Xperi : Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

About this update from Xperi Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis is intended to promote understanding of our results of operations and financial condition and should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto, and with our audited financial statements and notes thereto for the fiscal year ended December 31, 2025 found in our Form 10-K filed by Xperi Inc. ("Xperi," the "Company" "we," "us," "our," and similar references) on February 26, 2026 (our "Form 10-K"). Business Overview We are a leading media and entertainment technology company. Our technologies are integrated into consumer devices, connected cars, and a variety of media platforms worldwide, enabling our unique audiences to connect with entertainment content in a more intelligent, immersive, and personal way. As our audiences engage with content on our platform, we operate a global, cross-screen advertising solution that enables brands to reach millions of engaged consumers across our rapidly expanding digital entertainment ecosystem, driving increased value for our partners, customers, and consumers. We operate in one reportable business segment and group our revenue into four categories: Pay-TV, Consumer Electronics, Connected Car and Media Platform. Headquartered in Silicon Valley with operations around the world, we have approximately 1,380 employees and more than 35 years of operating experience. Macroeconomic Conditions Macroeconomic conditions-including geopolitical conflicts in the Middle East, disruptions in global energy supplies, memory chip shortages, inflationary pressures, elevated interest rates, recessionary risks, volatility in financial and credit markets, changes in economic policy, reduced discretionary spending, tariffs, and global supply chain disruptions-have adversely affected, and may continue to adversely affect, our business and the businesses of our customers. While we closely monitor these developments and adjust our strategies where appropriate, the extent and duration of their impact on our business, operating results, and financial condition remain uncertain. Restructuring Activities In November 2025, we approved a restructuring plan designed to improve cost efficiency and better align our operating structure with our long-term strategies and prevailing market conditions. The plan involved a reduction of approximately 250 employees across all business and functional areas and became effective immediately. In connection with this plan, we incurred restructuring and related charges of $13.9 million and $0.3 million in the fourth quarter of 2025 and the first quarter of 2026, respectively, substantially all of which consisted of employee severance and related costs. As of March 31, 2026, approximately $1.0 million of restructuring charges remained accrued and are expected to be substantially settled by the end of the second quarter of 2026. Upon completion, we estimate that the reductions will generate annualized savings in the range of approximately $30 million to $35 million. For further information, refer to Note 14- Restructuring of the Notes to Condensed Consolidated Financial Statements . Results of Operations The following table presents our historical operating results for the periods indicated as a percentage of revenue: Three Months Ended March 31, 2026 2025 Revenue 100 % 100 % Operating expenses: Cost of revenue, excluding depreciation and amortization of intangible assets 27 26 Research and development 24 35 Selling, general and administrative 36 43 Depreciation expense 4 2 Amortization expense 7 8 Total operating expenses 98 114 Operating income (loss) 2 (14 ) Interest and other income, net 1 2 Interest expense - debt (1 ) (1 ) Income (loss) before taxes 2 (13 ) Provision for income taxes 9 3 Net loss (7 )% (16 )% Comparison of the Three Months Ended March 31, 2026 and 2025 Revenue We derive the majority of our revenue from licensing our technologies and solutions to customers. For our revenue recognition policy including descriptions of revenue-generating activities, refer to Note 2- Revenue of the Notes to the Condensed Consolidated Financial Statements (Unaudited). Three Months Ended March 31, 2026 2025 $ Change % Change (dollars in thousands) Revenue $ 114,206 $ 114,033 $ 173 0 % Revenue increased by $0.2 million, or approximately 0%, for the three months ended March 31, 2026, compared to the same period in the prior year. The increase was primarily driven by $8.5 million of growth in Connected Car and Media Platform revenue, partially offset by declines of $8.3 million in Consumer Electronics and Pay-TV revenue. Connected Car revenue increased by $4.8 million compared to the first quarter of 2025, primarily due to higher minimum guarantee ("MG") revenue from HD Radio. Media Platform revenue increased by $3.7 million, driven mainly by higher revenue from advertising and increased middleware solutions revenue. These increases were partially offset by a $4.4 million decrease in Consumer Electronics revenue, primarily attributable to the absence of certain MG and settlement revenue recognized in the prior year, as well as memory-related challenges in certain end product categories. Pay-TV revenue decreased by $3.9 million, reflecting declines in core guide products, consumer hardware, and related subscription revenue. This decline was partially offset by continued growth in TiVo video-over-broadband ("IPTV") solutions. Operating Expenses Three Months Ended March 31, 2026 2025 $ Change % Change (dollars in thousands) Cost of revenue, excluding depreciation and amortization of intangible assets $ 30,880 $ 29,599 $ 1,281 4 % Research and development 27,083 39,549 (12,466 ) (32 )% Selling, general and administrative 41,787 48,698 (6,911 ) (14 )% Depreciation expense 4,261 2,905 1,356 47 % Amortization expense 8,044 9,722 (1,678 ) (17 )% Total operating expenses $ 112,055 $ 130,473 $ (18,418 ) (14 )% Cost of Revenue, Excluding Depreciation and Amortization of Intangible Assets Cost of revenue, excluding depreciation and amortization of intangible assets, consists primarily of employee-related costs, royalties paid to third parties, content and data costs, hosting fees, maintenance costs and an allocation of facilities costs, as well as service center and other expenses related to providing our offerings and non-recurring engineering services. Cost of revenue, excluding depreciation and amortization of intangible assets, for the three months ended March 31, 2026 was $30.9 million, compared to $29.6 million for the same period in the prior year, representing an increase of $1.3 million, or 4%. The increase was primarily attributable to higher costs associated with advertising revenue. Research and Development Research and development ("R&D") costs consist primarily of employee-related costs, stock-based compensation ("SBC") expense, engineering consulting expenses associated with new product and technology development, product commercialization, quality assurance and testing costs, as well as other costs related to patent applications and examinations, materials, supplies, and an allocation of facilities costs. Other than certain software development costs that are capitalized, all research and development costs are expensed as incurred. R&D expense for the three months ended March 31, 2026 was $27.1 million, compared to $39.5 million for the same period in the prior year, representing a decrease of $12.4 million, or 32%. The decrease was primarily driven by lower employee-related costs associated with restructuring activities and reduced SBC expense. Selling, General and Administrative Selling expenses consist primarily of compensation and related costs (including SBC expense) for sales and marketing personnel engaged in sales and licensee support, marketing programs, public relations, promotional materials, travel, and trade shows. General and administrative expenses consist primarily of compensation and related costs (including SBC expense) for management, information technology, finance and legal personnel, legal fees and related expenses, facilities costs, and professional services. Our general and administrative expenses, other than facilities-related expenses and fringe benefits, are not allocated to other expense line items. Selling, general and administrative expenses for the three months ended March 31, 2026 were $41.8 million, compared to $48.7 million for the same period in the prior year, representing a decrease of $6.9 million, or 14%. The decrease was primarily attributable to lower employee-related costs resulting from restructuring activities, reduced SBC expense, and decreased information technology spending. Stock-based Compensation The following table sets forth our SBC expense for the three months ended March 31, 2026 and 2025 (in thousands): Three Months Ended March 31, 2026 2025 Cost of revenue, excluding depreciation and amortization of intangible assets $ 656 $ 1,044 Research and development 2,263 4,423 Selling, general and administrative 4,917 6,635 Total stock-based compensation expense $ 7,836 $ 12,102 We recognized SBC expense from restricted stock units and purchases made under our employee stock purchase plan ("ESPP"). The decrease of $4.3 million in SBC expense for the three months ended March 31, 2026, when compared to the same period of the prior year, was primarily driven by reduced employee headcount, and RSUs granted over time at lower valuations. Depreciation Expense We recognized depreciation expense for certain equipment, capitalized internal-use software, leasehold improvements, and buildings and improvements. Depreciation expense for the three months ended March 31, 2026 was $4.3 million, as compared to $2.9 million in the same period of the prior year, an increase of $1.4 million, or 47%. The increase was primarily driven by increased capitalized internal-use software costs over the past 12 months. Amortization Expense We recognized amortization expense for certain intangible assets we acquired in business combinations that are recognized separately from goodwill. Amortization expense for the three months ended March 31, 2026 was $8.0 million, as compared to $9.7 million in the same period of the prior year, a decrease of $1.7 million, or 17%. The decrease was primarily due to certain intangible assets becoming fully amortized over the past 12 months. As a result of intangible assets we acquired in previous mergers and acquisitions, we anticipate that amortization expenses will continue to be a significant expense over the next several years. See Note 7- Intangible Assets, Net of the Notes to Condensed Consolidated Financial Statements (unaudited) for additional detail. Interest and Other Income, Net Three Months Ended March 31, 2026 2025 $ Change % Change (dollars in thousands) Interest and other income, net $ 819 $ 2,295 $ (1,476 ) (64 )% Interest and other income, net, was lower in the three months ended March 31, 2026, as compared to the same period in the prior year, principally due to foreign currency transaction losses recognized in the first quarter of 2026. Interest Expense-Debt Three Months Ended March 31, 2026 2025 $ Change % Change (dollars in thousands) Interest expense - debt $ (678 ) $ (732 ) $ 54 (7 )% The interest expense on debt was $0.7 million in the three months ended March 31, 2026 and remained constant when compared to the same period in the prior year. Provision for Income Taxes For the three months ended March 31, 2026, we recorded an income tax expense of $10.1 million on a pretax income of $2.3 million, which resulted in an effective tax rate of 441.4%. The income tax expense for the three months ended March 31, 2026 was primarily related to foreign income taxes and foreign withholding taxes. For the three months ended March 31, 2025, we recorded an income tax expense of $3.5 million on a pretax loss of $14.9 million, which resulted in an effective tax rate of (23.5)%. The income tax expense for the three months ended March 31, 2025 was primarily related to foreign withholding taxes and foreign income taxes. The need for a valuation allowance requires an assessment of both positive and negative evidence when determining whether it is more-likely-than-not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction-by-jurisdiction basis. In making such assessment, significant weight is given to evidence that can be objectively verified. After considering both positive and negative evidence to assess the recoverability of our net deferred tax assets, we determined that it was unlikely that our federal, certain state, and certain foreign deferred tax assets with valuation allowances will be realized. For jurisdictions that currently have valuation allowances, we intend to maintain valuation allowances until there is sufficient evidence to support the reversal of all or some portion of these allowances. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. The exact timing and amount of the valuation allowance release depends on the level of profitability that we are able to achieve. Liquidity and Capital Resources The following table presents selected financial information related to our liquidity and significant sources and uses of cash and cash equivalents as of and for the periods presented: As of March 31, 2026 December 31, 2025 (dollars in thousands) Cash and cash equivalents $ 70,422 $ 96,824 Current ratio (1) 2.4 2.4 (1) The current ratio is a liquidity ratio that measures our ability to pay short-term obligations or those due within one year. The ratio is calculated by dividing current assets by current liabilities. Three Months Ended March 31, 2026 2025 (in thousands) Net cash used in operating activities $ (18,015 ) $ (22,258 ) Net cash used in investing activities $ (4,834 ) $ (4,207 ) Net cash used in financing activities $ (3,553 ) $ (16,111 ) Our primary liquidity and capital resources are our cash and cash equivalents and borrowings available under an accounts receivable securitization program (the "AR Facility") with PNC Bank, National Association and PNC Capital Markets LLC ("PNC"). Cash and cash equivalents were $70.4 million at March 31, 2026, a decrease of $26.4 million from $96.8 million at December 31, 2025. This decrease resulted primarily from cash used in operations of $18.0 million, $4.8 million of capital expenditures, including capitalized internal-use software costs, and $3.6 million in payments of withholding taxes on net share settlement of equity awards. For detailed information regarding the AR Facility, refer to " Long-Term Debt Financing " below. Subsequent to quarter end, on April 6, 2026, we received the $12.0 million indemnification holdback related to the Perceive Transaction completed in 2024. For information about our material cash requirements, see "Liquidity and Capital Resources" in Part II, Item 7 of our Form 10-K. Our cash requirements have not changed materially since December 31, 2025. Stock Repurchase Program In April 2024, our Board of Directors (the "Board") authorized the repurchase of up to $100.0 million of our common stock (the "Program"). Under the Program, we may make repurchases, from time to time, through open market purchases, block trades, privately negotiated transactions, accelerated share repurchase transactions, or other means. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases under the Program. As of March 31, 2026, we have repurchased a total of approximately 2.2 million shares of common stock, since inception of the Program, at an average price of $9.23 per share for a total cost of approximately $20.0 million. We did not repurchase any common stock during the three months ended March 31, 2026. As of March 31, 2026, the total remaining amount available for repurchase was $80.0 million. We may continue to execute authorized repurchases from time to time under the Program. There is no guarantee that such repurchases under the Program will enhance the value of our common stock. Cash Flows Cash Flows from Operating Activities Net cash used in operating activities was $18.0 million for the three months ended March 31, 2026, primarily due to our net loss of $7.8 million being further adjusted by $28.2 million of changes in operating assets and liabilities, including an increase of $17.8 million in unbilled contracts receivable and payment of employee annual bonuses for 2025 performance, partially offset by non-cash items such as SBC expense of $7.8 million, amortization of intangible assets of $8.0 million, and depreciation expense of $4.3 million. Net cash used in operating activities was $22.3 million for the three months ended March 31, 2025, primarily due to our net loss of $18.4 million being further adjusted by $28.4 million of changes in operating assets and liabilities, including payment during the quarter of employee annual bonuses for 2024 performance, partially offset by non-cash items such as SBC expense of $12.1 million, amortization of intangible assets of $9.7 million, and depreciation expense of $2.9 million. Cash Flows from Investing Activities Net cash used in investing activities was $4.8 million and $4.2 million for the three months ended March 31, 2026 and 2025, respectively, which was related to capital expenditures, including capitalized internal-use software. Capital Expenditures Our capital expenditures for property and equipment consist primarily of purchases of computer hardware and software, capitalized internal-use software, information systems, and production and test equipment. We expect capital expenditures in 2026 to be approximately $20.0 million. These expenditures are expected to be paid with existing cash and cash equivalents. There can be no assurance that current expectations will be realized, and plans are subject to change upon further review of our capital expenditure needs. Cash Flows from Financing Activities Net cash used in financing activities was $3.6 million for the three months ended March 31, 2026, which reflected the payment of withholding taxes related to net share settlement of equity awards. Net cash used in financing activities was $16.1 million for the three months ended March 31, 2025, primarily due to $5.3 million in payment of withholding taxes related to net share settlement of equity awards, and the $50.0 million voluntary repayment of the Vewd senior unsecured promissory note as described in " Long-Term Debt Financing " below, partially offset by $40.0 million in loan proceeds borrowed under the AR Facility with PNC. Long-Term Debt Financing In connection with the acquisition of Vewd in July 2022, we issued a senior unsecured promissory note (the "Promissory Note") to the sellers of Vewd in the principal amount of $50.0 million, all of which was outstanding at December 31, 2024. Indebtedness outstanding under the Promissory Note bore an interest rate of 6.00% per annum, subject to certain potential adjustments. The Promissory Note was scheduled to mature on July 1, 2025. We were permitted, at any time and on any one or more occasions, to prepay all or any portion of the outstanding principal amount, plus accrued and unpaid interest, if any, under the Promissory Note without premium or penalty. On February 21, 2025, we voluntarily made a full principal payment of $50.0 million plus accrued interest by using a combination of cash on hand and a new long-term financing facility through the securitization of our accounts receivable as described below. On February 21, 2025, we and Xperi SPV LLC ("Xperi SPV"), a special purpose subsidiary, entered into a Receivables Financing Agreement (the "RFA") with PNC, and PNC Capital Markets LLC, and a Sale and Contribution Agreement (together with the RFA, the "RF Agreements") among us, Xperi SPV and certain of our other wholly-owned subsidiaries to establish the AR Facility. Interest is payable on a monthly basis. The AR Facility is scheduled to terminate on February 21, 2028, unless terminated earlier pursuant to its terms. For a detailed description of the AR Facility, refer to Note 8- Debt and Receivables Securitization . Upon entering into the RF Agreements on February 21, 2025, we borrowed $40.0 million under the AR Facility and selected the monthly Term SOFR Rate (as defined in the RFA). The RF Agreements contain various covenants that we believe are usual and customary. The interest payments on the AR Facility debt, exclusive of the debt issuance costs and related amortization, are expected to be approximately $2.3 million for the next 12 months and may vary with changes in interest rates. In December 2025, we repaid $1.1 million of the outstanding principal as the aggregate outstanding principal at the time temporarily exceeded the eligibility limit of the receivables and subsequently drew down the same amount. As of March 31, 2026, we were in compliance with the covenants under the RF Agreements. Liquidity We believe our current cash and cash equivalents, together with borrowings or availability under our AR Facility, will be sufficient to meet our needs for at least the next 12 months from the issuance date of the Condensed Consolidated Financial Statements included in this Quarterly Report. As we assess growth strategies, we may need to supplement our cash and cash equivalents with additional outside sources. As part of our liquidity strategy, we will continue to monitor our earnings and cash flow as well as our ability to access the capital markets as needed. Poor financial results, unanticipated expenses, unanticipated acquisitions of technologies or businesses or unanticipated strategic investments could give rise to additional financing requirements sooner than we expect. Equity or additional debt financing may not be available when needed or, if available, equity or debt financing may not be on terms satisfactory to us. Additionally, disruption and volatility in the global capital markets and economic uncertainties, including those driven by tariffs, have impacted corporate and consumer confidence and could continue to impact our capital resources and liquidity in the future. We may supplement our short-term liquidity needs with access to capital markets, if necessary, and further strategic cost savings initiatives. Our access to capital markets may be constrained and our cost of borrowing may increase under certain business and market conditions, and our liquidity is subject to various risks including the risks identified in "Risk Factors" included in Part I, Item 1A of our Form 10-K. Critical Accounting Estimates During the three months ended March 31, 2026, there were no significant changes in our critical accounting estimates. For a discussion of our critical accounting estimates, see Part II, Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K. Recent Accounting Pronouncements See Note 1- Description of Business and Summary of Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements (Unaudited) included in this Quarterly Report for more information.

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