
Net cash received from TiVo acquisition		33,143			—
Proceeds from sales of short-term investments		415			2,334
Purchases of intangible assets		(435	)		—

Net cash from (used in) investing activities		26,522			(4,600	)

Cash flows from financing activities:
Contingent consideration payments after acquisition		—			(1,200	)
Net transfers from (to) Parent		34,244			(15,870	)

Net cash from (used in) financing activities		34,244			(17,070	)

Effect of exchange rate changes on cash and cash equivalents		1,371			—

Net increase in cash and cash equivalents		38,360			3,038
Cash and cash equivalents at beginning of period		47,264			44,226

Cash and cash equivalents at end of period	$	85,624		$	47,264


Supplemental disclosure of cash flow information
Income taxes paid, net of refunds	$	8,575		$	4,221

The accompanying notes are an integral part of these combined financial statements.

F-6

Xperi Product

(a business of Xperi Holding Corporation)

COMBINED STATEMENTS OF EQUITY

(in thousands)


	Net Parent Company Investment			Accumulated Other Comprehensive Income		Noncontrolling Interest			Total Equity
Balance as of December 31, 2018	$	796,195		$	—	$	(1,295	)	$	794,900
Net loss		(80,868	)		—		(1,503	)		(82,371	)
Issuance of equity to noncontrolling interest		—			—		(13	)		(13	)
Net transfers from Parent		1,454			—		—			1,454
Balance as of December 31, 2019	$	716,781		$	—	$	(2,811	)	$	713,970

Net loss		(138,327	)		—		(2,966	)		(141,293	)
Other comprehensive income		—			1,311					1,311
Issuance of equity to noncontrolling interest		—			—		19			19
Net transfers from Parent		506,176			—					506,176

Balance as of December 31, 2020	$	1,084,630		$	1,311	$	(5,758	)	$	1,080,183

The accompanying notes are an integral part of these combined financial statements.

F-7

Xperi Product

(a business of Xperi Holding Corporation)

NOTES TO COMBINED FINANCIAL STATEMENTS

NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION

On December 18, 2019, Xperi Corporation (“Pre-Merger Xperi”) entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with TiVo Corporation (“Pre-Merger TiVo”) to combine in an all-stock merger of equals transaction (the “Mergers”). Immediately following the consummation of the Mergers on June 1, 2020, (the “Merger Date”), Xperi Holding Corporation, a Delaware corporation founded in December 2019 under the name “XRAY-TWOLF HoldCo Corporation”, became the parent company of both Pre-Merger Xperi and Pre-Merger TiVo. See “Note 9 – Business Combination” for a more detailed description of the Mergers.

In 2020, following the Mergers, the new parent company, Xperi Holding Corporation (“Xperi”) announced plans to separate into two independent publicly traded companies (the “Separation”), one comprising its intellectual property licensing business and one comprising its product business. The Separation is intended to take the form of a tax-free spin-off to Parent’s stockholders of 100% of the shares of its product-related business, which will be renamed Xperi Product (“Xperi Product” or the “Company”). In connection with the Separation, Xperi will be renamed and continue as Adeia Inc. (“Adeia”). In connection with the distribution of Xperi Product, Adeia is expected to change its stock symbol to “ ”. The Separation is subject to certain conditions, including, among others, obtaining final approval from Xperi’s board of directors, receipt of one or more opinions with respect to certain U.S. federal income tax matters relating to the Separation and the U.S. Securities and Exchange Commission (the “SEC”) declaring the effectiveness of the registration statement on Form 10 of which the combined financial statements form a part.

Pre-Merger Xperi was determined to be the accounting acquirer in the Mergers. As a result, the historical financial statements of Pre-Merger Xperi for periods prior to the Mergers are considered to be the historical financial statements of Xperi Holding Corporation. As used herein, the “Parent” refers to Xperi Corporation when referring to periods prior to June 1, 2020 and to Xperi Holding Corporation when referring to periods subsequent to June 1, 2020.

Xperi Product has a portfolio of software and services that addresses one of the biggest consumer trends in entertainment today – the massive proliferation of content and the rapidly changing habits for how consumers are finding, watching and enjoying entertainment. We offer consumers a unique and seamless end-to-end entertainment experience, from choice to consumption, in the home, in the car and on-the-go. Additionally, through our technology solutions, we can offer our customers and partners additional ways to monetize that consumption. Lastly, we offer automotive original equipment manufacturers (“OEMs”) in-cabin monitoring solutions that enhance safety within the car. We group our business into four categories based on the products delivered and customers served: Pay-TV, Consumer Electronics, Connected Car, and Platform Solutions.

The Combined Financial Statements were prepared in connection with the Separation and have been derived from the Consolidated Financial Statements and accounting records of Parent as if Xperi Product had operated on a standalone basis during the periods presented and were prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The accounting policies used to derive the Combined Financial Statements amounts are the same as those used by the Parent. As a direct ownership relationship did not exist among all the various legal entities comprising the product business, net Parent company investment in Xperi Product is shown in lieu of stockholders’ equity in the Combined Financial Statements.

The Combined Balance Sheets of the Company include Parent assets and liabilities that are specifically identifiable or otherwise attributable to the Company, including subsidiaries in which Parent has a controlling financial interest. 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 December 31, 2020, the Company owned approximately 81% of Perceive. The operating results of Perceive have been included in the Company’s combined financial statements since the fourth quarter of 2018.

F-8

The Company is dependent on Parent for all of its working capital and financing requirements as Parent uses a centralized approach to cash management and financing its operations. Financial transactions relating to the Company are accounted for through the Net Parent company investment on the Combined Balance Sheets. Accordingly, none of Parent’s cash and cash equivalents have been allocated to the Company for any of the periods presented, unless those balances were directly attributable to the Company. The Company reflects transfers of cash to and from Parent’s cash management system as a component of Net Parent company investment on the Combined Balance Sheets. Parent’s long-term debt has not been attributed to the Company for any of the periods presented because Parent’s borrowings are not the legal obligation of the Company. The Parent has committed to provide support through the earlier of one year from the issuance date of the financial statements or the consummation of the transaction that will provide the Company with a minimum of $75.0 million of cash upon spin-off to be able to fund the ongoing operations of Xperi Product. The cash and cash equivalents, including the Company’s expected capitalization from Xperi Holding Corporation at the distribution date, will generally 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 twelve months.

The Combined Statements of Operations and Comprehensive Loss of the Company reflect allocations of general corporate expenses from Parent including, but not limited to, executive management, sales and marketing, finance, legal, information technology, employee benefits administration, stock-based compensation, treasury, risk management, procurement and other shared services. These allocations were made on a direct usage basis when identifiable, with the remainder allocated on a pro rata basis of billing, revenue, headcount or other measures as determined appropriate. Management of the Company and Parent consider these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to, the Company. The allocations may not, however, reflect the expenses the Company would have incurred as a standalone company for the periods presented. Actual costs that may have been incurred if the Company had been a standalone company would depend on a number of factors, such as the chosen organizational structure, whether functions were outsourced or performed by employees and decisions with respect to areas such as facilities, information technology and operating infrastructure.

Parent maintains various benefit and stock-based compensation plans at a corporate level. The Company’s employees participate in those programs and a portion of the cost of those plans is included in the Company’s Combined Financial Statements. The Company’s Combined Balance Sheets and Combined Statements of Equity do not include any benefit plan obligations or any equity related to stock-based compensation plans. See “Note 12—Stock-Based Compensation Expense” for a description of the accounting for stock-based compensation.

The Company’s fiscal year ends on December 31. The Company employs a calendar month-end reporting period for its quarterly reporting.

Xperi Product qualifies as an “emerging growth company” (“EGC”) as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non emerging growth companies but any such election to opt out is irrevocable. Xperi Product has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, Xperi Product, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

Xperi Product’s historical results are included as a part of the Parent’s financial statements which are filed with the SEC. As a result, Xperi Product tracks the effective dates and adopts all guidance applicable to it consistent

F-9

with the manner that the Parent tracks and adopts all applicable guidance. However, the Company intends to adopt future standards at the appropriate date for emerging growth companies once it is established as a stand-alone company. This may make comparison of its financial statements with another public company, which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period, difficult because of the potential differences in accounting standards used.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These financial statements have been prepared in accordance with U.S. GAAP.

Principles of Combination

The Combined Financial Statements include the Company’s net assets and results of operations as described above. All intercompany transactions and accounts within the combined business of the Company have been eliminated. Intercompany transactions between the Company and Parent are considered to be effectively settled in the Combined Financial Statements at the time the transaction is recorded. The net effect of the settlement of these intercompany transactions is reflected on the Combined Statements of Cash Flows within financing activities and on the Combined Balance Sheets within Net Parent company investment.

Net Parent Company Investment

Net Parent company investment on the Combined Balance Sheets and Combined Statements of Equity represents Parent’s historical investment in the Company, the net effect of transactions with and allocations from Parent, and the Company’s accumulated deficit. See Note – 11 Related Party Transactions and Net Parent Company Investment for further information about transactions between the Company and Parent.

Earnings or loss per share data has not been presented in the accompanying combined financial statements because Xperi Product does not operate as a separate legal entity with its own capital structure.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the combined 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 collectability of accounts receivable, other intangible assets and investments, the assessment of the recoverability of goodwill, 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 purchase accounting resulting from business combinations, among others. Actual results experienced by the Company may differ from management’s estimates.

The results of operations have been adversely affected by the global COVID-19 pandemic and related events and management expects its impact to continue. The impact to date has included periods of significant volatility in various markets and industries. The volatility has had, and we anticipate it will continue to have, an adverse effect on our customers and on our business, financial condition and results of operations, and may result in an impairment of our long-lived assets, including goodwill, increased credit losses and impairments of investments in other companies. In particular, the automotive market, as well as the broad consumer electronics industry, has been and may continue to be impacted by the pandemic and/or other events beyond our control, and further volatility could have an additional negative impact on these industries, customers, and our business. In addition, the COVID-19 pandemic and, to a lesser extent, U.S. restrictions on trade with certain Chinese customers, have impacted and may continue to impact the financial conditions of our customers.

F-10

Revenue Recognition

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. See “Note 4 – Revenue” for a detailed discussion on revenue and revenue recognition.

Segment Reporting

Operating segments are defined as components of an enterprise for which separate financial information is available and that is evaluated on a regular basis by the chief operating decision-maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The CODM reviews financial information presented on a combined basis for purposes of making operating decisions, allocating resources and evaluating financial performance. As such, the Company has determined that it has one operating segment, which is also its reportable segment.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are maintained with various financial institutions.

Marketable Equity Securities

Marketable equity securities are measured at fair value with unrealized gains and losses recognized in other income and expense, net, on the Combined Statements of Operations. The Company held no marketable equity securities as of December 31, 2020.

Non-Marketable Equity Investments

Investments in entities over which the Company has the ability to exercise significant influence, but does not hold a controlling interest, are accounted for using the equity method. Under the equity method, the Company records its proportionate share of income or loss in other income and expense, net, in the Combined Statements of Operations. Investments in entities over which the Company does not have the ability to exercise significant influence and which do not have readily determinable fair values, are initially recognized at cost and remeasured through earnings when there is an observable transaction involving the same or similar investment of the same issuer, or due to an impairment. The fair value of non-marketable equity investments is not estimated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. The Company monitors its non-marketable securities portfolio for potential impairment. When there is evidence that the expected fair value of the investment has declined to below the recorded cost, the impairment loss is recorded in other income and expense, net, in the Combined Statements of Operations.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The carrying amount of cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short-term nature of these instruments. See “Note 7 – Fair Value” for further information.

Concentration of Credit and Other Risks

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash equivalents and accounts receivable. The Company participates in cash management, funding

F-11

arrangements and risk management programs managed by Parent. The Company also maintains cash and cash equivalents with various financial institutions. These financial institutions are located in many different geographic regions, and the Company’s policy is designed to limit exposure from any particular institution. 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. The Company believes that any concentration of credit risk in its accounts receivable is substantially mitigated by the Company’s 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.

At December 31, 2020, the Company had one customer representing 10% of aggregate trade receivables. At December 31, 2019, the Company had three customers representing 17%, 14% and 11% of aggregate trade receivables, respectively.

The following table sets forth revenue generated from customers which comprise 10% or more of total revenue for the periods indicated:


	Years Ended December 31,
	2020		2019
Sony Corporation		*		12	%
Panasonic Corporation		*		10	%

*	denotes less than 10% of total revenue.

The Company’s TiVo service is enabled using a DVR manufactured by a third party. The Company also relies on third parties with whom it outsources supply-chain activities related to inventory warehousing, order fulfillment, distribution and other direct sales logistics. The Company cannot be sure that these parties will perform their obligations as expected or that any revenue, cost savings or other benefits will be derived from the efforts of these parties. If any of these parties breaches or terminates their agreement with the Company or otherwise fails to perform their obligations in a timely manner, the Company may be delayed or prevented from commercializing its products and services.

Accounts Receivable

The timing of revenue recognition may differ from the timing of invoicing to customers. The Company records a receivable when revenue is recognized prior to cash collection.

Payment terms and conditions vary by contract type, location of customer and the products or services offered, although terms generally require payment from a customer within 30 to 60 days. When the timing of revenue recognition differs from the timing of cash collection, an evaluation is performed to determine whether the contract includes a significant financing component.

Allowance for Credit Losses

The allowance for credit losses, which includes the allowance for accounts receivable and unbilled contracts receivable, represents the Company’s best estimate of lifetime expected credit losses inherent in those financial assets. The Company’s lifetime expected credit losses are determined using relevant information about past events (including historical experience), current conditions, and reasonable and supportable forecasts that affect collectability. The Company monitors its credit exposure through ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary. In addition, the Company performs routine credit management activities such as timely account reconciliations, dispute resolution, and payment confirmations. The Company may employ collection agencies and legal counsel to pursue recovery of defaulted receivables. See “Note 4 – Revenue” for a further discussion of the allowance for credit losses.

F-12

Inventory

Inventories consist primarily of finished DVRs, non-DVRs, including TiVo Stream 4K, and accessories and are stated at the lower of cost or net realizable value on an aggregate basis. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. Adjustments to reduce the carrying amount of inventory to the lower of cost or net realizable value are made, if required, for inventory with selling prices below cost and for excess or obsolete goods, which includes a review of, among other factors, demand requirements and market conditions.

Business Combinations

The Company accounts for business combinations using the acquisition method of accounting in accordance with ASC 805, “Business Combinations.” Identifiable assets acquired and liabilities assumed are recorded at their acquisition date fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition related costs are expensed as incurred. Upon acquisition, the accounts and results of operations are consolidated as of and subsequent to the acquisition date.

When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. The Company utilizes commonly accepted valuation techniques, such as the income approach and the cost approach, as appropriate, in establishing the fair value of intangible assets. Typically, key assumptions include projections of cash flows that arise from identifiable intangible assets of acquired businesses as well as discount rates based on an analysis of the weighted average cost of capital, adjusted for specific risks associated with the assets. See “Note 9 – Business Combination” for additional detail.

Goodwill and Identified Intangible Assets

Goodwill. Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and identified intangible assets acquired under a business combination. Goodwill also includes acquired assembled workforce, which does not qualify as an identifiable intangible asset. The Company reviews impairment of goodwill annually in the fourth quarter, or more frequently if events or circumstances indicate that the goodwill might be impaired. The Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If, after assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative goodwill impairment test is unnecessary.

If, based on the qualitative assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company proceeds to perform the quantitative goodwill impairment test. The Company first determines the fair value of a reporting unit using weighted results derived from an income approach and a market approach. The fair value using an income approach is estimated through the discounted cash flow method based on assumptions about future conditions such as revenue growth rates, operating expenses, EBITDA, discount rates, and other assumptions. Market approaches used by management include the market comparable method, which estimates the fair value based on revenue multiples from comparable companies in similar lines of business, and the market transaction method, which estimates the fair value of the reporting unit by utilizing comparable transactions and transaction multiples. The Company then compares the derived fair value of a reporting unit with its carrying amount. If the carrying value of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

Identified intangible assets. Identified finite-lived intangible assets consist of acquired patents, existing technology, customer relationships, trademarks and trade names, non-compete agreements resulting from

F-13

business combinations, and acquired patents under asset purchase agreements. The Company’s identified intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from 1 to 15 years. The Company makes judgments about the recoverability of finite-lived intangible assets whenever facts and circumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, the Company assesses recoverability by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than originally estimated, the Company would accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life.

Identified indefinite-lived intangible assets include TiVo tradenames and trademarks resulting from business combinations. The Company evaluates the carrying value of indefinite-lived intangible assets on an annual basis, and an impairment charge would be recognized to the extent that the carrying amount of such assets exceeds their estimated fair value.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, accrued liabilities, and noncurrent operating lease liabilities in the Company’s combined balance sheets. The ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. As a practical expedient, the Company elected, for all office and facility leases, not to separate non-lease components from lease components and instead to account for each separate lease component and its associated non-lease components as a single lease component. Refer to Note 3 – Recent Accounting Pronouncements for a detailed description of the Company’s adoption of ASU No. 2016-02, ”Leases” (Topic 842).

Warranty

The Company accrues for the expected material and labor costs required to provide warranty services on its products. The Company’s warranty accrual is estimated based on the total volume of units sold, the term of the warranty period, expected failure rates and the estimated cost to replace or repair the defective unit.

Research and Development

Research and development is comprised primarily of employee-related costs, stock-based compensation expense, engineering consulting expenses associated with new product and technology development, product commercialization, quality assurance and testing costs, as well as costs related to information technology, patent applications and examinations, materials, supplies, equipment depreciation and an allocation of facilities costs. All research and development is expensed as incurred.

Stock-based Compensation Expense

The Company’s employees have historically participated in Parent’s stock-based compensation programs. Stock-based compensation expense has been attributed to the Company based on the awards and terms previously granted to the Company’s direct employees, as well as an allocation of Parent’s corporate and shared functional employee expenses.

F-14

Stock-based compensation costs are estimated based on the grant date fair value of the award. Stock-based compensation cost is only recognized for those awards for which the requisite service is expected to be rendered on a straight-line basis over the requisite service period of the award. Stock-based compensation is estimated based on the aggregate grant for service-based awards and at the individual vesting tranche for awards with performance and/or market conditions. Forfeiture estimates are based on Parent’s historical experience. Forfeiture estimates are revised during the requisite service period and the effect of changes in the number of awards expected to vest during the requisite service period is recorded as a cumulative adjustment in the period estimates are revised.

Income Taxes

The Company’s operations have historically been included in the tax returns filed by the respective Parent entities of which the Company’s businesses are a part. Income tax expense and other income tax-related information contained in these Combined Financial Statements are presented on a separate return basis as if the Company filed its own tax returns. The separate return method applies the accounting guidance for income taxes to the Company’s standalone financial statements as if it were a separate taxpayer and a standalone enterprise for the periods presented. Current income tax liabilities related to entities which file jointly with Parent are assumed to be immediately settled with Parent and are relieved through the Net Parent company investment and are presented in Net transfers from and to Parent in the Combined Statements of Cash Flows.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of assets and liabilities and their respective tax bases and operating loss and tax carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates applicable to the years in which those temporary differences are expected to reverse. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized.

From time to time, the Company engages in transactions in which the tax consequences may be subject to uncertainty. Significant judgment is required in assessing and estimating the tax consequences of these transactions. Accruals for unrecognized tax benefit liabilities, which represent the difference between a tax position taken or expected to be taken in a tax return and the benefit recognized for financial reporting purposes, are recorded when the Company believes it is not more-likely-than-not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Adjustments to unrecognized tax benefits are recognized when facts and circumstances change, such as the closing of a tax audit, notice of an assessment by a taxing authority or the refinement of an estimate. Income tax benefit includes the effects of adjustments to unrecognized tax benefits, as well as any related interest and penalties.

Advertising Costs

Advertising costs are expensed as incurred and are presented within selling, general and administrative expense in the Combined Statements of Operations. Advertising expenses for the years ended December 31, 2020 and 2019, were $11.3 million and $4.9 million, respectively.

Indemnification

The Company provides indemnification of varying scope to certain customers against claims of intellectual property infringement made by third parties arising from the use of the Company’s technologies. In accordance with authoritative guidance for accounting for guarantees, the Company evaluates estimated losses for such indemnification. The Company considers such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. To date, no such claims have been filed against the Company and no liability has been recorded in the Company’s combined financial statements.

F-15

capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company believes, given the absence of any such payments in the Company’s history, and the estimated low probability of such payments in the future, that the estimated fair value of these indemnification agreements is immaterial. In addition, Parent has and the Company anticipates having at the time of separation, directors’ and officers’ liability insurance coverage that is intended to reduce its financial exposure and may enable Parent and the Company to recover any payments, should they occur.

Contingencies

From time to time, the Company may be involved in legal and administrative proceedings and claims of various types. The Company records a liability in its combined financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. Management reviews these estimates in each accounting period as additional information becomes known and adjusts the loss provision when appropriate. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in the combined financial statements. If a loss is probable but the amount of loss cannot be reasonably estimated, the Company discloses the loss contingency and an estimate of possible loss or range of loss (unless such an estimate cannot be made). The Company does not recognize gain contingencies until they are realized. Legal costs incurred in connection with loss contingencies are expensed as incurred.

Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the related assets’ estimated useful lives:


		Equipment, furniture and other		1 to 5 years
		Leasehold improvements		Lesser of related lease term or 5 years
		Building and improvements		Up to 30 years

Expenditures that materially increase asset life are capitalized, while ordinary maintenance and repairs are expensed as incurred.

Software Development Costs

Costs are capitalized to acquire or develop software subsequent to establishing technological feasibility for the software, which is generally on completion of a working prototype that has been certified as having no critical bugs and is a release candidate or when an alternative future use exists. Capitalized software development costs are amortized on a straight-line basis over their estimated useful lives, ranging from 1 to 5 years.

Foreign Currency Translation

The Company predominantly uses the U.S dollar as its functional currency. Certain non-U.S. subsidiaries designate a local currency as their functional currency. The translation of assets and liabilities into U.S. dollars for subsidiaries with a functional currency other than the U.S. dollar is performed using exchange rates in effect at the balance sheet date. The translation of revenue and expenses into U.S. dollars for subsidiaries with a functional currency other than the U.S. dollar is performed using the average exchange rate for the respective period. Gains or losses from cumulative translation adjustments, net of tax, are included as a component of accumulated other comprehensive income (loss) in the Combined Balance Sheets. The Company records net foreign exchange transaction gains and losses resulting from the conversion of the transaction currency to the functional currency within other income and expense, net.

F-16

NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842), which generally requires companies to recognize operating and financing lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. On January 1, 2019, the Company adopted the new standard using the modified retrospective transition approach and elected the transition option, under which the Company initially applied the transition requirements to all leases that existed at December 31, 2018, with no impact to Net Parent company investment.

The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed it to carry forward the historical lease classification. Under the optional transition method, the Company opted to continue to apply the legacy guidance in ASC 840, Leases, including its disclosure requirements, in the comparative periods presented in the year it adopted the new leases standard, and therefore did not restate prior period results.

One of the most significant impacts from adopting Topic 842 was the initial recognition of operating lease ROU assets and operating lease liabilities of $7.5 million and $8.0 million, respectively, as of January 1, 2019. Operating lease liabilities consist of both current and noncurrent portions with the current portion included in the balance of accrued liabilities. The standard did not materially impact the Company’s Combined Statements of Operations and had no impact on cash flows. Through the Mergers, Parent acquired ROU assets of $71.4 million and operating lease liabilities of $72.8 million, representing TiVo Product’s operating leases. For additional detail, refer to “Note 9 – Business Combination.”

In September 2016, the FASB issued ASU No. 2016-13, ”Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. The current expected credit loss model is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect collectability. Current expected credit losses, and subsequent adjustments, represent an estimate of lifetime expected credit losses that are recorded as an allowance deducted from the amortized cost of the financial instrument. On January 1, 2020, the Company adopted the new standard using a modified retrospective transition approach for the provisions related to application of the current expected credit loss model to financial instruments. The adoption of this standard did not have a material impact on the Company’s combined financial statements. For additional detail, refer to “Note 4 – Revenue.”

In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”) modifying the requirements for capitalizing costs incurred to implement a hosting arrangement that is a service contract. The modified requirements were intended to align the cost capitalization requirements for hosting arrangements with the cost capitalization requirements for internal-use software. The Company adopted the standard on January 1, 2020 and applied the modified requirements prospectively to all implementation costs incurred after the date of adoption. The adoption did not have a material impact on the Company’s combined financial statements

Recent Accounting Pronouncements

In December 2019, the FASB released ASU 2019-12, “Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). The purpose of the update is to reduce the complexity pertaining to certain areas in accounting for income taxes. Key amendments from ASU 2019-12 include, but are not limited to, the accounting for hybrid tax regimes, step-up in tax basis for goodwill in non-business combination transactions, intraperiod tax allocation

F-17

exception to the incremental approach, and interim period accounting for enacted changes in tax law. ASU 2019-12 is effective for the Company in the first quarter of the year ending December 31, 2021. The Company does not expect that the adoption of the standard will have a material impact on its combined financial statements.

NOTE 4 – 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 stand-alone selling price basis. The determination of stand-alone selling price considers market conditions, the size and scope of the contract, customer and geographic information, and other factors. When observable prices are not available, stand-alone selling price for separate performance obligations is based on the cost-plus-margin approach, considering overall pricing objectives.

When variable consideration is in the form of a sales-based or usage-based royalty in exchange for a license of technology or when a license of technology is the predominant item to which the variable consideration relates, revenue is recognized at the later of when the subsequent sale or usage occurs or the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied or partially satisfied.

Description of Revenue-Generating Activities

The Company derives the majority of its revenue from licensing its technology to customers. These arrangements are summarized below based on how the technology is delivered to customers: License arrangements and Technology Solutions arrangements. For License arrangements, the customer obtains rights to the technology delivered at the commencement of the agreement. For Technology Solutions arrangements, the customer receives access to a platform, media or data that includes frequent updates, where access to such updates is critical to the functionality of the technology. The timing of when performance obligations are satisfied, as well as the fee arrangements underlying each agreement, determine when revenue is recognized.

License Arrangements

The Company licenses its audio, digital radio and imaging technology to consumer electronics (“CE”) manufacturers, automotive manufacturers or their supply chain partners.

The Company generally recognizes royalty revenue from licenses based on units shipped or manufactured. Revenue is recognized in the period in which the customer’s sales or production are estimated to have occurred. This may result in an adjustment to revenue when actual sales or production are subsequently reported by the customer, generally in the month or quarter following sales or production. Estimating customers’ quarterly royalties prior to receiving the royalty reports requires the Company to make significant assumptions and judgments related to forecasted trends and growth rates used to estimate quantities shipped or manufactured by customers, which could have a material impact on the amount of revenue it reports on a quarterly basis.

F-18

Certain customers enter into fixed fee or minimum guarantee agreements, whereby customers pay a fixed fee for the right to incorporate the Company’s technology in the customer’s products over the license term. In arrangements with a minimum guarantee, the fixed fee component corresponds to a minimum number of units or dollars that the customer must produce or pay, with additional per-unit fees for any units or dollars exceeding the minimum. The Company generally recognizes the full fixed fee as revenue at the beginning of the license term when the customer has the right to use the technology and begins to benefit from the license, net of the effect of any significant financing components calculated using customer-specific, risk-adjusted lending rates, with the related interest income being recognized over time on an effective rate basis. For minimum guarantee agreements where the customer exceeds the minimum, the Company recognizes revenue relating to any additional per-unit fees in the periods it believes the customer will exceed the minimum and adjusts the revenue based on actual usage once that is reported by the customer.

Technology Solutions Arrangements

For Technology Solutions, the Company provides on-going media or data delivery, hosting and access to its platform, and software updates. For these solutions, the Company generally receives fees on a per-subscriber per-month basis or as a fixed fee, and revenue is recognized during the month in which the solutions are provided to the customer. For most of the Technology Solutions offerings, substantially all functionality is obtained through the Company’s continuous hosting and/or updating of the data and content. In these instances, the Company typically has a single performance obligation related to these ongoing activities in the underlying arrangement. For those arrangements that include multiple performance obligations, the Company allocates the consideration as described above and recognizes revenue for each distinct performance obligation when control of the promised goods or services is transferred to the customer.

The Company also generates revenue from non-recurring engineering (“NRE”) services, advertising, and hardware products, each of which was less than 5% of total revenue for all periods presented.

Practical Expedients and Exemptions

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

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

The Company applies a practical expedient when disclosing revenue expected to be recognized from unsatisfied performance obligations to exclude contracts with customers with an original duration of one year or less; amounts attributable to variable consideration arising from (i) a sales-based or usage-based royalty of a technology license or (ii) when variable consideration is allocated entirely to a wholly unsatisfied performance obligation; or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation.

Revenue Details

The following information depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors by disaggregating revenue by product category/end market and geographic location. This information includes revenue recognized from contracts with customers and revenue from other sources, including past royalty revenues.

F-19

Revenue disaggregated by business model was as follows (in thousands):


	Years Ended December 31,
	2020		2019
Licensing	$	182,188	$	198,124
Technology Solutions		193,913		—

Total revenue	$	376,101	$	198,124

Revenue disaggregated by product category/end market was as follows (in thousands):


	Years Ended December 31,
	2020		2019
Pay-TV		164,865		—
Consumer Electronics	$	111,726	$	116,130
Connected Car		79,021		81,994
Platform Solutions		20,489		—

Total revenue	$	376,101	$	198,124

A significant portion of the Company’s revenue is derived from licensees headquartered outside of the U.S., principally in Asia, and it is expected that this revenue will continue to account for a significant portion of total revenue in future periods. The following table presents the Company’s revenue disaggregated by geographic area (in thousands):


	Years Ended December 31,
	2020				2019
U.S.	$	182,492	49	%	$	43,498	22	%
Japan		60,349	16			81,169	41
Europe and Middle East		36,352	10			19,638	10
Korea		32,101	8			28,514	14
Other		64,807	17			25,305	13

Total revenue	$	376,101	100	%	$	198,124	100	%

F-20

Contract Balances

Contracts Assets

Contract assets primarily consist of unbilled contracts receivable that are expected to be received from customers in future periods, where the revenue recognized to date exceeds the amount billed. The amount of unbilled contracts receivable may not exceed their net realizable value and are classified as long-term assets if the payments are expected to be received more than one year from the reporting date. Contract assets also include the incremental costs of obtaining a contract with a customer, principally sales commissions when the renewal commission is not commensurate with the initial commission, and deferred engineering costs for significant software customization or modification and set-up services to the extent deemed recoverable. Contract assets were recorded in the Combined Balance Sheets as follows (in thousands):


	December 31, 2020		December 31, 2019
Unbilled contracts receivable	$	63,851	$	54,378
Other current assets		860		—
Long-term unbilled contracts receivable		6,411		4,588
Other long-term assets		1,244		—

Total contract assets	$	72,366	$	58,966

Contract Liabilities

Contract liabilities are mainly comprised of deferred revenue related to consumer lifetime subscriptions for the TiVo service, multi-period licensing or cloud-based services, and other offerings for which the Company is paid in advance while the promised good or service is transferred to the customer at a future date or over time. Deferred revenue also includes amounts received related to professional services to be performed in the future. Deferred revenue arises when cash payments are received, including amounts which are refundable, in advance of performance obligations being completed.

Allowance for Credit Losses

The following table presents the activity in the allowance for credit losses for the years ended December 31, 2020 and 2019 (in thousands):


	Years Ended December 31,
	2020					2019
	Accounts Receivable			Unbilled Contracts Receivable		Accounts Receivable			Unbilled Contracts Receivable
Beginning balance	$	566			—	$	779		$	—
Provision for credit losses		6,406			1,414		(74	)		—
Recoveries/charged-off		(518	)		—		(139	)		—

Balance at end of period	$	6,454		$	1,414	$	566		$	—

F-21

The increase in provision for credit losses was based on assessment of current conditions including the COVID-19 pandemic and anticipation of delayed or delinquent payments on existing accounts receivable as a result of the declining financial health and liquidity positions of certain of the Company’s customers, as well as U.S. restrictions on trade with certain Chinese customers, and certain late payments and collection-related issues.

Additional Disclosures

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


	Years Ended December 31,
	2020		2019
Revenue recognized in the period from:
Amounts included in deferred revenue at the beginning of the period	$	720	$	630
Amounts included in deferred revenue acquired from the Mergers	$	19,367	$	—
Performance obligations satisfied in previous periods (true ups and licensee reporting adjustments)^*	$	13,138	$	3,267

*True ups represent the differences between the Company’s quarterly estimates of per unit royalty revenue and actual production/sales-based royalties reported by licensees in the following period. Licensee reporting adjustments represent corrections or revisions to previously reported per unit royalties by licensees, generally resulting from the Company’s inquiries or compliance audits.

Remaining revenue under contracts with performance obligations represents the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) under the Company’s fixed-fee TiVo service license, software-as-a-service agreements and engineering services contracts. The Company’s remaining revenue under contracts with performance obligations was as follows (in thousands):


	December 31,
	2020		2019
Revenue from contracts with performance obligations expected to be satisfied in:
2021	$	36,139	$	5,337
2022		18,624		990
2023		10,446		345
2024		4,227		—
2025		2,908		—
Thereafter		430		—

Total	$	72,774	$	6,672

NOTE 5 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

Other current assets consisted of the following (in thousands):


	December 31,
	2020		2019
Prepaid expenses	$	17,561	$	5,696
Inventory		9,819		79
Other		4,329		2,446

Total	$	31,709	$	8,221

F-22

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


	December 31,
	2020			2019
Equipment, furniture and other	$	45,440		$	16,568
Building and improvements		18,309			18,258
Land		5,300			5,300
Leasehold improvements		22,305			4,645

		91,354			44,771
Less: Accumulated depreciation and amortization		(31,069	)		(15,452	)

Total	$	60,285		$	29,319

Property and equipment, net by geographic area was as follows (in thousands):


	December 31,
	2020		2019
U.S.	$	51,902	$	24,715
Europe		4,842		4,391
Asia and other		3,541		213

Total	$	60,285	$	29,319

Other long-term assets consisted of the following (in thousands):


	December 31,
	2020		2019
Long-term deferred tax assets	$	6,749	$	3,524
Other assets		16,236		2,698

Total	$	22,985	$	6,222

Accrued liabilities consisted of the following (in thousands):


	December 31,
	2020		2019
Employee compensation and benefits	$	42,764	$	13,547
Third-party royalties		5,906		6,915
Accrued expenses		22,258		2,630
Accrued severance		4,205		—
Current portion of operating lease liabilities		16,129		4,002
Other		16,239		3,332

Total	$	107,501	$	30,426

Other long-term liabilities consisted of the following (in thousands):


	December 31,
	2020		2019
Long-term income tax payable	$	1,098	$	804
Other		3,467		131

Total	$	4,565	$	935

F-23

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


	Years Ended December 31,
	2020		2019
Foreign currency translation adjustment, net of tax	$	1,311	$	—

Total	$	1,311	$	—

Other income and expense, net, consisted of the following (in thousands):


	Years Ended December 31,
	2020		2019
Interest income from significant financing components under Topic 606	$	1,453	$	1,604
Other income (expense), net		82		(592	)

Total	$	1,535	$	1,012

NOTE 6 – FINANCIAL INSTRUMENTS

Equity Securities

On September 19, 2018, the Company purchased seven million common shares of Onkyo Corporation (“Onkyo”), a publicly traded Japanese company and a long-standing customer of the Company, pursuant to the Capital Alliance Agreement entered into between the two parties in 2018. Upon making the investment, the Company held a 6.3% ownership interest in Onkyo. Due to changes in business expectations, the Company discontinued discussions on the business alliance. In July 2019, the Company sold approximately 2.8 million shares of Onkyo stock, for which a realized gain of $0.9 million was recognized for the year ended December 31, 2019. In June 2020, the Company sold the remaining 4.2 million shares of Onkyo stock, for which a realized loss of $0.7 million was recognized for the year ended December 31, 2020.

Non-marketable Equity Securities

Upon merging with the product-related business of TiVo (“TiVo Product”) (see “Note 9 – Business Combination”) on June 1, 2020, the Company assumed certain investments in non-marketable equity securities. As of December 31, 2020, other long-term assets included equity securities accounted for under the equity method with a carrying amount of $4.2 million and equity securities without a readily determinable fair value with a carrying amount of $0.1 million, respectively. No impairments or adjustments to the carrying amount of the Company’s equity securities without a readily determinable fair value were recognized in the year ended December 31, 2020. The Company had no investments in non-marketable equity securities as of December 31, 2019.

NOTE 7 – FAIR VALUE

The Company follows the authoritative guidance for fair value measurement and the fair value option for financial assets and financial liabilities. The Company carries its financial instruments at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:


Level 1		Quoted prices in active markets for identical assets.

Level 2		Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

F-24

When applying fair value principles in the valuation of assets, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company calculates the fair value of its Level 1 instruments based on the exchange traded price of similar or identical instruments, where available, or based on other observable inputs.

There were no marketable securities required to be measured at fair value on a recurring basis as of December 31, 2020.

The following sets forth the fair value, and classification within the hierarchy, of the Company’s assets required to be measured at fair value on a recurring basis as of December 31, 2019 (in thousands):


	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Marketable securities
Marketable equity securities ⁽¹⁾	$	1,123	$	1,123	$	—	$	—

Total Assets	$	1,123	$	1,123	$	—	$	—

(1)	Reported as short-term investments in the Combined Balance Sheet.

Non-Recurring Fair Value Measurements

For purchase accounting related fair value measurements, see “Note 9 – Business Combination.”

NOTE 8 – LEASES

Under Topic 842, a contract is a lease, or contains a lease, if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. To determine whether a contract conveys the right to control the use of an identified asset for a period of time, an entity shall assess whether, throughout the period of use, the entity has both of the following: (a) the right to obtain substantially all of the economic benefits from use of the identified asset; and (b) the right to direct the use of the identified asset.

The Company leases office and research facilities, data centers and office equipment under operating leases which expire through 2029. The Company’s leases have remaining lease terms of one year to nine years, some of which may include options to extend the leases for five years or longer, and some of which may include options to terminate the leases within the next 6 years or less. Leases with an initial term of 12 months or less are not recorded on the balance sheets; expense for these leases is recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred and are not included within the lease liability and right-of-use assets calculation. As a practical expedient, the Company elected, for all office and facility leases, not to separate nonlease components (e.g., common-area maintenance costs) from lease components (e.g., fixed payments including rent) and instead to account for each separate lease component and its associated non-lease components as a single lease component. As most of the leases do not provide an implicit rate, the Company generally, for purposes of discounting lease payments, uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date.

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.

F-25

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


	Years Ended December 31,
	2020			2019
Fixed lease cost ⁽¹⁾	$	14,296		$	4,763
Variable lease cost		2,918			560
Less: sublease income		(5,423	)		—

Total operating lease cost	$	11,791		$	5,323

(1)	Includes short-term leases costs, which were immaterial.

Other information related to leases was as follows (in thousands, except lease term and discount rate):


	Years Ended December 31,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	14,514	$	4,139

ROU assets obtained in exchange for new lease liabilities:
Operating leases	$	5,684	$	5,136


	December 31, 2020			December 31, 2019
Weighted-average remaining lease term (years):
Operating leases		5.20			3.40

Weighted-average discount rate:
Operating leases		5.1	%		5.3	%

Future minimum lease payments and related lease liabilities as of December 31, 2020 were as follows (in thousands):


	Operating Lease Payments (1)			Sublease Income			Net Operating Lease Payments
2021	$	19,607		$	(6,257	)	$	13,350
2022		16,551			(6,117	)		10,434
2023		14,851			(6,231	)		8,620
2024		13,736			(6,293	)		7,443
2025		12,942			(6,279	)		6,663
Thereafter		8,966			(935	)		8,031

Total lease payments		86,653			(32,112	)		54,541

Less: imputed interest		(10,914	)		—			(10,914	)

Present value of lease liabilities:	$	75,739		$	(32,112	)	$	43,627

Less: current obligations under leases (accrued liabilities)		16,129

Noncurrent operating lease liabilities	$	59,610

(1)	Future minimum lease payments exclude short-term leases as well as payments to landlords for variable common area maintenance, insurance and real estate taxes.

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As of December 31, 2019, future minimum lease payments were as follows (in thousands):


	Operating Leases
2020	$	4,138
2021		2,546
2022		1,390
2023		1,310
2024		637
Thereafter		283

Total lease payments		10,304

Less: imputed interest ⁽¹⁾		(948	)

Present value of lease liabilities	$	9,356


Less: current obligations under leases (accrued liabilities)		4,002

Noncurrent operating lease liabilities	$	5,354

NOTE 9 – BUSINESS COMBINATION

Pursuant to the Merger Agreement dated as of December 18, 2019 and immediately following the consummation of the Mergers on June 1, 2020, (the “Merger Date”), Xperi Holding Corporation became the parent company of both Pre-Merger Xperi and Pre-Merger TiVo. Xperi Product’s Combined Financial Statements include the product-related business of TiVo as if Xperi Product acquired the TiVo product-related business (“TiVo Product”), which was funded through a transfer from Parent. The Combined Financial Statements have been prepared using the acquisition method of accounting under U.S. GAAP with Xperi Product treated as the acquirer of the assets and liabilities of TiVo Product for accounting purposes.

The Mergers created a leading consumer and entertainment technology company which offers a seamless end-to-end entertainment experience from creation to consumption; with greater scale, technology depth and breadth, and a platform relevant to one of the biggest challenges consumers of entertainment face today – how to quickly and easily find, watch and enjoy entertainment.

Assumed TiVo Equity Awards

In connection with the Mergers, the Company assumed unvested TiVo equity incentive awards with a fair value of $19.2 million, of which $5.0 million related to pre-acquisition services and was included in the purchase price, and $14.2 million related to post-acquisition services. The Company valued the restricted stock units at the Company’s closing stock price and stock options using a Black-Scholes pricing model as of the date of acquisition. The fair value relating to post-acquisition services was expected to be amortized as stock-based compensation expense over an estimated weighted average remaining service period of 2.5 years after the Mergers.

Purchase Price Allocation

Under the acquisition method of accounting, the purchase consideration delivered by Xperi Product was allocated to the assets acquired and liabilities assumed, based on their fair value at the Merger Date. Xperi Product has made significant estimates and assumptions in determining the fair value of the assets acquired and liabilities assumed based on discussions with Pre-Merger TiVo’s management and Xperi Product’s informed insights into the industries in which Xperi Product competes.

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The following table summarizes the purchase price allocation for the product-related assets and liabilities of Pre-Merger TiVo, including measurement period adjustments recognized subsequent to the initial purchase price allocation through December 31, 2020 ($ in thousands):


	Estimated Useful Life (years)			Fair Value as of June 1, 2020
Cash and cash equivalents				$	33,143
Accounts receivable					62,130
Other current assets					16,823
Property and equipment					41,306
Operating lease right-of-use assets					71,444
Identifiable intangible assets:
Customer contracts and related relationships		4-9	203,900
Developed technology		5	34,800
Content database		9	6,200
Trademarks and tradenames		N/A	21,400

Total identifiable intangible assets					266,300
Goodwill					154,553
Other long-term assets					11,926
Accounts payable & accrued liabilities					(71,408	)
Current portion of deferred revenue					(27,679	)
Deferred revenue, less current portion					(23,548	)
Long-term deferred tax liabilities					(19,611	)
Noncurrent operating lease liabilities					(59,291	)
Other long-term liabilities					(3,320	)

Total purchase price				$	452,768

Identifiable Intangible Assets

Identifiable intangible assets primarily consist of customer relationships, developed technology, trademarks and tradenames, and content database. In determining the fair value, the Company utilized various forms of the income, cost and market approaches depending on the asset or liability being fair valued. The estimation of fair value required significant judgment related to cash flow forecasts, discount rates reflecting the risk inherent in each cash flow stream, competitive trends, market comparables and other factors. Inputs were generally determined using historical data supplemented by current and anticipated market conditions, and growth rates. Customer contracts and relationships relating to the product business were valued using an excess earnings method. Significant assumptions used in the discounted cash flow analysis for other customer contracts and relationships were the revenue growth rate, EBITDA margins, and the discount rate. Trademark and tradename, developed technology, and content database intangible assets were valued using a relief-from-royalty method. The significant assumptions used in the discounted cash flow analysis for (i) trademarks and tradenames were the royalty rates, revenue growth rates, and discount rate, and (ii) developed technology and content database were the royalty rates.

Goodwill

The excess of the consideration transferred over the fair value of assets acquired and liabilities assumed was recognized as goodwill. The goodwill is generated from operational synergies and cost savings the Company expects to achieve from the combined operations, as well as the expected benefits from future technologies that do not meet the definition of an identifiable intangible asset and TiVo Product’s knowledgeable and experienced

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workforce. Of the total goodwill acquired, $16.1 million is expected to be deductible for tax purposes; the remainder of the goodwill is not expected to be deductible for tax purposes.

TiVo Product Results of Operations

TiVo Product’s results of operations and cash flows have been included in the Company’s consolidated financial statements for periods subsequent to June 1, 2020, and TiVo’s product-related or product business assets and liabilities were recorded at their estimated fair values in the Company’s Combined Balance Sheets as of June 1, 2020. For the year ended December 31, 2020, TiVo Product contributed $193.9 million of revenue and $224.0 million of operating expenses to the operating results of the Company.

Transaction and Severance Costs

In connection with the Mergers, Parent incurred, during the year ended December 31, 2020, significant one-time expenses such as transaction related costs (e.g. bankers fees, legal fees, consultant fees, etc.), lease impairment charges due to facilities consolidation, severance and retention costs (including stock-based compensation expense resulting from the contractually-required acceleration of equity instruments for departing executives). Total transaction related costs and lease impairment charges were $8.9 million and $2.4 million for Xperi Product, respectively, in 2020. In addition, post-merger severance and retention costs (including related stock-based compensation expense) amounted to $10.6 million in 2020. Parent may incur additional expenses for integration, severance and retention, and the impairment of right-of-use assets due to facilities consolidation in future periods.

Supplemental Pro Forma Information

The following unaudited pro forma financial information assumes the companies were combined as of January 1, 2019. The unaudited pro forma financial information as presented below is for informational purposes only and is based on estimates and assumptions that have been made solely for purposes of developing such pro forma information. This is not necessarily indicative of the results of operations that would have been achieved if the Mergers had taken place on January 1, 2019, nor is it necessarily indicative of future results. Consequently, actual results could differ materially from the unaudited pro forma financial information presented below. The following table presents the pro forma operating results as if Pre-Merger TiVo’s product business had been included in the Company’s Combined Statements of Operations as of January 1, 2019 (unaudited, in thousands):


	Years Ended December 31,
	2020			2019
Revenue	$	512,580		$	546,243
Net loss attributable to Xperi Product	$	(253,193	)	$	(250,462	)

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The unaudited supplemental pro forma information above includes the estimated impact of purchase accounting and other material, nonrecurring adjustments directly attributable to the Mergers. These pro forma adjustments primarily include the following (in thousands):


	Years Ended December 31,
	2020			2019
Estimated decrease to earnings due to revenue adjustments resulting from purchase accounting	$	(1,010	)	$	(2,862	)
Estimated increase (decrease) to earnings to adjust for transaction and other related costs, including facilities impairment charges, incurred in connection with the Mergers	$	7,010		$	(4,924	)
Estimated increase (decrease) to earnings to adjust for severance and retention costs, including related stock-based compensation expense, incurred in connection with the Mergers	$	12,275		$	(13,467	)
Estimated increase to earnings to reflect changes in amortization expense due to acquired intangible assets	$	5,166		$	11,703
Estimated decrease to earnings due to pro forma adjustments for income taxes	$	(18,767	)	$	647

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

NOTE 10 – GOODWILL AND IDENTIFIED INTANGIBLE ASSETS

The changes to the carrying value of goodwill from January 1, 2019 through December 31, 2020 are reflected below (in thousands):


December 31, 2018	$	377,900

December 31, 2019	$	377,900
Goodwill acquired through the TiVo acquisition		154,553

December 31, 2020	$	532,453

Goodwill at each reporting unit is evaluated for potential impairment annually, as of the beginning of the fourth quarter, and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable. The process of evaluating goodwill for potential impairment is subjective and requires significant estimates, assumptions and judgments particularly related to the identification of reporting units, the assignment of assets and liabilities to reporting units and estimating the fair value of each reporting unit. The Company concluded it operated in one reporting unit for all periods presented.

During the first quarter of 2020, the COVID-19 pandemic rapidly spread globally and has created unprecedented disruptions in economic activity and financial markets. Due to resulting changes in macroeconomic conditions, industry outlook, and a meaningful decline in Parent’s share price, indicators of potential goodwill impairment were identified. The Company proceeded with a quantitative interim goodwill impairment test as of March 31, 2020. Based on the quantitative assessment, the Company concluded that the fair value of its business exceeded its carrying value. As a result, no goodwill impairment charges were recognized in the three months ended March 31, 2020.

During the fourth quarter of 2020, the COVID-19 pandemic continued to have a significant and negative impact on business and economic activities in the U.S. and around the world. The resulting global economic downturn

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had negatively impacted, and was expected to continue to negatively impact, the Company’s combined financial results for the remainder of 2020 and into 2021. Due to continued reduction in demand in certain markets and industries, including the automotive market, as well as declines in Parent’s share price, management concluded there were indicators of potential goodwill impairment. The Company proceeded with a quantitative annual goodwill impairment test using the financial information as of September 30, 2020. Based on the quantitative assessment, the Company concluded that the fair value of its business exceeded its carrying value. As a result, no goodwill impairment charges were recognized in the three months ended December 31, 2020. In addition, there have been no significant events or circumstances affecting the valuation of goodwill subsequent to the impairment testing performed in the fourth quarter of the year ended December 31, 2020. In 2019, the Company assessed goodwill impairment by performing a qualitative assessment. No impairment of goodwill was indicated as the Company concluded that it was more likely than not that the fair value of the product business exceeded its carrying value.

Prior to completing the quantitative goodwill impairment test, the Company tested the recoverability of indefinite lived and long-lived assets other than goodwill and concluded that such assets were not impaired.

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


			December 31, 2020							December 31, 2019
	Average Life (Years)		Gross Assets		Accumulated Amortization			Net		Gross Assets		Accumulated Amortization			Net
Finite-lived intangible assets
Acquired patents / core technology ⁽¹⁾		3 - 15	$	5,258	$	(5,089	)	$	169	$	5,258	$	(4,964	)	$	294
Existing technology / content database ⁽²⁾		5 - 10		209,430		(139,179	)		70,251		168,198		(104,856	)		63,342
Customer contracts and related relationships ⁽³⁾		3 - 9		494,271		(232,057	)		262,214		290,169		(173,102	)		117,067
Trademarks/trade name		4 - 10		38,783		(19,943	)		18,840		38,783		(15,132	)		23,651
Non-competition agreements		1		2,231		(2,231	)		—		2,231		(2,231	)		—

Total finite-lived intangible assets				749,973		(398,499	)		351,474		504,639		(300,285	)		204,354
Indefinite-lived intangible assets
TiVo Trademarks/trade name ⁽⁴⁾		N/A		21,400		—			21,400		—		—			—

Total intangible assets			$	771,373	$	(398,499	)	$	372,874	$	504,639	$	(300,285	)	$	204,354

(1)	In June 2020, $34.8 million of existing (developed) technology was acquired through the Mergers. See “Note 9 – Business Combination.”

(2)	In June 2020, $6.2 million of content database was acquired through the Mergers. See “Note 9 – Business Combination.”

(3)	In June 2020, $203.9 million of customer contracts and related relationships was acquired through the Mergers. See “Note 9 – Business Combination.”

(4)	In June 2020, $21.4 million of TiVo Tradename/trademarks was acquired through the Mergers. See “Note 9 – Business Combination.”

F-31

As of December 31, 2020, the estimated future amortization expense of total finite-lived intangible assets was as follows (in thousands):


2021	$	104,655
2022		56,947
2023		48,808
2024		34,734
2025		26,345
Thereafter		79,985

	$	351,474

NOTE 11 – RELATED PARTY TRANSACTIONS AND NET PARENT COMPANY INVESTMENT

The Combined Financial Statements have been prepared on a standalone basis and are derived from the consolidated financial statements and accounting records of Parent. The following disclosure summarizes activity between the Company and Parent, including the affiliates of Parent that are not part of the planned spin-off transaction.

Allocation of Corporate expenses

The Combined Financial Statements include expenses for certain management and support functions which are provided on a centralized basis within Parent, as described in Note 1 – The Company and Basis of Presentation. These management and support functions include, but are not limited to, executive management, sales and marketing, finance, legal, information technology, employee benefits administration, stock-based compensation, treasury, risk management, procurement and other shared services. These allocations were made on a direct usage basis when identifiable, with the remainder allocated on a pro rata basis of billing, revenue, headcount or other measures of the Company and Parent. The amount of these allocations from Parent was $66.9 million, which included $1.3 million for research and development, $3.3 million for depreciation expense, and $62.4 million for selling, general and administrative expense for the year ended December 31, 2020, and $31.0 million, which included $2.0 million for research and development, $1.1 million for depreciation expense, and $27.9 million for selling, general and administrative expense for the year ended December 31 2019.

Management believes these cost allocations are a reasonable reflection of the utilization of services provided to, or the benefit derived by, the Company during the periods presented. The allocations may not, however, be indicative of the actual expenses that would have been incurred had the Company operated as a standalone public company. Actual costs that may have been incurred if the Company had been a standalone public company would depend on a number of factors, such as the chosen organizational structure, whether functions were outsourced or performed by Company’s employees, and strategic decisions made in areas such as selling, information technology and infrastructure.

Net Parent company investment

Net Parent company investment on the Combined Balance Sheets and Statements of Equity represents Parent’s historical investment in the Company, the net effect of transactions with and allocations from Parent and the Company’s accumulated earnings and deficit and cumulative effect adjustments from the adoption of new accounting standards.

F-32

Net transfers from Parent are included within Net Parent company investment. The components of Net transfers from Parent are as follows:


	Years Ended December 31,
	2020			2019
General cash management activities	$	(39,440	)	$	(38,960	)
TiVo merger consideration		452,768			—
Corporate allocations		66,942			31,036
Stock-based compensation expense		19,183			17,311
Income taxes		6,723			(7,933	)

Total net transfers from Parent per Combined Statements of Equity	$	506,176		$	1,454

Net Transfers from Parent

A reconciliation of Net transfers from Parent on the Combined Statements of Equity to the corresponding amount on the Combined Statements of Cash Flows was as follows (in thousands):


	Years Ended December 31,
	2020			2019
Total net transfers from Parent per Combined Statements of Equity	$	506,176		$	1,454
Stock-based compensation expense		(19,183	)		(17,311	)
TiVo merger consideration		(452,768	)		—
Issuance of equity to noncontrolling interest		19			(13	)

Total net transfers from Parent per Combined Statements of Cash Flows	$	34,244		$	(15,870	)

NOTE 12 – STOCK-BASED COMPENSATION EXPENSE

Certain of the Company’s employees participate in equity-based compensation plans sponsored by Parent. Parent’s equity-based compensation plans include incentive compensation plans and an employee stock purchase plan (“ESPP”). All awards granted under the plans are based on shares of Parent’s common stock and, as such, are reflected in Parent’s Consolidated Statements of Stockholders’ Equity and not in the Company’s Combined Statements of Equity. The following disclosures of stock-based compensation expense recognized by the Company are based on the awards and terms granted to the Company’s employees. Accordingly, the amounts presented are not necessarily indicative of future awards and do not necessarily reflect the results that the Company would have experienced as an independent company for the periods presented.

Equity Incentive Plans

Prior to the Merger Date, Parent had implemented and granted equity awards under the Xperi Corporation Seventh Amended and Restated 2003 Equity Incentive Plan. As of the effective date of the Mergers, no future grants will be made under the plan.

The 2020 EIP

In connection with the Mergers and immediately prior to June 1, 2020, Parent adopted the Xperi Holding Corporation 2020 Equity Incentive Plan (the “2020 EIP”).

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Under the 2020 EIP, Parent may grant equity-based awards to employees, non-employee directors, and consultants for services rendered to Parent (or any subsidiary) in the form of stock options, stock awards, restricted stock awards, restricted stock units, stock appreciation rights, dividend equivalents and performance awards (or any combination thereof). A total of 8,000,000 shares have been reserved for issuance under the 2020 EIP provided that each share issued pursuant to “full value” awards (i.e., stock awards, restricted stock awards, restricted stock units, performance awards and dividend equivalents) are counted against shares available for issuance under the 2020 EIP on a 1.5 to 1 ratio.

The 2020 EIP provides for option grants designed as either incentive stock options or non-statutory options. Options are granted with an exercise price not less than the value of the common stock on the grant date and have a term of ten years from the date of grant and vest over a four-year period. The vesting criteria for restricted stock awards and restricted stock units is generally the passage of time or meeting certain performance-based objectives, and continued employment through the vesting period generally over four years for time-based awards. As of December 31, 2020, there were approximately 3.1 million shares reserved for future grant under the 2020 EIP.

Assumed Plans

On June 1, 2020, Parent assumed all then-outstanding stock options, awards, and shares available and reserved for issuance under all legacy Equity Incentive Plans of Pre-Merger TiVo (collectively, the “Assumed Plans”). Stock options assumed from the Assumed Plans generally have vesting periods of four years and a contractual term of seven years. Awards of restricted stock and restricted stock units assumed from the Assumed Plans are generally subject to a four-year vesting period. The number of shares subject to stock options and restricted stock unit awards outstanding under these plans are included in the tables below. Shares reserved under the Assumed Plans will be available for future grants. As of December 31, 2020, there were 7.6 million shares reserved for future grants under the Assumed Plans.

A summary of the stock option activity is presented below (in thousands, except per share amounts):


	Options Outstanding
	Number of Shares Subject to Options			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Balance at December 31, 2018		182		$	28.60
Options exercised		(6	)	$	17.79
Options canceled / forfeited / expired		(3	)	$	26.16

Balance at December 31, 2019		173		$	29.06
Employees transferred to Xperi Product after January 1, 2020		71		$	22.41
Pre-Merger TiVo assumed awards and units granted before June 1, 2020		65		$	48.59
Options exercised		(5	)	$	13.17
Options canceled / forfeited / expired		(66	)	$	41.03

Balance at December 31, 2020		238		$	29.48		3.73	$	144

Vested and expected to vest at December 31, 2020		237		$	29.53		3.72	$	144

Exercisable at December 31, 2020		221		$	30.04		3.49	$	144

F-34

The following table summarizes information concerning currently outstanding and exercisable options:


		Options Outstanding						Options Exercisable
Range of Exercise Prices per Share		Number Outstanding		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price per Share		Number Exercisable		Weighted Average Exercise Price per Share
$	12.52 - $18.65		31		2.41	$	17.19		31	$	17.19
$	18.76 - $22.19		24		2.93	$	20.06		24	$	20.06
$	22.24 - $22.24		1		3.52	$	22.24		1	$	22.24
$	22.45 - $22.45		70		6.79	$	22.45		53	$	22.45
$	22.52 - $31.63		25		3.04	$	26.84		25	$	26.84
$	38.65 - $38.65		40		4.45	$	38.65		40	$	38.65
$	43.54 - $43.77		27		0.22	$	43.73		27	$	43.73
$	45.90 - $51.52		13		0.29	$	48.21		13	$	48.21
$	53.13 - $53.13		1		0.42	$	53.13		1	$	53.13
$	54.60 - $54.60		6		0.16	$	54.60		6	$	54.60

$	12.52 - $54.60		238		3.73	$	29.48		221	$	30.04

Restricted Stock Awards

Parent grants equity-based compensation awards from the 2003 Equity Incentive Plan (“2003 Plan”). The 2003 Plan permits the grant of restricted stock and restricted stock units (“restricted stock awards”) and similar types of equity awards to employees, officers, directors and consultants of the Company. Restricted stock awards are considered outstanding at the time of grant as holders are entitled to voting rights on Parent matters. Options and restricted stock awards granted under this plan generally have a term of ten years from the date of grant and vest over a four-year period. The vesting criteria for restricted stock awards and units is generally the passage of time or meeting certain performance-based objectives, and continued employment through the vesting period generally over four years.

Performance Awards and Units

Performance awards and units may be granted to employees or consultants based upon, among other things, the contributions, responsibilities and other compensation of the particular employee or consultant. The value and the vesting of such performance awards and units are generally linked to one or more performance goals determined by the Company, in each case on a specified date or dates or over any period or periods determined by the Company, and range from zero to 100 percent of the grant.

F-35

The following table summarizes restricted stock awards and units for the year 2020 and 2019 (in thousands, except per share amounts):


	Restricted Stock and Restricted Stock Units
	Number of Shares Subject to Time- based Vesting			Number of Shares Subject to Performance- based Vesting			Total Number of Shares			Weighted Average Grant Date Fair Value Per Share
Balance at December 31, 2018		1,117			67			1,183		$	28.95
Awards and units granted		766			4			770		$	22.61
Awards and units vested / earned		(449	)		(13	)		(462	)	$	30.79
Awards and units canceled / forfeited		(134	)		—			(134	)	$	26.61

Balance at December 31, 2019		1,300			58			1,357		$	24.96
Employees transferred to Xperi Product after January 1, 2020		63			123			186		$	22.77
Pre-Merger TiVo assumed awards and units granted before June 1, 2020		1,099			13			1,112		$	13.99
Awards and units granted		1,805			137			1,942		$	12.85
Awards and units vested / earned		(769	)		(110	)		(879	)	$	22.19
Awards and units canceled / forfeited		(340	)		(33	)		(374	)	$	16.22

Balance at December 31, 2020		3,158			188			3,344		$	15.86

The following table summarizes the stock-based compensation expense attributable to the Company’s operations for the years ended December 31, 2020 and 2019 (in thousands):


	Years Ended December 31,
	2020			2019
Cost of revenue	$	585		$	—
Research and development		11,383			11,572
Selling, general and administrative		7,215			5,739

Total stock-based compensation expense		19,183			17,311
Tax effect on stock-based compensation expense		(1,377	)		(2,222	)

Net effect on net loss	$	17,806		$	15,089

In addition, for the years ended December 31, 2020 and 2019, $7.9 million and $5.3 million respectively, of stock-based compensation expenses was recognized in operating results as part of the corporate and shared functional employees expenses allocation.

As of December 31, 2020, the unrecognized stock-based compensation balance after estimated forfeitures consisted of $0.1 million related to unvested stock options, to be recognized over an estimated weighted average amortization period of 0.8 years, and $32.9 million related to restricted stock awards and units, including performance-based awards and units, to be recognized over an estimated weighted average amortization period of 2.7 years.

The fair value of restricted stock awards subject to service conditions is estimated as the price of Parent’s common stock at the close of trading on the date of grant. Parent uses the Black-Scholes option pricing model to

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determine the estimated fair value of options. The fair value of each option grant is determined on the date of grant and the expense is recorded on a straight-line basis. The assumptions used in the model include expected life, volatility, risk-free interest rate, and dividend yield. Parent’s determinations of these assumptions are outlined below.

Expected life – The expected life assumption is based on analysis of Parent’s historical employee exercise patterns.

Volatility – Volatility is calculated using the historical volatility of Parent’s common stock for a term consistent with the expected life.

Risk-free interest rate – The risk-free interest rate assumption is based on the U.S. Treasury rate for issues with remaining terms similar to the expected life of the options.

Dividend yield – Expected dividend yield is calculated based on cash dividends declared by the Board of Directors of the Parent for the previous four quarters and dividing that result by the average closing price of Parent’s common stock for the quarter. Cash dividends are not paid on options, vested restricted stock awards or unvested restricted stock awards.

In addition, Parent estimates forfeiture rates. Forfeitures are estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. Historical data is used to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

There were no stock options granted during the years ended December 31, 2020 and 2019.

Employee Stock Purchase Plan

Parent’s 2003 Employee Stock Purchase Plan (the “ESPP”) allows eligible employees to purchase shares of the Parent’s common stock at a discount through payroll deductions. The ESPP consists of up to four consecutive six-month purchase periods within a twenty-four-month offering period. Employees purchase shares each purchase period at the lower of 85% of the market value of Parent’s common stock at either the beginning of the offering period or the end of the purchase period.

The following assumptions were used to value the ESPP shares:


	Years Ended December 31,
	2020			2019
Expected life (years)		2.0			2.0
Risk-free interest rate		0.1 - 1.4	%		1.7 - 2.5	%
Dividend yield		1.4 - 4.0	%		3.5 - 5.4	%
Expected volatility		45.8 - 57.5	%		51.7 - 53.4	%

Parent uses a Monte Carlo simulation to determine the grant date fair value of performance stock units subject to market conditions, or market-based performance stock units (“PSUs”). The following assumptions were used to value the performance stock units subject to market conditions granted in the year ended December 31, 2020:


	Year Ended December 31,
	2020
Expected life (years)		3.0
Risk-free interest rate		0.2	%
Dividend yield		1.4	%
Expected volatility		51.3	%

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NOTE 13 – INCOME TAXES

The components of total loss before taxes are as follows (in thousands):


	Years Ended December 31,
	2020			2019
U.S.	$	(143,623	)	$	(57,238	)
Foreign		(7,405	)		(31,187	)

Total loss before taxes	$	(151,028	)	$	(88,425	)

The benefit from income taxes consisted of the following (in thousands):


	Years Ended December 31,
	2020			2019
Current:
U.S. federal	$	203		$	4,306
Foreign		8,865			3,856
State and local		1,454			2

Total current		10,522			8,164

Deferred:
U.S. federal		(17,811	)		(10,090	)
Foreign		(699	)		(3,863	)
State and local		(1,747	)		(265	)

Total deferred		(20,257	)		(14,218	)

Benefit from income taxes	$	(9,735	)	$	(6,054	)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes.

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Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):


	December 31,
	2020			2019
Deferred tax assets
Net operating losses	$	27,893		$	9,124
Research Credit		5,872			5,640
Foreign Tax Credit		1,751			103
Expense not currently deductible		24,851			8,120
Basis difference in fixed and intangible assets		7,242			2,235
Deferred revenue		13,209			—
Equity-based compensation		2,630			1,862
Capitalized R&D		29,612			14,446
Lease Liability		16,056			1,154
Other		1,614			—

Gross deferred tax assets		130,730			42,684
Valuation allowance		(52,676	)		(27,796	)

Net deferred tax assets		78,054			14,888
Deferred tax liabilities
Acquired intangible assets, domestic		(62,453	)		(14,480	)
Acquired intangible assets, foreign		(33	)		(2,294	)
Revenue Recognition		(4,213	)		(5,223	)
Right-of-Use Asset		(15,784	)		(1,054	)
Other		(562	)		—

Gross deferred tax liabilities		(83,045	)		(23,051	)

Net deferred tax liabilities	$	(4,991	)	$	(8,163	)

At December 31, 2020 and 2019, the Company had a valuation allowance of $52.7 million and $27.8 million, respectively, related to federal, state, and foreign deferred tax assets that the Company believes will not be realizable on a more-likely-than-not basis. The $24.9 million increase from the prior year is the result of the Mergers.

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 the Company’s net deferred tax assets, the Company determined that it was not more-likely- than-not that it would realize its 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 as of December 31, 2020. The Company intends to continue maintaining a full valuation allowance on its 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 the Company is able to achieve.

As of December 31, 2020, the Company had recorded deferred tax assets for the tax effects of the following gross tax loss carryforwards (in thousands):


	Carryforward Amount		Years of Expiration
Federal	$	63,290		2027 - 2035
State (Post-apportionment)		116,355		2021 - 2038

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Federal and state net operating loss and credit carryforwards have been reduced for limitations due to ownership changes.

As of December 31, 2020, the Company had the following credits available to reduce future income tax expense (in thousands):


	Carryforward Amount		Years of Expiration		Valuation Allowance
Federal research and development credits	$	1,105		2024 - 2039	$	1,105
State research and development credits		10,026		Indefinite		10,026

A reconciliation of the statutory U.S. federal income tax to the Company’s effective tax is as follows:


	Years Ended December 31,
	2020			2019
U.S. federal statutory rate	$	(31,716	)	$	(18,711	)
State, net of federal benefit		(1,129	)		8
Stock-based compensation		2,779			2,058
Executive compensation limitation		563			210
Research tax credit		(1,610	)		(1,250	)
Foreign withholding tax		7,620			2,690
Restructuring and transaction costs		6,161			(376	)
Foreign rate differential		2,082			2,333
Foreign tax credit		(5,441	)		(626	)
Change in valuation allowance		7,158			8,740
U.S. tax reform		642			(1,078	)
Unrecognized tax benefits		1,703			93
Other		1,453			(145	)

Total	$	(9,735	)	$	(6,054	)

At December 31, 2020, the Company asserts that it will not permanently reinvest its foreign earnings outside the U.S. The Company anticipates that the cash from its foreign earnings may be used domestically to fund operations, or used for other business needs. The accumulated undistributed earnings generated by its foreign subsidiaries was approximately $196.7 million. Substantially all of these earnings will not be taxable upon repatriation to the United States since under the Tax Cuts and Jobs Act they will be treated as previously taxed income from the one-time transition tax, Global Intangible Low-Taxed Income or dividends-received deduction. The U.S. state income taxes and foreign withholding taxes related to the distributable cash of the Company’s foreign subsidiaries are not expected to be material.

As of December 31, 2020, unrecognized tax benefits approximated $7.1 million, of which $1.1 million would affect the effective tax rate if recognized. As of December 31, 2019, unrecognized tax benefits approximated $9.1 million, of which $0.8 million would affect the effective tax rate if recognized. The Company believes that its unrecognized tax benefits as of December 31, 2020 will decrease by approximately $0.6 million within the next twelve months due to expiring statute of limitations.

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The reconciliation of the Company’s unrecognized tax benefits for the years ended December 31, 2020 and 2019 is as follows (in thousands):


	Years Ended December 31,
	2020			2019
Total unrecognized tax benefits at January 1	$	9,067		$	19,332
Increases due to the Mergers		861			—
Increases for tax positions related to the current year		958			595
Increases for tax positions related to prior years		745			—
Decreases for tax positions related to prior years		(59	)		(204	)
Net parent company investment		(4,466	)		(10,656	)

Total unrecognized tax benefits at December 31	$	7,106		$	9,067

It is the Company’s policy to classify accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. For the years ended December 31, 2020 and 2019, the Company recognized an immaterial amount of interest and penalties related to unrecognized tax benefits. Accrued interest and penalties were zero, for the years ended December 31, 2020 and 2019, respectively.

At December 31, 2020, the Company’s 2016 through 2019 tax years are open and subject to potential examination in one or more jurisdictions. Earlier tax years for the Company and its subsidiaries are also open in certain jurisdictions which are currently subject to examination. In addition, in the U.S., any net operating losses or credits that were generated in prior years but not yet fully utilized in a year that is closed under the statute of limitations may also be subject to examination.

NOTE 14 – COMMITMENTS AND CONTINGENCIES

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 future unconditional purchase obligations to service providers. Total future unconditional purchase obligations as of December 31, 2020 were as follows (in thousands):


2021	$	38,799
2022		25,284
2023		22,621
2024		10,698
2025		8,292
Thereafter		40,862

	$	146,556

Leases

The Company leases office and research facilities and office equipment under operating leases which expire at various dates through 2028. The terms of some of the Company’s leases provide for rental payments on a graduated scale. Lease expense is recorded on a straight-line basis over the lease term. For further details, refer to “Note 8 – Leases.”

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

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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 December 31, 2020, the Company had total purchase commitments for inventory of $4.2 million, of which $0.5 million was accrued in the Combined Balance Sheets.

Other Purchase Obligations

On December 31, 2019, Pre-Merger TiVo entered into a contract requiring the Company to generate a minimum number of Qualified Referred Subscribers (as defined in the contract) over a 30 month period. In the event that the aggregate number of Qualified Referred Subscribers generated by the Company within the specified time period is less than the minimum guaranteed subscribers, the Company is required to pay an amount equal to the shortfall between the number of Qualified Referred Subscribers generated by the Company and the required minimum multiplied by a per Qualified Referred Subscribers fee, up to a maximum of $5.0 million. As of December 31, 2020, $2.6 million was accrued in the Combined Balance Sheets related to this contract. During the second quarter of 2021, the Company renegotiated the contract and agreed to the revised terms by removing the commitment to pay a shortfall in the number of Qualified Referred Subscribers as previously defined. As part of the contract revision, the Company agreed to, on or before June 30, 2022, promote the other party’s TV services by purchasing and displaying a certain number of video ad impressions over the course of three or more campaigns. The cost of the impressions is estimated at $0.8 million and was accrued in the Company’s Combined Balance Sheets as of June 30, 2021.

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 nature of the claim asserted; the relative merits of the claim; the financial ability of the party suing the indemnified party 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. To date, no such claims have been filed against the Company and no liability has been recorded in the Company’s combined financial statements.

As permitted under Delaware law, the Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company believes, given the absence of any such payments in the Company’s history, and the estimated low probability of such payments in the future, that the estimated fair value of these indemnification agreements is immaterial. In addition, the Company has directors’ and officers’ liability insurance coverage that is intended to reduce its financial exposure and may enable the Company to recover any payments, should they occur.

Contingencies

At each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company is currently unable to predict the final outcome of lawsuits to which it is a party and therefore cannot determine the likelihood of loss nor estimate a range of possible loss. An adverse decision in any of these proceedings could significantly harm the Company’s business and combined financial position, results of operations or cash flows.

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The Company and its subsidiaries are involved in litigation matters and claims in the normal course of business. In the past, the Company and its subsidiaries have litigated to enforce their respective patents and other intellectual property rights, to enforce the terms of license agreements, to protect trade secrets, to determine the validity and scope of the proprietary rights of others and to defend themselves or their customers against claims of infringement or invalidity. The Company expects to be involved, either directly or through its subsidiaries, in similar legal proceedings in the future, including proceedings regarding infringement of its patents, and proceedings to ensure proper and full payment of royalties by customers under the terms of its license agreements.

The existing and any future legal actions may harm the Company’s business. For example, an adverse decision in any of these legal actions could result in a loss of the Company’s proprietary rights; reduce or limit the value of the Company’s licensed technology; negatively impact the Company’s stock price, its business, combined financial position, results of operations, royalties, billings, or cash flows; subject the Company to significant liabilities; or require the Company to seek licenses from others. Furthermore, legal actions could cause an existing customer or strategic partner to cease making royalty or other payments to the Company, or to challenge the validity and enforceability of patents owned by the Company’s subsidiaries or the scope of license agreements with the Company’s subsidiaries, and could significantly damage the Company’s relationship with such customer or strategic partner and, as a result, prevent the adoption of the Company’s other technologies by such customer or strategic partner. Litigation could also severely disrupt or shut down the business operations of customers or strategic partners of the Company’s subsidiaries, which in turn would significantly harm ongoing relations with them and cause the Company to lose royalty revenue.

The costs associated with legal proceedings are typically high, relatively unpredictable, and not completely within the Company’s control. These costs may be materially higher than expected, which could adversely affect the Company’s operating results and lead to volatility in the price of its common stock. Whether or not determined in the Company’s favor or ultimately settled, litigation diverts managerial, technical, legal, and financial resources from the Company’s business operations.

NOTE 15 – BENEFIT PLAN

Xperi Holding Corporation offers a 401(k) retirement savings plan to its eligible employees, under which it can make discretionary contributions to match employee contributions. The costs of the Xperi Product employees who participate in the plan are reflected in the combined financial statements. During the years ended December 31, 2020 and 2019, the Company’s employer 401(k) match expense was approximately $2.9 million and $2.4 million, respectively.

NOTE 16 – SUBSEQUENT EVENTS

The combined financial statements of the Company are derived from the consolidated financial statements of Xperi Holding Corporation, which issued its financial statements for the year ended December 31, 2020 on February 26, 2021. Accordingly, the Company has evaluated transactions or other events for consideration as recognized subsequent events in the annual financial statements through February 26, 2021. Additionally, the Company has evaluated transactions and other events through the issuance of these combined financial statements, October 12, 2021, for purposes of disclosure of unrecognized subsequent events.

On May 31, 2021, the Company completed its acquisition of certain assets and assumption of certain liabilities of MobiTV, Inc. (“MobiTV”, and the acquisition, the “MobiTV Acquisition”), a provider of application-based Pay-TV video delivery solutions. The acquisition expands the Company’s IPTV Managed Service capabilities, which is expected to grow the addressable market for the Company’s IPTV products and further secure its position as a leading provider of Pay-TV solutions. The net purchase price for the MobiTV Acquisition was $17.4 million in cash.

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The MobiTV Acquisition has been accounted for as a business combination, using the acquisition method. The following table presents the allocation of the purchase price to the identifiable assets acquired and liabilities assumed based on the fair values at the acquisition date, with any excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded to goodwill, all of which is expected to be deductible for tax purposes. The allocation of the purchase price was based upon a preliminary valuation and thus the estimates and assumptions used are subject to change. Based upon the fair values acquired, the purchase price allocation is as follows ($ in thousands):


	Estimated Useful			Estimated
	Life (years)			Fair Value
Other current assets				$	390
Property and equipment					9,223
Operating lease right-of-use assets					1,186
Identifiable intangible assets:
Patents		10	5,000
Technology		6	3,260

Total identifiable intangible assets					8,260
Goodwill					4,059
Other long-term assets					115
Accrued liabilities					(5,288	)
Noncurrent operating lease liabilities					(545	)

Total purchase price				$	17,400

The above allocation of the purchase price is provisional and is still subject to change within the measurement period, including potential adjustments relating to income taxes and indirect taxes as additional information is received. The final allocation of the purchase price is expected to be completed as soon as practicable, but no later than one year from the date of the acquisition.

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Xperi (XPER) DRS/ADraft registration statement (amended)