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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________ 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number: 001-37870
TiVo Corporation
(Exact name of registrant as specified in its charter)
Delaware
 
 
 
 
61-1793262
(State or other jurisdiction of
incorporation or organization)
 
 
 
 
(I.R.S. Employer
Identification No.)
2160 Gold Street
,
San Jose
,
California
95002
(Address of principal executive offices, including zip code)
(408) 519-9100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share
 
TIVO
 
The Nasdaq Stock Market LLC
 
 
 (Nasdaq Global Select Market)
Series A Junior Participating Preferred Stock Purchase Rights
 
N/A
 
The Nasdaq Stock Market LLC
 
 
 (Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
Smaller reporting company
 
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
    
The number of shares of the Registrant's Common Stock outstanding on April 30, 2020 was 127.7 million.



Table of Contents


TIVO CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1.
 
 
 
 
 
 
ITEM 2.
ITEM 3.
ITEM 4.
 
PART II. OTHER INFORMATION
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
 


1

Table of Contents

PART I.

ITEM 1. FINANCIAL STATEMENTS

TIVO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)

March 31, 2020
 
December 31, 2019
ASSETS
(Unaudited)


Current assets:



Cash and cash equivalents
$
108,519


$
373,719

Short-term marketable securities


51,293

Accounts receivable, net
164,618


158,016

Inventory
2,944

 
3,197

Prepaid expenses and other current assets
27,393


27,023

Total current assets
303,474

 
613,248

Property and equipment, net
43,706


48,264

Intangible assets, net
386,524


415,054

Goodwill
1,018,310


1,189,825

Right-of-use assets
56,405

 
59,888

Other long-term assets
56,183


56,293

Total assets
$
1,864,602

 
$
2,382,572





LIABILITIES AND STOCKHOLDERS’ EQUITY



Current liabilities:



Accounts payable and accrued expenses
$
81,427


$
126,249

Unearned revenue
48,502


50,968

Current portion of long-term debt
66,450


343,035

Total current liabilities
196,379

 
520,252

Unearned revenue, less current portion
37,292


39,879

Long-term debt, less current portion
625,867


642,504

Deferred tax liabilities, net
29,603


34,231

Long-term lease liabilities
58,303

 
61,603

Other long-term liabilities
14,596


10,420

Total liabilities
962,040

 
1,308,889

Contingencies (Note 9)





Stockholders' equity:



Preferred stock, $0.001 par value, 5,000 shares authorized; no shares issued or outstanding



Common stock, $0.001 par value, 250,000 shares authorized; 130,290 shares issued and 127,654 shares outstanding as of March 31, 2020; and 129,216 shares issued and 126,666 shares outstanding as of December 31, 2019
130


129

Treasury stock, 2,636 shares and 2,550 shares as of March 31, 2020 and December 31, 2019, respectively, at cost
(38,819
)

(38,176
)
Additional paid-in capital
3,247,562


3,235,996

Accumulated other comprehensive loss
(5,021
)

(3,612
)
Accumulated deficit
(2,301,290
)

(2,120,654
)
Total stockholders’ equity
902,562

 
1,073,683

Total liabilities and stockholders’ equity
$
1,864,602

 
$
2,382,572


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


2

Table of Contents

TIVO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended March 31,
 
2020
 
2019
Revenues, net:
 
 
 
Licensing, services and software
$
157,238

 
$
156,161

Hardware
2,623

 
2,074

Total Revenues, net
159,861

 
158,235

Costs and expenses:
 
 
 
Cost of licensing, services and software revenues, excluding depreciation and amortization of intangible assets
37,396

 
39,433

Cost of hardware revenues, excluding depreciation and amortization of intangible assets
5,022

 
4,093

Research and development
33,744

 
41,381

Selling, general and administrative
35,897

 
45,993

Depreciation
4,968

 
5,364

Amortization of intangible assets
28,142

 
28,178

Restructuring and asset impairment charges
739

 
1,813

Goodwill impairment
171,572

 

Total costs and expenses
317,480

 
166,255

Operating loss
(157,619
)
 
(8,020
)
Interest expense
(17,049
)
 
(12,161
)
Interest income and other, net
187

 
1,775

Loss on interest rate swaps
(5,119
)
 
(1,721
)
Loss on debt extinguishment

 
(199
)
Loss before income taxes
(179,600
)
 
(20,326
)
Income tax (benefit) expense
(416
)
 
6,318

Net loss
$
(179,184
)
 
$
(26,644
)
 
 
 
 
Basic loss per share
$
(1.41
)
 
$
(0.21
)
Weighted average shares used in computing basic per share amounts
127,124

 
124,422

 
 
 
 
Diluted loss per share
$
(1.41
)
 
$
(0.21
)
Weighted average shares used in computing diluted per share amounts
127,124

 
124,422

 
 
 
 
Dividends declared per share
$

 
$
0.18


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3

Table of Contents

TIVO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)

 
 
Three Months Ended March 31,
 
2020
 
2019
Net loss
$
(179,184
)
 
$
(26,644
)
Other comprehensive (loss) income, net of tax:
 
 
 
Change in foreign currency translation adjustment
(1,420
)
 
(287
)
Unrealized gains on marketable securities
 
 
 
Change in unrealized gains on marketable securities

 
501

Less: Reclassification adjustment
48

 

Other comprehensive (loss) income, net of tax
(1,372
)
 
214

Comprehensive loss
$
(180,556
)
 
$
(26,430
)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


4

Table of Contents

TIVO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
 
Common stock
Treasury stock
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
 
Shares
Amount
Shares
Amount
Balance as of December 31, 2018
125,781

$
126

(1,806
)
$
(32,124
)
$
3,239,395

$
(3,869
)
$
(1,710,587
)
$
1,492,941

Net loss
 
 
 
 
 
 
(26,644
)
(26,644
)
Other comprehensive income, net of tax
 
 
 
 
 
214

 
214

Issuance of common stock under employee stock purchase plan
735

1

 
 
6,951

 
 
6,952

Issuance of restricted stock, net
325


 
 

 
 

Equity-based compensation
 
 
 
 
8,433

 
 
8,433

Dividends
 
 
 
 
(22,469
)
 
 
(22,469
)
Withholding taxes related to net share settlement of restricted awards
 
 
(140
)
(1,397
)
 
 
 
(1,397
)
Balance as of March 31, 2019
126,841

$
127

(1,946
)
$
(33,521
)
$
3,232,310

$
(3,655
)
$
(1,737,231
)
$
1,458,030

 
Common stock
Treasury stock
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
 
Shares
Amount
Shares
Amount
Balance as of December 31, 2019
129,216

$
129

(2,550
)
$
(38,176
)
$
3,235,996

$
(3,612
)
$
(2,120,654
)
$
1,073,683

Cumulative effect adjustment
 
 
 
 
 
(37
)
(1,452
)
(1,489
)
Net loss
 
 
 
 
 
 
(179,184
)
(179,184
)
Other comprehensive loss, net of tax
 
 
 
 
 
(1,372
)
 
(1,372
)
Issuance of common stock under employee stock purchase plan
847

1

 
 
5,238

 
 
5,239

Issuance of restricted stock, net
227


 
 

 
 

Equity-based compensation
 
 
 
 
6,328

 
 
6,328

Withholding taxes related to net share settlement of restricted awards
 
 
(86
)
(643
)
 
 
 
(643
)
Balance as of March 31, 2020
130,290

$
130

(2,636
)
$
(38,819
)
$
3,247,562

$
(5,021
)
$
(2,301,290
)
$
902,562


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 

5

Table of Contents

TIVO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
Operating activities:
 
 
 
Net loss
$
(179,184
)
 
$
(26,644
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation
4,968

 
5,364

Amortization of intangible assets
28,142

 
28,178

Amortization of convertible note discount and note issuance costs
3,597

 
4,007

Restructuring and asset impairment charges
739

 
1,813

Goodwill impairment
171,572

 

Equity-based compensation
6,296

 
8,379

Change in fair value of interest rate swaps
4,181

 
4,646

Loss on debt extinguishment

 
199

Deferred income taxes
(4,481
)
 
(672
)
Other operating, net
1,411

 
28

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(9,030
)
 
(3,672
)
Inventory
253

 
1,303

Prepaid expenses and other current assets and other long-term assets
(60
)
 
(3,860
)
Right-of-use assets, net of lease liabilities
(732
)
 
(413
)
Accounts payable and accrued expenses and other long-term liabilities
(41,672
)
 
(17,947
)
Taxes payable
(1,243
)
 
1,378

Unearned revenue
(5,053
)
 
2,238

Net cash (used in) provided by operating activities - Continuing operations
(20,296
)
 
4,325

Net cash used in operating activities - Discontinued operations
(406
)
 

Net cash (used in) provided by operating activities
(20,702
)
 
4,325

Investing activities:
 
 
 
Payments for purchase of short- and long-term marketable securities

 
(29,849
)
Proceeds from sales or maturities of securities
51,310

 
49,000

Payments for purchase of property and equipment
(2,683
)
 
(4,305
)
Payments for acquisition of patents

 
(4,250
)
Other investing, net

 
3

Net cash provided by investing activities
48,627

 
10,599

Financing activities:
 
 
 
Principal payments on long-term debt
(296,788
)
 
(46,588
)
Payments for dividends

 
(22,544
)
Payments for withholding taxes related to net settlement of restricted awards
(643
)
 
(1,397
)
Proceeds from employee stock purchase plan
5,239

 
6,952

Net cash used in financing activities
(292,192
)
 
(63,577
)
Effect of exchange rate changes on cash and cash equivalents
(933
)
 
(120
)
Net decrease in cash and cash equivalents
(265,200
)
 
(48,773
)
Cash and cash equivalents at beginning of period
373,719

 
161,955

Cash and cash equivalents at end of period
$
108,519

 
$
113,182


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6

Table of Contents

TIVO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation and Summary of Significant Accounting Policies

Description of Business

On April 28, 2016, Rovi Corporation ("Rovi") and TiVo Inc. (renamed TiVo Solutions Inc. ("TiVo Solutions")) entered into an Agreement and Plan of Merger (the “Merger Agreement”) for Rovi to acquire TiVo Solutions in a cash and stock transaction (the "TiVo Acquisition"). Following consummation of the TiVo Acquisition on September 7, 2016 (the "TiVo Acquisition Date"), TiVo Corporation (the "Company" or "TiVo"), a Delaware corporation founded in April 2016 as Titan Technologies Corporation and then a wholly-owned subsidiary of Rovi, owns both Rovi and TiVo Solutions.

The Company is a global leader in bringing entertainment together, making entertainment content easy to find, watch and enjoy. TiVo provides a broad set of cloud-based services, embedded software solutions and intellectual property that bring entertainment together for the watchers, creators and advertisers. For the creators and advertisers, TiVo's products deliver a passionate group of watchers to increase viewership and engagement across online video, TV and other entertainment viewing platforms. Our products and innovations are protected by broad portfolios of licensable technology patents. These portfolios cover many aspects of content discovery, digital video recorder ("DVR"), video-on-demand ("VOD") and over-the-top ("OTT") experiences, multi-screen viewing, mobile device video experiences, entertainment personalization, voice interaction, social and interactive applications, data analytics solutions and advertising.

On May 9, 2019, the Company announced that its Board of Directors unanimously approved a plan to separate the Product and Intellectual Property Licensing businesses into separately traded public companies (the “TiVo Separation”). The TiVo Separation was expected to be completed through a dividend of newly issued shares of the common stock of a Company subsidiary that would hold the Product business (“ProductCo”), which was targeted for completion by April 2020.

On December 18, 2019, the Company and Xperi Corporation (“Xperi”) entered into an Agreement and Plan of Merger and Reorganization (the “Xperi Merger Agreement”), pursuant to which TiVo and Xperi have agreed, subject to the terms and conditions of the Xperi Merger Agreement, to effect an all-stock, merger of equals strategic combination of their respective businesses (the "Xperi Combination"). The board of directors of each of TiVo and Xperi have approved the Xperi Merger Agreement and the transactions contemplated thereby. The Xperi Combination is subject to certain customary approvals, including the approval of shareholders of TiVo and Xperi, and is expected to be completed by June 30, 2020.
    
Basis of Presentation and Principles of Consolidation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted in accordance with such rules and regulations. However, the Company believes the disclosures made are adequate to make the information not misleading. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management, are considered necessary to present fairly the results for the periods presented.

The information contained in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto and other disclosures contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss, Condensed Consolidated Statements of Stockholders' Equity and the Condensed Consolidated Statements of Cash Flows for the interim periods presented are not necessarily indicative of the results to be expected for the year ended December 31, 2020, for any future year, or for any other future interim period.

The accompanying Condensed Consolidated Financial Statements include the accounts of TiVo Corporation and subsidiaries and affiliates in which the Company has a controlling financial interest after the elimination of intercompany accounts and transactions.

Certain prior year amounts have been reclassified to conform to the current year presentation.


7

Table of Contents

Use of Estimates

The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and related disclosures as of the date of the financial statements and the results of operations for the reporting period. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, long-lived asset impairment, including goodwill and intangible assets, equity-based compensation and income taxes. Actual results may differ from those estimates.

Risks and Uncertainties
 
The recent outbreak of the Coronavirus Disease 2019, or COVID-19, which has been declared by the World Health Organization to be a “public health emergency of international concern,” is impacting worldwide economic activity. As a public health epidemic, COVID-19 poses the risk that the Company or its workforce, suppliers and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. The COVID-19 pandemic has recently had adverse impacts on many aspects of the Company's operations, directly and indirectly, including its workforce, consumer behavior, distribution, suppliers and the market generally. For example, in March 2020, the Company announced its workforce would work remotely as a result of the pandemic as it reviewed its processes related to workplace safety, including social distancing and sanitation practices recommended by the Centers for Disease Control and Prevention. As the Company generates the substantial majority of its revenue from pay TV operators and others in the video delivery industry, to date COVID-19 has not had a significant impact on the Company’s revenue. However, the impacts of the COVID-19 pandemic could cause delays in obtaining new customers and executing renewals and could also impact the Company's consumer business, including sales of TiVo Stream 4K which was recently launched. Further, the global financial markets have experienced increased volatility and have declined since December 31, 2019. The Condensed Consolidated Financial Statements as of and for the three months ended March 31, 2020 reflect management's assumptions about the economic environment and the Company's ability to realize certain assets, including long-lived assets, such as goodwill, accounts receivable and investments in other companies. Although the response to the COVID-19 pandemic is expected to be temporary, such conditions in the global financial markets and business activities could lead to further impairment of our long-lived assets, including goodwill, increased credit losses and impairments of investments in other companies.

Management believes the Company's Cash and cash equivalents and anticipated operating cash flow, supplemented with access to capital markets as necessary, are generally sufficient to support its operating businesses, capital expenditures, restructuring activities, interest payments and income tax payments, in addition to investments in future growth opportunities and activities related to the Xperi Combination for at least the next twelve months. The Company is taking steps to manage its resources by reducing and/or deferring capital expenditures, inventory purchases and operating expenses to mitigate the adverse impact of the COVID-19 pandemic. Future impacts of the COVID-19 pandemic may require further actions by the Company to improve its cash position, including but not limited to, implementing employee furloughs and foregoing capital expenditures and other discretionary expenses.
 
Allowance for Credit Losses
The Company performs ongoing credit evaluations of its customers. The Company reviews its accounts receivable to identify potential collection issues. A specific allowance for credit losses is recorded when warranted by specific customer circumstances, such as in the case of a bankruptcy filing, a deterioration in the customer's operating results or financial position or the past due status of a receivable based on its contractual payment terms. If there are subsequent changes in circumstances related to the specific customer, adjustments to recoverability estimates are recorded. For accounts receivable not specifically assessed, including unbilled receivables, an allowance for credit losses is recorded using the immediate reversion methodology for forecasting expected losses based on historical loss experience, current conditions and reasonable and supportable forecasts that affect collectability and other factors. Accounts receivable deemed uncollectible are charged off when collection efforts have been exhausted.
Inventory

Inventories consist primarily of finished DVRs 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 excess or obsolete goods, which includes a review of, among other factors, demand requirements and market conditions. As of March 31, 2020 and December 31, 2019, substantially all inventory is comprised of finished goods.


8

Table of Contents

Goodwill
    
Goodwill represents the excess of cost over fair value of the net assets of an acquired business. The recoverability of goodwill is assessed at the reporting unit level, which is either the operating segment or one level below. Goodwill is evaluated for potential impairment annually, as of the beginning of the fourth quarter, and whenever events or changes in circumstances indicate its carrying amount may not be recoverable.
    
Qualitative factors are first assessed to determine whether events or changes in circumstances indicate it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If, based on the qualitative assessment, it is considered more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then a quantitative impairment test is performed. In the quantitative impairment test, the fair value of each reporting unit is compared to its carrying amount.

The fair value of the Product reporting unit and the Intellectual Property Licensing reporting unit is estimated using an income approach. Under the income approach, the fair value of a reporting unit is estimated based on the present value of future cash flows and considers projected revenue growth rates, future operating margins, income tax rates and economic and market conditions, as well as risk-adjusted discount rates. The carrying amount of a reporting unit is determined by assigning assets and liabilities, including goodwill and intangible assets, to the reporting unit. If the fair value of a reporting unit exceeds its carrying amount, goodwill is not impaired. If the fair value of a reporting unit is less than its carrying amount, an impairment loss equal to the difference is recognized.

Recent Accounting Pronouncements

Standards Adopted in 2020

In August 2018, the FASB modified 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 modified requirements on January 1, 2020 using the retrospective transition approach. On adoption, the Company reclassified $0.5 million of net capitalized costs that were incurred to implement a hosting arrangement from Property and equipment, net to Other assets.

In June 2016, the FASB issued updated guidance that requires entities to use a current expected credit loss model to measure credit-related impairments for financial instruments held at amortized cost. 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. The updated guidance also amends the other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments for credit-related losses through an allowance and eliminating the length of time a security has been in an unrealized loss position as a consideration in the determination of whether a credit loss exists. The Company adopted the amended credit loss guidance on January 1, 2020 using the modified retrospective transition approach. On adoption, the Company recognized a cumulative effect adjustment, net of tax effects, that increased both the Accumulated deficit and the allowance for credit losses by $1.5 million as presented in Note 3, primarily related to establishing an allowance for credit losses on contract assets for which revenue has been recognized in excess of the amount billed to the customer. Results for the periods beginning after December 31, 2019 are presented under the amended credit loss guidance, while prior period amounts were not restated and continue to be reported in accordance with the Company’s previous allowance for doubtful accounts policies.

Standards Pending Adoption
    
In December 2019, the FASB issued guidance to simplify the accounting for income taxes by removing certain exceptions to general principles, clarifying requirements and including amendments to improve consistent application of the guidance. The guidance specifically removes the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, such as discontinued operations or other comprehensive income. The guidance also requires an entity to recognize a franchise tax that is partially based on income as an income-based tax and to account for any other amounts incurred as a non-income-based tax. The guidance is effective for the Company beginning on January 1, 2021 using a prospective approach. Early adoption is permitted. The Company is evaluating the effect of application on its Condensed Consolidated Financial Statements.


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(2) Financial Statement Details

Property and equipment, net

Components of Property and equipment, net were as follows (in thousands):
 
March 31, 2020
 
December 31, 2019
Computer software and equipment
$
162,017

 
$
160,893

Leasehold improvements
45,246

 
46,383

Furniture and fixtures
9,991

 
10,054

Property and equipment, gross
217,254

 
217,330

Less: Accumulated depreciation and amortization
(173,548
)
 
(169,066
)
Property and equipment, net
$
43,706

 
$
48,264


    
Accounts payable and accrued expenses

Components of Accounts payable and accrued expenses were as follows (in thousands):
 
March 31, 2020
 
December 31, 2019
Accounts payable
$
8,881

 
$
11,801

Accrued compensation and benefits
20,015

 
44,456

Other accrued liabilities
52,531

 
69,992

Accounts payable and accrued expenses
$
81,427

 
$
126,249


(3) Revenues

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 significant customer, contract-type, geographic area and product offering (presented in Note 13). This information includes revenue recognized from contracts with customers and revenue from other sources, including out-of-license settlements.
    
During the three months ended March 31, 2020 and 2019, AT&T Inc. ("AT&T") represented 11% and 11% of Total Revenues, net, respectively. Other than AT&T, no customer accounted for more than 10% of Total Revenues, net during the three months ended March 31, 2020 and 2019. Substantially all revenue from AT&T is reported in the Intellectual Property Licensing segment.

By segment, the pattern of revenue recognition was as follows (in thousands):
 
Three Months Ended March 31, 2020
 
Three Months Ended March 31, 2019
 
Product
 
Intellectual Property Licensing
 
Total Revenues, net
 
Product
 
Intellectual Property Licensing
 
Total Revenues, net
Goods and services transferred at a point in time
$
18,620

 
$
32,674

 
$
51,294

 
$
20,994

 
$
28,127

 
$
49,121

Goods and services transferred over time
67,856

 
37,211

 
105,067

 
70,309

 
36,701

 
107,010

Out-of-license settlements

 
3,500

 
3,500

 

 
2,104

 
2,104

Total Revenues, net
$
86,476

 
$
73,385

 
$
159,861

 
$
91,303

 
$
66,932

 
$
158,235




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Revenue by geographic area was as follows (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
United States
$
116,892

 
$
107,838

Rest of the world
42,969

 
50,397

Total Revenues, net
$
159,861

 
$
158,235



Revenue by geographic area is predominately based on the end user's location. Other than the U.S., no country accounted for more than 10% of Total Revenues, net for the three months ended March 31, 2020 and 2019.

Adoption of Amended Credit Loss Guidance

The Company adopted the provisions of the amended credit loss guidance as described in Note 1 using the modified retrospective transition approach on January 1, 2020. As such the amended credit loss guidance was applied to accounts receivable not specifically reserved and contract assets for which revenue has been recognized in excess of the amount billed to the customer as of December 31, 2019. Results for periods beginning after December 31, 2019 are presented under the amended credit loss guidance, while prior period amounts were not restated and continue to be reported in accordance with the previous allowance for doubtful accounts policies.

The cumulative effect of these changes on the Condensed Consolidated Balance Sheets on adoption was as follows (in thousands):
 
Balance as of
 
Cumulative Effect Adjustment
 
Balance as of
Effect of adoption
December 31, 2019
 
 
January 1, 2020
Accounts receivable, net
$
158,016

 
$
(1,463
)
 
$
156,553

Deferred tax liabilities, net
34,231

 
48

 
34,279

Accumulated other comprehensive loss
(3,612
)
 
(37
)
 
(3,649
)
Accumulated deficit
(2,120,654
)
 
(1,452
)
 
(2,122,106
)


Accounts receivable, net

Components of Accounts receivable, net were as follows (in thousands):
 
March 31, 2020
 
December 31, 2019
Accounts receivable, gross
$
168,898

 
$
160,139

Less: Allowance for credit losses
(4,280
)
 
(2,123
)
Accounts receivable, net
$
164,618

 
$
158,016



As of March 31, 2020 and December 31, 2019, AT&T represented 18% and 19% of Accounts receivable, net, respectively. Other than AT&T, no customer accounted for more than 10% of Accounts receivable, net as of March 31, 2020 and December 31, 2019.

Allowance for Credit Losses
 
Three Months Ended March 31,
 
2020
 
2019
Balance at beginning of period
$
(2,123
)
 
$
(2,842
)
Cumulative effect adjustment
(1,463
)
 

Provision for bad debt
(965
)
 
(68
)
Deductions and write-offs, net
271

 
424

Balance at end of period
$
(4,280
)
 
$
(2,486
)


Contract Balances

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Contract assets primarily consist of revenue recognized in excess of the amount billed to the customer, limited to net realizable value and deferred engineering costs for significant software customization or modification and set-up services to the extent deemed recoverable. Substantially all unbilled amounts are expected to be invoiced to the customer within the next 12
months. 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. Contract assets were recorded in the Condensed Consolidated Balance Sheets as follows (in thousands):
 
March 31, 2020
 
December 31, 2019
Accounts receivable, net
$
67,479

 
$
56,862

Prepaid expenses and other current assets
3,420

 
2,600

Other long-term assets
10,878

 
11,514

Total contract assets, net
$
81,777

 
$
70,976


No impairment losses were recognized with respect to contract assets for the three months ended March 31, 2020 and 2019.

Contract liabilities are mainly comprised of unearned 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 of when control of the promised good or service is transferred to the customer. Unearned revenue also includes amounts related to professional services to be performed in the future. For the three months ended March 31, 2020, the Company recognized $16.1 million of revenue that had been included in Unearned revenue as of December 31, 2019.

As of March 31, 2020, approximately $604.8 million of revenue is expected to be recognized from unsatisfied performance obligations that are primarily related to fixed-fee intellectual property and software-as-a-service agreements, which is expected to be recognized as follows: 24% in the remainder of 2020, 22% in 2021, 16% in 2022, 14% in 2023, 12% in 2024 and 12% thereafter.

(4) Investments and Fair Value Measurements

Fair Value Hierarchy

The Company uses valuation techniques that are based on observable and unobservable inputs to measure fair value. Observable inputs are developed using publicly available information and reflect the assumptions market participants would use, while unobservable inputs are developed using the best information available about the assumptions market participants would use. Fair value measurements are classified in a hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs. Assets and liabilities are classified in a fair value hierarchy based on the lowest level input that is significant to the fair value measurement in its entirety:
Level 1. Quoted prices in active markets for identical assets or liabilities.
Level 2. Inputs other than Level 1 inputs that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or market-corroborated inputs.
Level 3. Unobservable inputs for the asset or liability.

The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. For the three months ended March 31, 2020 and 2019, there were no transfers between levels of the fair value hierarchy.

Recurring Fair Value Measurements

Assets

The amortized cost and fair value of cash, cash equivalents and marketable securities by significant investment
category, as well as their classification on the Condensed Consolidated Balance Sheets were as follows (in thousands):

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As of December 31, 2019
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
 
Cash and Cash Equivalents
 
Short-Term Investments
Cash
 
$
119,349

 
$

 
$

 
$
119,349

 
$
119,349

 
$

Level 1:
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
226,111

 

 

 
226,111

 
226,111

 

Level 1 Subtotal
 
226,111

 

 

 
226,111

 
226,111

 

Level 2:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
 
40,522

 

 
(1
)
 
40,521

 
16,280

 
24,241

U.S. Treasuries / Agencies
 
39,009

 
32

 
(10
)
 
39,031

 
11,979

 
27,052

Level 2 Subtotal
 
79,531

 
32

 
(11
)
 
79,552

 
28,259

 
51,293

Total assets
 
$
424,991

 
$
32

 
$
(11
)
 
$
425,012

 
$
373,719

 
$
51,293



As of March 31, 2020, Cash and cash equivalents consisted of $43.8 million in cash and $64.7 million in Money market funds classified in Level 1 of the fair value hierarchy.

As of March 31, 2020 and December 31, 2019, Other long-term assets include equity securities accounted for under the equity method with a carrying amount of $4.0 million and $3.7 million, respectively, and equity securities without a readily determinable fair value with a carrying amount of $0.1 million and $0.4 million, respectively. During the three months ended March 31, 2020, an impairment loss of $0.3 million was recognized on the Company's equity securities without a readily determinable fair value. No impairments or adjustments to the carrying amount of the Company's equity securities without a readily determinable fair value were recognized in the three months ended March 31, 2019.

Liabilities

Liabilities reported at fair value in the Condensed Consolidated Balance Sheets were classified in the fair value hierarchy as follows (in thousands):
 
 
March 31, 2020
 
December 31, 2019
 
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Other
Observable Inputs
(Level 2)
Liabilities
 
 
 
 
Other long-term liabilities
 
 
 
 
Interest rate swaps
 
$
(10,294
)
 
$
(6,120
)
Total Liabilities
 
$
(10,294
)
 
$
(6,120
)


Nonrecurring Fair Value Measurements

As part of the quantitative interim goodwill impairment test performed as of March 31, 2020, the Product and Intellectual Property Licensing reporting units were measured at fair value, resulting in a Goodwill impairment charge of $171.6 million. The unobservable inputs used to estimate the fair value of the Product and Intellectual Property Licensing reporting units include projected revenue growth rates, future operating margins and risk-adjusted discount rates, and, accordingly, these measurements would be classified in Level 3 of the fair value hierarchy. The Goodwill impairment charge and the valuation techniques used to estimate reporting unit fair values are more fully described in Note 1 and Note 5.

Valuation Techniques

The fair value of marketable securities is estimated using observable market-corroborated inputs, such as quoted prices in active markets for similar assets or independent pricing vendors, obtained from a third-party pricing service.

The fair value of interest rate swaps is estimated using a discounted cash flow analysis that considers the expected future cash flows of each interest rate swap. This analysis reflects the contractual terms of the interest rate swap, including the remaining period to maturity, and uses market-corroborated inputs, including forward interest rate curves and implied interest rate volatilities. The fair value of an interest rate swap is estimated by netting the discounted future fixed cash payments against the discounted expected variable cash receipts. The variable cash receipts are estimated based on an expectation of future interest rates derived from forward interest rate curves. The fair value of an interest rate swap also incorporates credit valuation

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adjustments to reflect the nonperformance risk of the Company and the respective counterparty. In adjusting the fair value of its interest rate swaps for the effect of nonperformance risk, the Company considers the effect of its master netting agreements.
Other Fair Value Disclosures
The carrying amount and fair value of debt issued or assumed by the Company were as follows (in thousands): 
 
March 31, 2020
 
December 31, 2019
 
Carrying Amount
 
Fair Value (a)
 
Carrying Amount
 
Fair Value (a)
2020 Convertible Notes
$

 
$

 
$
292,699

 
$
292,419

2021 Convertible Notes
48

 
48

 
48

 
48

2019 Term Loan Facility
692,269

 
734,606

 
692,792

 
736,110

Total Long-term debt
$
692,317

 
$
734,654

 
$
985,539

 
$
1,028,577



(a)
If reported at fair value in the Condensed Consolidated Balance Sheets, debt issued or assumed by the Company would be classified in Level 2 of the fair value hierarchy.

(5) Intangible Assets, Net and Goodwill

Intangible Assets, Net

Intangible assets, net consisted of the following (in thousands): 
 
March 31, 2020
 
Gross
 
Accumulated
Amortization
 
Net
Finite-lived intangible assets
 
 
 
 
 
Developed technology and patents
$
1,064,962

 
$
(878,295
)
 
$
186,667

Existing contracts and customer relationships
402,186

 
(220,948
)
 
181,238

Content databases and other
57,466

 
(52,847
)
 
4,619

Trademarks / Tradenames
8,300

 
(8,300
)
 

Total finite-lived intangible assets
1,532,914

 
(1,160,390
)
 
372,524

Indefinite-lived intangible assets
 
 
 
 
 
TiVo Tradename
14,000

 

 
14,000

Total intangible assets
$
1,546,914

 
$
(1,160,390
)
 
$
386,524


 
December 31, 2019
 
Gross
 
Accumulated
Amortization
 
Net
Finite-lived intangible assets
 
 
 
 
 
Developed technology and patents
$
1,065,506

 
$
(855,934
)
 
$
209,572

Existing contracts and customer relationships
402,695

 
(216,148
)
 
186,547

Content databases and other
57,410

 
(52,475
)
 
4,935

Trademarks / Tradenames
8,300

 
(8,300
)
 

Total finite-lived intangible assets
1,533,911

 
(1,132,857
)
 
401,054

Indefinite-lived intangible assets
 
 
 
 
 
TiVo Tradename
14,000

 

 
14,000

Total intangible assets
$
1,547,911

 
$
(1,132,857
)
 
$
415,054



Patent Acquisitions

During the three months ended March 31, 2019, the Company acquired a portfolio of patents for $4.3 million in cash. The Company accounted for the patent portfolio acquired as an asset acquisition and is amortizing the purchase price over a weighted average period of ten years.

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Estimated Amortization of Finite-Lived Intangible Assets

As of March 31, 2020, estimated amortization expense for finite-lived intangible assets was as follows (in thousands): 
Remainder of 2020
$
84,228

2021
69,577

2022
41,913

2023
24,860

2024
21,859

Thereafter
130,087

Total
$
372,524



Goodwill

Goodwill allocated to the reportable segments and changes in the carrying amount of goodwill by reportable segment were as follows (in thousands):
 
Product
 
Intellectual Property Licensing
 
Total
December 31, 2019
$
153,226

 
$
1,036,599

 
$
1,189,825

Impairment
(76,070
)
 
(95,502
)
 
(171,572
)
Foreign currency translation
57

 

 
57

March 31, 2020
$
77,213

 
$
941,097

 
$
1,018,310



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.

Due to significant and sustained decline in the trading price of TiVo's common stock during the three months ended March 31, 2020, management concluded sufficient indicators of potential impairment were identified and that it was more-likely-than-not that goodwill was impaired and that a quantitative impairment test should be performed as of March 31, 2020 for the Product and Intellectual Property Licensing reporting units. Although the long-range forecasts for the Product and Intellectual Property Licensing reporting units did not materially change from those used in performing the quantitative impairment test as of December 31, 2019, the fair value decreased due to the significant and sustained decline in the trading price of TiVo's common stock. Based on this decline in fair value, a Goodwill impairment charge of $171.6 million was recognized during the three months ended March 31, 2020, of which $76.1 million related to the Product reporting unit and $95.5 million related to the Intellectual Property Licensing reporting unit.

(6) Restructuring and Asset Impairment Charges

Components of Restructuring and asset impairment charges were as follows (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
Facility-related costs
$
65

 
$

Severance costs
674

 
1,813

Restructuring and asset impairment charges
$
739

 
$
1,813



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Table of Contents

Components of accrued restructuring costs were as follows (in thousands):
 
March 31, 2020
 
December 31, 2019
Severance costs
$
1,720

 
$
2,264

Accrued restructuring costs
$
1,720

 
$
2,264


The Company expects a substantial portion of the accrued restructuring costs to be paid by the end of 2020.

2019 Transformation Plan

In connection with its May 2019 announcement of the TiVo Separation, the Company initiated certain activities to transform its business operations (the "2019 Transformation Plan"). As a result of the 2019 Transformation Plan, the Company is reducing headcount, moving certain positions to lower cost locations, rationalizing facilities and legal entities and terminating certain leases and other contracts. Restructuring activities related to the 2019 Transformation Plan for the three months ended March 31, 2020 were as follows (in thousands): 
 
Balance at Beginning of Period
 
Restructuring Expense
 
Cash Settlements
 
Non-Cash Settlements
 
Other
 
Balance at End of Period
Severance costs
$
603

 
$
597

 
$
(787
)
 
$

 
$

 
$
413

Total
$
603

 
$
597

 
$
(787
)
 
$

 
$

 
$
413



The process of completing the TiVo Separation and the Xperi Combination has been, and is expected to continue to be, time-consuming and involve significant costs and expenses. In addition to the restructuring costs associated with the 2019 Transformation Plan, the Company also recorded $4.0 million of Merger, separation and transformation costs that do not qualify as restructuring expenses during the three months ended March 31, 2020. These costs are primarily Selling, general and administrative costs and consist of employee-related costs, costs to establish certain stand-alone functions and information technology systems and other one-time transaction-related costs, including investment banking and consulting fees and other incremental costs directly associated with the TiVo Separation or the Xperi Combination.

Profit Improvement Plan

In February 2018, the Company announced its intention to explore strategic alternatives. In connection with exploring strategic alternatives, the Company initiated certain cost saving actions (the "Profit Improvement Plan"). As a result of the Profit Improvement Plan, the Company moved certain positions to lower cost locations, eliminated layers of management and rationalized facilities resulting in severance costs and the termination of certain leases and other contracts. Restructuring activities related to the Profit Improvement Plan for the three months ended March 31, 2020 were as follows (in thousands): 
 
Balance at Beginning of Period
 
Restructuring Expense
 
Cash Settlements
 
Non-Cash Settlements
 
Other
 
Balance at End of Period
Facility-related costs
$

 
$
65

 
$

 
$
(65
)
 
$

 
$

Severance costs
1,522

 
77

 
(410
)
 

 
(24
)
 
1,165

Total
$
1,522

 
$
142

 
$
(410
)
 
$
(65
)
 
$
(24
)
 
$
1,165



As a result of actions associated with the Profit Improvement Plan, Restructuring charges of $1.8 million, primarily for severance-related benefits, were recognized in the three months ended March 31, 2019. The Profit Improvement Plan was substantially complete as of December 31, 2019.

Previous Restructuring Plans

As of March 31, 2020 and December 31, 2019, Accrued restructuring costs of $0.1 million and $0.1 million, respectively, are included in the Condensed Consolidated Balance Sheets related to previous restructuring plans.


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Table of Contents

(7) Debt and Interest Rate Swaps

A summary of debt issued or assumed by the Company was as follows (dollars in thousands):
 
 
 
 
March 31, 2020
 
December 31, 2019
 
Stated Interest Rate
Issue Date
Maturity Date
Outstanding Principal
Carrying Amount
 
Outstanding Principal
Carrying Amount
2020 Convertible Notes
0.500%
March 4, 2015
March 1, 2020
$

$

 
$
295,000

$
292,699

2021 Convertible Notes
2.000%
September 22, 2014
October 1, 2021
48