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Business Combination | 12 Months Ended
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Dec. 31, 2020
Business Combinations [Abstract] |
Business Combination | NOTE 9 – BUSINESS COMBINATION Effective June 1, 2020, Xperi and TiVo completed the previously announced merger of equals transaction (the “Merger”) contemplated by the Agreement and Plan of Merger and Reorganization, dated as of December 18, 2019, as amended on January 31, 2020, (the “Merger Agreement”), by and among Xperi, TiVo, XRAY-TWOLF HoldCo Corporation (“Xperi Holding”), XRAY Merger Sub Corporation (“Xperi Merger Sub”) and TWOLF Merger Sub Corporation (“TiVo Merger Sub”). Immediately prior to the consummation of the Merger, Xperi Holding changed its name to “Xperi Holding Corporation” (the “Company”). Pursuant to the Merger Agreement, (i) Xperi Merger Sub was merged with and into Xperi, with Xperi surviving the merger as a subsidiary of Xperi Holding Corporation (the “Xperi Merger”) and (ii) TiVo Merger Sub was merged with and into TiVo, with TiVo surviving the merger as a subsidiary of Xperi Holding Corporation (the “TiVo Merger” and together with the Xperi Merger, the “Mergers”). Immediately following the consummation of the Mergers, each of Xperi and TiVo became wholly-owned subsidiaries of the Company. Upon completion of the Xperi Merger, each share of common stock, par value $0.001 per share, of Xperi (the “Xperi Common Stock”) (excluding any shares of Xperi Common Stock that were held in treasury immediately prior to the effective time of the Xperi Merger, which were automatically canceled and retired for no consideration) was converted into the right to receive one fully paid and non-assessable share of common stock, par value $0.001 per share, of the Company (“Company Common Stock”). Upon completion of the TiVo Merger, (i) each share of common stock, par value $0.001 per share, of TiVo (the “TiVo Common Stock”) (excluding any shares of TiVo Common Stock that were held in treasury immediately prior to the effective time of the TiVo Merger, which were automatically canceled and retired for no consideration) was converted into the right to receive 0.455 fully paid and non-assessable shares of common stock of the Company (the “Exchange Ratio”), in addition to cash in lieu of any fractional shares of the Company Common Stock. As provided in the Merger Agreement, at the effective time of the Mergers, (i) all options, restricted shares, restricted stock unit awards and other equity awards relating to shares of Xperi Common Stock outstanding immediately prior to the effective time of the Mergers were generally automatically converted into options, restricted shares, restricted stock unit awards and other equity awards, respectively, relating to shares of Company Common Stock after giving effect to appropriate adjustments to reflect the Mergers and otherwise generally on the same terms and conditions as applied under the applicable plans and award agreements immediately prior to the effective time of the Mergers, and (ii) all options, restricted shares, restricted stock unit awards and other equity awards relating to shares of TiVo Common Stock that were outstanding immediately prior to the effective time of the Mergers (including Exchange Ratio) were generally automatically converted into options, restricted stock unit awards, restricted shares and other equity awards, respectively, relating to shares of Company Common Stock after giving effect to appropriate adjustments to reflect the Mergers and otherwise generally on the same terms and conditions as applied under the applicable plans and award agreements immediately prior to the effective time of the Mergers. Following the Mergers, Xperi Common Stock and TiVo Common Stock were delisted from the Nasdaq Global Select Market (“Nasdaq”) and deregistered under the Securities Exchange Act of 1934, as amended. Since June 2, 2020, the shares of the Company’s common stock have been listed for trading on Nasdaq under the ticker symbol “XPER.” The Mergers created a leading consumer and entertainment product/solutions and IP licensing company. The Company’s IP business includes one of the industry’s largest and most successful IP portfolios licensed to a diverse base of customers. On the product side, the Company 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. The Company is currently contemplating and may pursue, subject to any required regulatory approvals, a separation of the Company’s product business and IP licensing business through a tax-efficient transaction, resulting in two independent, publicly traded companies. The Company is currently evaluating the optimal timing of the contemplated business separation. Merger Consideration The merger consideration of $828.3 million was calculated as follows (amounts in thousands except exchange ratio and share price):
TiVo common shares outstanding as of June 1, 2020 |  |  | 128,132 |  |  |  |  |
TiVo exchange ratio |  |  | 0.455 |  |  |  |  |
Xperi Holding Corporation common stock issued in exchange |  |  | 58,300 |  |  |  |  |
Xperi Common Stock closing share price on June 1, 2020 |  | $ | 14.00 |  |  |  |  |
|  |  |  |  |  | $ | 816,201 |
Fair value of replaced TiVo equity awards relating to pre-acquisition vesting of the equity award holders’ requisite service periods |  |  |  |  |  |  | 12,133 |
Total merger consideration |  |  |  |  |  | $ | 828,334 |
Assumed TiVo Equity Awards In connection with the Mergers, the Company assumed unvested TiVo equity incentive awards with a fair value of $34.1 million, of which $12.1 million related to pre-acquisition services and was included in the purchase price, and $22.0 million related to post-acquisition services. The Company valued the restricted stock units at the Company’s closing stock price and stock options using a Black-Scholes pricing model as of the date of acquisition. The fair value relating to post-acquisition services was expected to be amortized as stock-based compensation expense over an estimated weighted average remaining service period of 2.5 years after the Mergers. Purchase Price Allocation Based on an evaluation of the provisions of ASC 805, “Business Combinations,” Xperi was determined to be the accounting acquirer in the Mergers. The Company has applied the acquisition method of accounting that requires, among other things, that identifiable assets acquired and liabilities assumed generally be recognized on the balance sheet at fair value as of the acquisition date. In determining the fair value, the Company utilized various forms of the income, cost and market approaches depending on the asset or liability being fair valued. The estimation of fair value required significant judgment related to future net cash flows (including revenue, operating expenses, and working capital), discount rates reflecting the risk inherent in each cash flow stream, competitive trends, market comparables and other factors. Inputs were generally determined by taking into account historical data (supplemented by current and anticipated market conditions) and growth rates. The initial allocation of the purchase price was based on preliminary valuations and assumptions. During the fourth quarter of 2020, the Company recorded certain measurement period adjustments shown below. The table below presents the estimated fair value that was allocated to TiVo’s assets and liabilities based upon fair values as determined by the Company ($ in thousands):
|  | Estimated Useful Life (years) |  |  |  |  |  | Preliminary Fair Value (1) |  |  | Measurement Period Adjustments (2) |  |  | Adjusted Fair Value |
Cash and cash equivalents |  |  |  |  |  |  |  | $ | 117,424 |  |  | $ | — |  |  | $ | 117,424 |
Accounts receivable |  |  |  |  |  |  |  |  | 105,778 |  |  |  |  |  |  |  | 105,778 |
Unbilled contracts receivable |  |  |  |  |  |  |  |  | 69,058 |  |  |  |  |  |  |  | 69,058 |
Other current assets |  |  |  |  |  |  |  |  | 21,690 |  |  |  | 233 |  |  |  | 21,923 |
Long-term unbilled contracts receivable |  |  |  |  |  |  |  |  | 129 |  |  |  |  |  |  |  | 129 |
Property and equipment |  |  |  |  |  |  |  |  | 41,307 |  |  |  |  |  |  |  | 41,307 |
Operating lease right-of-use assets |  |  |  |  |  |  |  |  | 71,444 |  |  |  |  |  |  |  | 71,444 |
Identifiable intangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Patents |  | 10 |  |  | 457,400 |  |  |  |  |  |  |  |  |  |  |  |  |
Customer contracts and related relationships |  | 4-9 |  |  | 358,200 |  |  |  |  |  |  |  |  |  |  |  |  |
Developed technology |  | 5 |  |  | 34,800 |  |  |  |  |  |  |  |  |  |  |  |  |
Content database |  | 9 |  |  | 6,200 |  |  |  |  |  |  |  |  |  |  |  |  |
Trademarks and tradenames |  | N/A |  |  | 21,400 |  |  |  |  |  |  |  |  |  |  |  |  |
Total identifiable intangible assets |  |  |  |  |  |  |  |  | 878,000 |  |  |  |  |  |  |  | 878,000 |
Goodwill |  |  |  |  |  |  |  |  | 461,129 |  |  |  | 116 |  |  |  | 461,245 |
Other long-term assets |  |  |  |  |  |  |  |  | 43,700 |  |  |  | (141 | ) |  |  | 43,559 |
Accounts payable |  |  |  |  |  |  |  |  | (13,258 | ) |  |  |  |  |  |  | (13,258 | )
Accrued legal fees |  |  |  |  |  |  |  |  | (5,619 | ) |  |  |  |  |  |  | (5,619 | )
Accrued liabilities |  |  |  |  |  |  |  |  | (79,071 | ) |  |  | (530 | ) |  |  | (79,601 | )
Current portion of deferred revenue |  |  |  |  |  |  |  |  | (29,291 | ) |  |  |  |  |  |  | (29,291 | )
Current portion of long-term debt |  |  |  |  |  |  |  |  | (734,609 | ) |  |  |  |  |  |  | (734,609 | )
Deferred revenue, less current portion |  |  |  |  |  |  |  |  | (24,319 | ) |  |  |  |  |  |  | (24,319 | )
Long-term deferred tax liabilities |  |  |  |  |  |  |  |  | (27,949 | ) |  |  | 421 |  |  |  | (27,528 | )
Long-term debt |  |  |  |  |  |  |  |  | (48 | ) |  |  |  |  |  |  | (48 | )
Noncurrent operating lease liabilities |  |  |  |  |  |  |  |  | (59,291 | ) |  |  |  |  |  |  | (59,291 | )
Other long-term liabilities |  |  |  |  |  |  |  |  | (7,870 | ) |  |  | (99 | ) |  |  | (7,969 | )
Total purchase price |  |  |  |  |  |  |  | $ | 828,334 |  |  | $ | — |  |  | $ | 828,334 |
(1) As previously reported in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2020. (2) All adjustments were recorded in the fourth quarter of 2020. These measurement period adjustments primarily related to current indirect taxes payable, current and non-current income taxes receivable and payable, and deferred taxes as additional information was received and tax returns were finalized. All measurement period adjustments were offset against goodwill. The above allocation of the purchase price is provisional and is still subject to change within the measurement period, including potential adjustments to current indirect taxes payable 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 Mergers. The following is a description of the methods used to determine the fair values of significant assets and liabilities. Identifiable Intangible Assets Identifiable intangible assets primarily consist of patents, developed technology, customer relationships, 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 IP business segment were valued using a “with and without” method. Significant assumptions used in this discounted cash flow analysis are the revenue growth rate, cost of sales, and the discount rate. Patents and other customer contracts and relationships relating to the Product business segment were valued using an excess earnings method. Significant assumptions used in the discounted cash flow analysis for (i) other customer contracts and relationships were the revenue growth rate, EBITDA margins, and the discount rate and (ii) patents 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. T he 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. Long-term Debt On the Merger date, TiVo had outstanding debt under the 2019 Term Loan Facility Agreement (“TiVo 2019 Term Loan”), pursuant to which TiVo was required to pay a 3.0% prepayment premium if the loan was prepaid on or prior to November 22, 2020. Under the 2019 Term Loan Facility Agreement, the Mergers triggered certain change of control conditions that constitute an event of default, thus requiring the debt to be paid immediately following the consummation of the Mergers. In connection with the consummation of the Mergers, the Company, on June 1, 2020, paid the full amount of the outstanding loan balance, including the 3.0% prepayment penalty. See “Note 11 – Debt” for additional information. Fair value of the TiVo 2019 Term Loan was measured based on the par value of principal outstanding plus prepayment premium, which is equal to the amount that was paid by Xperi immediately following the consummation of the Mergers. The fair value of the TiVo 2019 Term Loan would be classified in Level 2 of the fair value hierarchy. 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’s knowledgeable and experienced workforce. See Note 10 for the allocation of goodwill to the reportable segments. Of the total goodwill acquired, $14.1 million is expected to be deductible for tax purposes; the remainder of the goodwill is not expected to be deductible for tax purposes. TiVo Results of Operations TiVo’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 assets and liabilities were recorded at their estimated fair values in the Company’s Consolidated Balance Sheets as of June 1, 2020. For the year ended December 31, 2020, TiVo contributed $593.6 million of revenue and $263.8 million of operating income, respectively, to the operating results of the Company. Transaction and Severance Costs In connection with the Mergers, the Company 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 $29.4 million and $2.4 million, respectively, in 2020. In addition, post-merger severance and retention costs (including related stock-based compensation expense) amounted to $14.3 million in 2020. The Company 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 TiVo had been included in the Company's Consolidated Statements of Operations as of January 1, 2019 (unaudited, in thousands):
|  | Years Ended December 31, |
|  | 2020 |  |  | 2019 |
Revenue |  | $ | 1,142,603 |  |  | $ | 941,005 |
Net income (loss) attributable to Xperi Holding Corporation |  | $ | 9,775 |  |  | $ | (562,153 | )
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 increase (decrease) to earnings due to revenue adjustments resulting from purchase accounting |  | $ | (4,823 | ) |  | $ | (7,191 | )
Estimated increase (decrease) to earnings to adjust for transaction and other related costs, including facilities impairment charges, incurred in connection with the Mergers |  | $ | 34,569 |  |  | $ | (24,651 | )
Estimated increase (decrease) to earnings to adjust for severance and retention costs, including related stock-based compensation expense, incurred in connection with the Mergers |  | $ | 15,865 |  |  | $ | (16,511 | )
Estimated increase (decrease) to earnings to reflect payoff of historical debt and issuance of new debt financing in connection with the Mergers |  | $ | 23,121 |  |  | $ | (18,098 | )
Estimated decrease to earnings due to pro forma adjustments for income taxes (1)(2) |  | $ | (13,605 | ) |  | $ | (21,519 | )
| (1) | For the year ended December 31, 2020, the pro forma tax adjustments primarily reflect the assumption that the combined company placed a valuation allowance on its federal and state deferred tax assets prior to 2020 and the applicability of Base Erosion and Anti-Abuse Tax (“BEAT”) to Xperi tax expense for the period prior to the Mergers.
| (2) | For the year ended December 31, 2019, the pro forma tax adjustments primarily reflect the assumption that the combined company placed a valuation allowance on its federal and state deferred tax assets prior to 2019 and the applicability of BEAT to Xperi’s tax expense.
The unaudited supplemental pro forma information above does not include any cost saving synergies from operating efficiencies.

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