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Stockholders' Equity And Stock-Based Compensation | 12 Months Ended
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Dec. 31, 2023
Share-Based Payment Arrangement [Abstract] |
Stockholders' Equity And Stock-Based Compensation | NOTE 13 – STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION Prior to the Separation, certain of the Company’s employees participated in equity-based compensation plans sponsored by the Former Parent. The Former Parent’s equity-based compensation plans included incentive compensation plans and an ESPP. All grants made through September 30, 2022 were issued under those plans which are described fully in the Form 10 filed with the SEC on September 14, 2022. On October 1, 2022, in connection with the Separation, all outstanding Former Parent equity awards were equitably adjusted to reflect the impact of the Separation. The adjustments to each type of award outstanding pursuant to the Former Parent equity incentive plans as of immediately prior to the Separation was determined in accordance with the terms of the Employee Matters Agreement by and between Adeia Inc. and Xperi Inc., dated as of October 1, 2022 (the “EMA”). In connection with this adjustment, each outstanding Former Parent equity award as of the Separation Date was converted into either (a) both Adeia and Xperi equity awards, with certain adjustments to the underlying shares and terms of outstanding awards to preserve the aggregate intrinsic value of each award immediately after the Separation when compared to the aggregate intrinsic value immediately prior to the Separation, or (b) an equity award of only Adeia common stock or only Xperi common stock, with an adjustment to the number of shares to preserve the value of the award. Following the Separation, the Adeia awards and Xperi awards related to prior grants made by the Former Parent are subject to substantially the same terms and vesting conditions that applied to the original Former Parent awards immediately prior to the Separation. The conversion of the Former Parent equity awards was accounted for as a modification, resulting in $8.4 million of incremental stock-based compensation expense to be recognized over the remaining vesting term of the modified awards. Equity Incentive Plans In connection with the Separation and on October 1, 2022, the Company adopted the Xperi Inc. 2022 Equity Incentive Plan (the “2022 EIP”). Under the 2022 EIP, the Company may grant equity-based awards to employees, non-employee directors, and consultants for services rendered to the Company (or any parent or subsidiary) in the form of stock options, stock awards, restricted stock awards, RSUs, stock appreciation rights, dividend equivalents and performance awards, or any combination thereof. The 2022 EIP provides for option grants designated as either incentive stock options or non-statutory options. Stock options have been granted with an exercise price not less than the value of the Company’s common stock on the grant date and have 10-year contractual terms from the date of grant and vest over a four-year period. The vesting criteria for restricted stock units has historically been the passage of time or meeting certain performance-based objectives, and continued employment through the vesting period over three or four years for time-based awards or three years for performance-based awards. As of December 31, 2023, there were approximately 4.2 million shares reserved for future grant under the 2022 EIP. Employee Stock Purchase Plans In connection with the Separation and on October 1, 2022, the Company adopted the Xperi Inc. 2022 Employee Stock Purchase Plan. The plan provided consecutive overlapping 24-month offering periods, with four purchase periods that were generally six months in length, commencing on each December 1 and June 1 during the term of the plan. The plan was subsequently amended (as amended, the “2022 ESPP”), and commencing December 1, 2023, the length of the offering periods was reduced from 24 months to 12 months and the employee’s maximum participant contribution was reduced from 100% to 15% of their after tax base earnings and commissions up to the limit imposed by the Internal Revenue Service (“IRS”). The accumulated deductions will be applied to the purchase of shares on each semi-annual purchase date. The purchase price per share will equal 85% of the fair market value per share on the start date of the offering period or, if lower, 85% of the fair market value per share on the semi-annual purchase date. An eligible employee’s right to purchase the Company’s common stock under the 2022 ESPP may not accrue at a rate in excess of $25,000 limit imposed by the IRS on the fair market value of such shares per calendar year. If the fair market value per share of the Company’s common stock on any purchase date during an offering period is less than the fair market value per share on the start date of the 12-month offering period, then that offering period will automatically terminate and a new 12-month offering period will begin on the next business day. All participants in the terminated offering will be transferred to the new offering. The change in the term of the offering period (as described above) was accounted for as a modification, where the original options to purchase shares were cancelled and concurrently replaced with new options from the 12-month offering period. There was no incremental compensation expense resulting from the modification. As of December 1, 2023, total compensation expense of $5.9 million was expected to be recognized by the Company, on a straight-line basis, over an accelerated term of 12 months. For the year ended December 31, 2023, the Company issued 1.3 million shares under the 2022 ESPP at a weighted-average purchase price of $8.92, net of s hares withheld to satisfy withholding tax requirements for certain employees, for an aggregate net proceeds of $11.9 million. As of December 31, 2023, there were approximately 3.7 million shares reserved for future grant under the 2022 ESPP. The following table summarizes the valuation assumptions used in estimating the fair value of the 2022 ESPP for the offering periods in effect using the Black-Scholes option pricing model:
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |
Expected life (years) |  | 0.5 — 2.0 |  |  |  | 2.0 |
Risk-free interest rate |  | 4.33% — 5.44% |  |  |  | 4.3 | %
Dividend yield |  |  | 0.0 | % |  |  | 0.0 | %
Expected volatility |  | 44.11% — 51.19% |  |  |  | 42.9 | %
Prior to the Separation, the valuation assumptions were determined by the Former Parent. The following assumptions were used to value the Former Parent’s ESPP shares granted to employees specifically identifiable to Xperi in the years ended December 31, 2022 and 2021:
|  | Year Ended December 31, |
|  | 2022 |  |  | 2021 |
Expected life (years) |  |  | 2.0 |  |  |  | 2.0 |
Risk-free interest rate |  |  | 1.3 | % |  | 0.1% - 0.2% |
Dividend yield |  |  | 1.1 | % |  | 0.9% - 1.2% |
Expected volatility |  |  | 48.5 | % |  |  | 52.0 | %
The Company uses the Black-Scholes option pricing model to determine the estimated fair value of ESPP shares. The determinations of these assumptions are outlined below: Expected life—The expected life assumption is based on analysis of the Company’s historical employee exercise patterns. The expected life of options granted under the ESPP represents the offering period of two years. Effective December 1, 2023, the expected life of options granted under the ESPP was changed to one year. Volatility—Due to limited historical trading data, volatility is calculated based on a peer group over the most recent period that represents the remaining term of the vesting period as of the valuation date. For ESPP with the expected life of one year, volatility is calculated based on the Company’s stock price. Risk-free interest rate—The risk-free interest rate assumption is based on the U.S. Treasury rate for issues, commensurate with the expected life of the options granted. Dividend yield—Following the Separation in October 2022, the Company does not expect to pay dividends in the foreseeable future. Prior to the Separation, the Former Parent determined the expected dividend yield based on cash dividends declared by the board of directors for the previous four quarters and dividing that result by the average closing price of the Former Parent’s common stock for the quarter. Cash dividends were not paid on stock options, restricted stock units, or unvested restricted stock awards. Stock Options The following table provides the Company’s stock option activity from the Separation Date to December 31, 2023 (in thousands, except per share amounts):
|  | Number of Shares Subject to Stock Options |  |  | Weighted Average Exercise Price Per Share |  |  | Weighted Average Remaining Contractual Life (in years) |  |  | Aggregate Intrinsic Value |
Balance at December 31, 2022 |  |  | 146 |  |  | $ | 25.48 |  |  |  | 1.89 |  |  | $ | — |
Options canceled / forfeited / expired |  |  | (40 | ) |  | $ | 21.76 |  |  |  |  |  |  |
Balance at December 31, 2023 (1) |  |  | 106 |  |  | $ | 26.87 |  |  |  | 1.69 |  |  | $ | — |
(1) The ending balance at December 31, 2023 represents stock options that were fully vested and exercisable. Restricted Stock Units Information with respect to outstanding RSUs (including both time-based vesting and performance-based vesting) as of December 31, 2023 is as follows (in thousands, except per share amounts):
|  | 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, 2022 |  |  | 3,713 |  |  |  | 891 |  |  |  | 4,604 |  |  | $ | 20.35 |
Granted |  |  | 3,204 |  |  |  | 1,009 |  |  |  | 4,213 |  |  | $ | 11.64 |
Vested / released |  |  | (1,231 | ) |  |  | (15 | ) |  |  | (1,246 | ) |  | $ | 18.44 |
Canceled / forfeited |  |  | (290 | ) |  |  | (214 | ) |  |  | (504 | ) |  | $ | 20.20 |
Balance at December 31, 2023 |  |  | 5,396 |  |  |  | 1,671 |  |  |  | 7,067 |  |  | $ | 15.51 |
Performance-Based Awards From time to time, the Company may grant PSUs to senior executives, certain employees, and consultants. The value and the vesting of such PSUs are generally linked to one or more performance goals or certain market conditions determined by the Company, in each case on a specified date or dates or over any period or periods determined by the Company, and may range from zero to 200% of the grant. For PSUs subject to market conditions, the fair value per award is fixed at the grant date and the amount of compensation expense is not adjusted during the performance period regardless of changes in the level of achievement of the market condition. In April 2023, in accordance with the EMA executed by the Company and the Former Parent in connection with the Separation, the Company modified certain vesting conditions related to market-based PSUs granted in 2022, resulting in a total incremental compensation expense of $2.9 million, which is expected to be recognized over the remaining requisite service period through April 2025. The Company uses the closing trading price of its common stock on the date of grant as the fair value of awards of RSUs and PSUs that are based on Company-designated performance targets. For PSUs that are based on market conditions, or market-based PSUs, fair value is estimated by using a Monte Carlo simulation on the date of grant. The following assumptions were used to value the market-based PSUs granted during the period:
|  | Year Ended December 31, |
|  | 2023 |  | 2022 |  |  | 2021 |
Expected life (years) |  | 1.5 — 2.8 |  |  | 3.0 |  |  |  | 3.0 |
Risk-free interest rate |  | 4.54% — 4.96% |  | 2.8% |  |  | 0.3% |
Dividend yield |  | 0.00% |  | 1.2% |  |  | 1.0% |
Expected volatility |  | 44.11% — 51.19% |  | 40.9% |  |  | 47.9% |
Assumptions used in the years ended December 31, 2022 and 2021 were for market-based PSUs granted by the Former Parent. Stock-Based Compensation Prior to the Separation, the stock-based compensation expense was based on the expense for employees specifically identifiable to Xperi. Consequently, the amounts presented are not necessarily indicative of future awards and do not necessarily reflect the costs that the Company would have incurred as an independent company. Total stock-based compensation expense for the years ended December 31, 2023, 2022 and 2021 is as follows (in thousands):
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Cost of revenue, excluding depreciation and amortization of intangible assets |  | $ | 3,466 |  |  | $ | 2,906 |  |  | $ | 1,972 |
Research and development |  |  | 25,276 |  |  |  | 21,561 |  |  |  | 17,914 |
Selling, general and administrative |  |  | 40,789 |  |  |  | 20,836 |  |  |  | 13,623 |
Total stock-based compensation expense |  | $ | 69,531 |  |  | $ | 45,303 |  |  | $ | 33,509 |
Stock-based compensation expense categorized by award type for the years ended December 31, 2023, 2022 and 2021 is summarized in the table below (in thousands):
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Restricted stock awards and units |  | $ | 64,179 |  |  | $ | 42,208 |  |  | $ | 30,015 |
Stock options |  |  | — |  |  |  | 368 |  |  |  | 66 |
ESPP |  |  | 5,352 |  |  |  | 2,727 |  |  |  | 3,428 |
Total stock-based compensation expense |  | $ | 69,531 |  |  | $ | 45,303 |  |  | $ | 33,509 |
In addition, for the years ended December 31, 2022 and 2021, $6.9 million and $9.2 million, respectively, of stock-based compensation expense was recognized in operating results as part of the corporate and shared functional employees’ expenses allocation. As of December 31, 2023, unrecognized stock-based compensation expense related to unvested stock-based awards is as follows (amounts in thousands):
|  | December 31, 2023 |
|  | Unrecognized Stock-Based Compensation |  |  | Weighted-Average Period to Recognize Expense (in years) |
RSUs and PSUs |  | $ | 88,151 |  |  |  | 2.1 |
ESPP |  |  | 5,532 |  |  |  | 0.9 |
Total unrecognized stock-based compensation expense |  | $ | 93,683 |  |  |  |

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