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Cash, Concentration of Credit Risk and Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2023

CASH, CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash currently consists of money market and demand accounts. The following table provides a reconciliation of total cash, cash equivalents and restricted cash as of March 31, 2023, December 31, 2022 and March 31, 2022 to the captions within the condensed consolidated balance sheets and condensed consolidated statements of cash flows (in thousands):


	March 31,		December 31,		March 31,
	2023		2022		2022
Cash and cash equivalents	$	430,625	$	693,479	$	783,016
Restricted cash included within prepaid and other current assets	12,085		9,682		5,716
Restricted cash included within other non-current assets	—		—		1,081
Total cash, cash equivalents and restricted cash	$	442,710	$	703,161	$	789,813

Concentration of Credit Risk and Fair Value of Financial Instruments

Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash equivalents, short-term investments, and accounts receivable. We place our cash equivalents and short-term investments only in highly rated financial instruments and in United States government instruments.

Our accounts receivable and contract assets are derived principally from patent license and technology solutions agreements. Four licensees comprised 94% and 76% of our net accounts receivable balance, as of March 31, 2023 and December 31, 2022, respectively. We perform ongoing credit evaluations of our licensees, who generally include large, multinational, wireless telecommunications equipment manufacturers. We believe that the book values of our financial instruments approximate their fair values.

Fair Value Measurements

We use various valuation techniques and assumptions when measuring the fair value of our assets and liabilities. We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. This guidance established a hierarchy that prioritizes fair value measurements based on the types of input used for the various valuation techniques (market approach, income approach and cost approach). The levels of the hierarchy are described below:

Level 1 Inputs — Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets.

Level 2 Inputs — Level 2 includes financial instruments for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets with insufficient volume or infrequent transactions (less active markets) or model-driven valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data, including market interest rate curves, referenced credit spreads and pre-payment rates.

Level 3 Inputs — Level 3 includes financial instruments for which fair value is derived from valuation techniques including pricing models and discounted cash flow models in which one or more significant inputs are unobservable, including the Company’s own assumptions. The pricing models incorporate transaction details such as contractual terms, maturity and, in certain instances, timing and amount of future cash flows, as well as assumptions related to liquidity and credit valuation adjustments of marketplace participants.

Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy. We use quoted market prices for similar assets to estimate the fair value of our Level 2 investments.

Recurring Fair Value Measurements

Our financial assets are generally included within short-term investments on our condensed consolidated balance sheets, unless otherwise indicated. Our financial assets and liabilities that are accounted for at fair value on a recurring basis are presented in the tables below as of March 31, 2023 and December 31, 2022 (in thousands):


	Fair Value as of March 31, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Money market and demand accounts (a)	$	375,375	$	—	$	—	$	375,375
Commercial paper (b)	—		174,601		—		174,601
U.S. government securities(c)	—		227,745		—		227,745
Corporate bonds, asset backed and other securities (d)	—		185,048		—		185,048
Total	$	375,375	$	587,394	$	—	$	962,769


	Fair Value as of December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Money market and demand accounts (a)	$	643,825	$	—	$	—	$	643,825
Commercial paper (b)	—		209,956		—		209,956
U.S. government securities(c)	—		243,840		—		243,840
Corporate bonds, asset backed and other securities (d)	—		113,838		—		113,838
Total	$	643,825	$	567,634	$	—	$	1,211,459

______________________________

(a)Primarily included within cash and cash equivalents.

(b)As of March 31, 2023 and December 31, 2022, $0.0 million and $26.7 million of commercial paper was included within cash and cash equivalents, respectively.

(c)As of March 31, 2023 and December 31, 2022, $57.9 million and $15.7 million of U.S. government securities was included within cash and cash equivalents, respectively.

(d)As of March 31, 2023 and December 31, 2022, $9.4 million and $16.9 million of corporate bonds, asset backed and other securities was included within cash and cash equivalents, respectively.

Non-Recurring Fair Value Measurements

Patents

During fourth quarter 2021, we renewed our multi-year, worldwide, non-exclusive patent license agreement with Sony Corporation of America ("Sony"). A portion of the consideration for the agreement was in the form of patents, which we received in March 2022. We have determined the fair value of the patents for determining the transaction price for revenue recognition purposes, which was estimated to be $30.1 million utilizing the income and market approaches. The value is amortized as a non-cash expense over the patents' estimated useful lives.

During first quarter 2023, we incurred a one-time impairment of $2.5 million on our patents held for sale. We determined the fair value based upon evaluation of market conditions. The patents held for sale are included within "Prepaid and other current assets" in the consolidated balance sheet.

Fair Value of Long-Term Debt

Convertible Notes

The principal amount, carrying value and related estimated fair value of the Company's Convertible Notes reported as of March 31, 2023 and December 31, 2022 was as follows (in thousands). The aggregate fair value of the principal amount of the Convertible Notes is a Level 2 fair value measurement.


	March 31, 2023						December 31, 2022
	Principal Amount		Carrying Value		Fair Value		Principal Amount		Carrying Value		Fair Value
2027 Senior Convertible Long-Term Debt	$	460,000	$	451,493	$	515,605	$	460,000	$	451,062	$	441,485
2024 Senior Convertible Long-Term Debt	$	126,174	$	125,484	$	130,199	$	126,174	$	125,342	$	119,941

Technicolor Patent Acquisition Long-term Debt

The carrying value and related estimated fair value of the Technicolor Patent Acquisition long-term debt reported as of March 31, 2023 and December 31, 2022 was as follows (in thousands). The aggregate fair value of the Technicolor Patent Acquisition long-term debt is a Level 3 fair value measurement.


	March 31, 2023				December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
Technicolor Patent Acquisition Long-Term Debt	$	30,937	$	29,140	$	30,662	$	28,048

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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