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Discontinued Operations | 12 Months Ended
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Dec. 31, 2022
Discontinued Operations and Disposal Groups [Abstract] |
Discontinued Operations | NOTE 9 – DISCONTINUED OPERATIONS On October 1, 2022, the Company completed the Separation of its product business into a separate, independent, publicly-traded company, Xperi Inc. (the "Separation"). The Separation was achieved through the Company's distribution of 100 percent of the outstanding shares of Xperi Inc.'s common stock to holders of the Company's common stock as of the close of business on the record date of September 21, 2022 (the "Record Date"). Each Company stockholder of record received four shares of Xperi Inc. common stock for every ten shares of Company common stock that it held on the Record Date. Following the Separation, the Company retains no ownership in Xperi Inc. The accounting requirements for reporting the Separation of Xperi Inc. as a discontinued operation were met when the Separation was completed. Accordingly, the historical financial results of Xperi Inc. have been presented as discontinued operations and, as such, have been excluded from continuing operations and results of operations from all periods presented. Prior to the Separation, the Company reported the results of operations of Xperi Inc. as part of its Product segment. During the fourth quarter of 2022, the Company changed its organizational structure, resulting in one reportable segment: IP Licensing. For additional information relating to the Company's segment and geographic information, refer to "Note 18 - Segment and Geographic Information". The Company's presentation of discontinued operations excludes general corporate overhead costs, which were historically allocated to Xperi Inc., that do not meet the requirements to be presented in discontinued operations, although such costs are not reflective of the on-going operations of the Company. Such allocations included labor and non-labor costs related to the Company’s corporate support functions (e.g., administration, human resources, finance, accounting, tax, information technology, corporate development, legal, among others) that historically provided support to Xperi Inc. prior to the Separation. In addition, discontinued operations excludes the historical intercompany balances and transactions between the Company and Xperi Inc. that were eliminated in consolidation. In connection with the Separation, the Company incurred separation costs of $42.3 million from January 1, 2020 to December 31, 2022. Separation costs primarily consist of third-party advisory, consulting, legal and professional service, IT and employee bonus costs directly related to the Separation, as well as other items that are incremental and one-time in nature. Out of these costs, $16.9 million, $6.9 million and $4.8 million were incurred during the nine months ended September 30, 2022 and the years ended December 31, 2021, and 2020 respectively, and are included in net loss from discontinued operations, net of tax. The remaining separation costs of $13.7 million were incurred after the Separation during the fourth quarter of 2022 and are reflected in continuing operations within operating expenses in the Company's Consolidated Statement of Operations. The Company and Xperi Inc. entered into various agreements to effect the Separation and provide a framework for their on-going relationship, including a separation and distribution agreement, transition services agreement, employee matters agreement, tax matters agreement, cross business license agreement and data sharing agreement. The transition services agreement consists of services that Xperi Inc. and its subsidiaries will provide to the Company and its subsidiaries for a transitional period, as defined in the agreement. The services to be provided include back office functions and assistance with regard to administrative tasks relating to day-to-day activities as needed, including finance, accounting and tax activities, IT services, customer support, facilities services, human resources, and general corporate support, as well as pass-through services provided by certain vendors. The impact of these transition services on the Company's Consolidated Financial Statements for the year ended December 31, 2022 was not material. Net Loss from Discontinued Operations The financial results of Xperi Inc. through September 30, 2022 are presented as net loss from discontinued operations, net of tax, on the Consolidated Statements of Operations. The following table presents financial results of Xperi Inc. (in thousands):
|  | 2022 (1) |  |  | 2021 |  |  | 2020 |
Revenue |  | $ | 366,730 |  |  | $ | 486,484 |  |  | $ | 376,101 |
Operating expenses: |  |  |  |  |  |  |  |  |
Cost of revenue |  |  | 85,689 |  |  |  | 125,627 |  |  |  | 77,788 |
Research and development |  |  | 158,708 |  |  |  | 194,869 |  |  |  | 161,630 |
Selling, general and administrative |  |  | 123,764 |  |  |  | 137,745 |  |  |  | 109,188 |
Depreciation expense |  |  | 15,702 |  |  |  | 21,777 |  |  |  | 16,298 |
Amortization expense |  |  | 46,166 |  |  |  | 105,311 |  |  |  | 98,209 |
Litigation expense |  |  | 921 |  |  |  | 6,371 |  |  |  | 2,815 |
Goodwill impairment |  |  | 354,000 |  |  |  | — |  |  |  | — |
Total operating expenses |  |  | 784,950 |  |  |  | 591,700 |  |  |  | 465,928 |
Operating loss |  |  | (418,220 | ) |  |  | (105,216 | ) |  |  | (89,827 | )
Interest expense |  |  | (754 | ) |  |  | — |  |  |  | — |
Other income and expense, net |  |  | 62 |  |  |  | 1,870 |  |  |  | 1,242 |
Loss before taxes |  |  | (418,912 | ) |  |  | (103,346 | ) |  |  | (88,585 | )
Provision for income taxes |  |  | 18,066 |  |  |  | 23,550 |  |  |  | 7,425 |
Net loss from discontinued operations, net of tax |  | $ | (436,978 | ) |  | $ | (126,896 | ) |  | $ | (96,010 | )
Less: net loss attributable to noncontrolling interest |  |  | (2,706 | ) |  |  | (3,456 | ) |  |  | (2,966 | )
Net loss attributable to discontinued operations |  | $ | (434,272 | ) |  | $ | (123,440 | ) |  | $ | (93,044 | )
(1) Represents nine months of Xperi Inc.'s operations in 2022, as compared to a full year of Xperi Inc.'s operations in 2021 and 2020. Assets and Liabilities of Discontinued Operations The following table presents the aggregate carrying amounts of the major classes of assets and liabilities of discontinued operations (in thousands):
|  | 2021 |
Assets |  |  |
Current assets: |  |  |
Cash and cash equivalents |  | $ | 120,695 |
Accounts receivable, net of allowance for credit losses |  |  | 79,494 |
Unbilled contracts receivable, net |  |  | 50,962 |
Other current assets |  |  | 25,969 |
Total current assets of discontinued operations |  |  | 277,120 |
Long-term unbilled contracts receivable |  |  | 3,825 |
Property and equipment, net |  |  | 56,038 |
Operating lease right-of-use assets |  |  | 61,858 |
Intangible assets, net |  |  | 270,934 |
Goodwill |  |  | 536,512 |
Other long-term assets |  |  | 20,260 |
Total assets of discontinued operations |  | $ | 1,226,547 |
Liabilities |  |  |
Current liabilities: |  |  |
Accounts payable |  | $ | 7,362 |
Accrued legal fees |  |  | 2,210 |
Accrued liabilities |  |  | 81,764 |
Deferred revenue |  |  | 28,161 |
Total current liabilities of discontinued operations |  |  | 119,497 |
Deferred revenue, less current portion |  |  | 23,663 |
Long-term deferred tax liabilities |  |  | 12,771 |
Noncurrent operating lease liabilities |  |  | 49,017 |
Other long-term liabilities |  |  | 3,606 |
Total liabilities of discontinued operations |  | $ | 208,554 |
The total net impact to stockholders' equity as a result of the Separation was a reduction of $748.9 million, which has been reflected as a reduction of $767.3 million, $5.1 million and $13.3 million to additional paid-in capital, accumulated other comprehensive income/(loss) and noncontrolling interest, respectively, in the Consolidated Statements of Equity as of December 31, 2022. Transactions of Discontinued Operations The following transactions have been included as part of discontinued operations for all the periods presented. Business Combinations The Company completed certain acquisitions that were accounted for as business combinations, using the acquisition method. The assets and liabilities and results of operations following the business combinations were attributed to the Company's former Product business; therefore, the assets and liabilities are presented in the Consolidated Balance Sheet for the year ended December 31, 2021 as assets and liabilities of discontinued operations. The results of operations are presented in the Consolidated Statements of Operations for all periods as net loss from discontinued operations, net of tax. MobiTV On May 31, 2021, the Company completed the acquisition of certain assets and assumption of certain liabilities of MobiTV, Inc. (“MobiTV”), a provider of application-based Pay-TV video delivery solutions (the "MobiTV Acquisition"). The net purchase price for the MobiTV Acquisition was $17.4 million. Purchase Price Allocation The MobiTV Acquisition was 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 following table sets forth the final purchase price allocation (in thousands):
|  | Estimated Useful Life (years) |  |  |  |  | Final 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 results of operations and cash flows relating to the business acquired pursuant to the MobiTV Acquisition were included in the Company’s Consolidated Financial Statements for periods subsequent to May 31, 2021, and the related assets and liabilities were recorded at their estimated fair values in the Company’s Consolidated Balance Sheet as of May 31, 2021. Certain assets and liabilities acquired in the business combination were attributed to the Company's IP Licensing segment. Supplemental Pro Forma Information The following unaudited pro forma financial information assumes the MobiTV Acquisition was completed as of January 1, 2020. 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 MobiTV Acquisition had taken place on January 1, 2020, 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 the acquired operations of MobiTV had been included in the Company's Condensed Consolidated Statements of Operations as of January 1, 2020 (unaudited, in thousands):
|  | Years Ended December 31, |
|  | 2021 |  |  | 2020 |
Net loss attributable to discontinued operations |  | $ | (71,169 | ) |  | $ | 105,793 |
The unaudited supplemental pro forma information above includes the following pro forma adjustments: removal of certain elements of the historical MobiTV business that were not acquired, elimination of inter-company transactions between MobiTV and the Company, adjustments for transaction related costs and adjustments to reflect the impact of purchase accounting adjustments. The unaudited supplemental pro forma information above does not include any cost saving synergies from operating efficiencies. Vewd Software Holdings Limited On July 1, 2022, the Company completed the acquisition of Vewd Software Holdings Limited ("Vewd" and the acquisition, the "Vewd Acquisition"), a provider of over-the-top ("OTT") and hybrid TV solutions. The total consideration was approximately $102.9 million, consisting of approximately $52.9 million of cash and $50.0 million of debt. Purchase Price Allocation The Vewd Acquisition was 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 (in thousands):
|  | Estimated Useful Life (years) |  |  |  |  |  | Estimated Fair Value |
Cash and cash equivalents |  |  |  |  |  |  |  | $ | 2,684 |
Accounts receivable |  |  |  |  |  |  |  |  | 3,341 |
Unbilled contracts receivable |  |  |  |  |  |  |  |  | 2,335 |
Other current assets |  |  |  |  |  |  |  |  | 1,208 |
Property and equipment |  |  |  |  |  |  |  |  | 443 |
Operating lease right-of-use assets |  |  |  |  |  |  |  |  | 2,020 |
Identifiable intangible assets: |  |  |  |  |  |  |  |  |
Technology |  | 7 |  |  |  | 28,050 |  |  |  |
Customer relationships - large |  | 7 |  |  |  | 4,900 |  |  |  |
Customer relationships - small |  | 4 |  |  |  | 3,500 |  |  |  |
Non-compete agreements |  | 2 |  |  |  | 870 |  |  |  |
Trade name |  |  | 5 |  |  |  | 830 |  |  |  |
Total identifiable intangible assets |  |  |  |  |  |  |  |  | 38,150 |
Goodwill |  |  |  |  |  |  |  |  | 68,115 |
Other long-term assets |  |  |  |  |  |  |  |  | 977 |
Current liabilities |  |  |  |  |  |  |  |  | (6,566 | )
Long-term deferred tax liabilities |  |  |  |  |  |  |  |  | (8,393 | )
Noncurrent operating lease liabilities |  |  |  |  |  |  |  |  | (1,094 | )
Other long-term liabilities |  |  |  |  |  |  |  |  | (307 | )
Total purchase price |  |  |  |  |  |  |  | $ | 102,913 |
The above purchase price allocation, including the purchase consideration, was based on valuations and assumptions, including potential changes to prepaid income taxes, current and non-current income taxes payable, deferred taxes, and other working capital adjustments. Vewd Results of Operations The results of operations and cash flows related to the Vewd Acquisition were included in the Company's Consolidated Financial Statements for periods subsequent to July 1, 2022, and the related assets and liabilities were recorded at their estimated fair values in the Company's Consolidated Balance Sheet as of July 1, 2022. For the year ended December 31, 2022, the acquired Vewd business contributed $2.5 million of revenue and $10.1 million of operating loss, respectively, to the Company's operating results. Transaction Costs In connection with the Vewd Acquisition, the Company incurred one-time expenses such as transaction related costs and severance and retention costs. For year ended December 31, 2022, transaction related costs including transaction bonuses, legal and consultant fees were $6.1 million and severance and retention costs were $2.1 million. Supplemental Pro forma Information The following unaudited pro forma financial information assumes the Vewd Acquisition was completed as of January 1, 2021. The unaudited pro forma financial information as presented below is for information 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 Vewd Acquisition had taken place on January 1, 2021, 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 the acquired operations of Vewd had been included in the Company's Consolidated Statements of Operations as of January 1, 2021 (unaudited, in thousands):
| Nine Months Ended September 30, |
| 2022 |  |  | 2021 |
Net loss attributable to discontinued operations | $ | (377,614 | ) |  | $ | (62,976 | )
The unaudited supplemental pro forma information above includes the following pro forma adjustments: adjustments for transaction related costs and severance and retention costs, adjustments for amortization of intangible assets, and elimination of inter-company transactions between Vewd and the Company. The unaudited supplemental pro forma information above does not include any cost saving synergies from operating efficiencies. Goodwill and Identified Intangible Assets During the three-months ended September 30, 2022, indicators of potential impairment for the Company's former Product reporting unit were identified such that management concluded it was more-likely-than-not that goodwill was impaired and a quantitative interim goodwill impairment assessment should be performed as of September 30, 2022. Indicators of potential impairment included a sustained decline in the Company’s stock price during the second half of the third quarter of 2022, reflective of rising interest rates and continued decline in macroeconomic conditions. The Company proceeded to perform a fair value analysis of the Company's former Product reporting unit using the market capitalization approach. Under this approach, management estimated the fair value of the Company's former Product reporting unit as of September 30, 2022 using quoted market prices of the common stock of Xperi Inc., which as of October 1, 2022 comprised the former Product segment of the Company, over its first ten trading days following the Separation, and a control premium representing the synergies a market participant would achieve upon obtaining control of Xperi Inc. As a result of the fair value analysis, the Company recognized a goodwill impairment charge of $354.0 million in the third quarter of 2022, which was allocated to the Company's former Product segment and it is included as part of net loss from discontinued operations, net of tax. The Company also assessed the recoverability of indefinite-lived intangible assets related to the Company's former Product reporting unit and concluded that no impairment existed as of September 30, 2022, as its estimated fair values exceeded their carrying amounts. No impairment indicators were identified with respect to other long-lived assets. Net Cash Flows of Discontinued Operations In connection with the Separation, the Company distributed $182.9 million of cash which is presented as part of financing activities in the Consolidated Statement of Cash Flows. The following table presents selected financial information related to cash flows from discontinued operations:
|  | 2022 (1) |  |  | 2021 |  |  | 2020 |
Net cash from operating activities |  | $ | 2,308 |  |  | $ | 24,395 |  |  | $ | 29,207 |
Net cash from investing activities |  | $ | (61,097 | ) |  | $ | (21,479 | ) |  | $ | 26,527 |
(1) Represents nine months of Xperi Inc.'s operations in 2022, as compared to a full year of Xperi Inc.'s operations in 2021 and 2020.

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