Stock-Based Compensation

3 Months Ended

Mar. 31, 2023

Share-Based Payment Arrangement [Abstract]

Stock-Based Compensation

NOTE 12 – 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.

The effect of recording stock-based compensation expense for the three months ended March 31, 2023 and 2022 is as follows (in thousands):

	Three Months Ended March 31,
	2023		2022
Cost of revenue, excluding depreciation and amortization of intangible assets	$	792	$	625
Research and development		5,551		5,099
Selling, general and administrative		9,625		2,913
Total stock-based compensation expense	$	15,968	$	8,637

In connection with the conversion of the Former Parent’s PSUs into PSUs with respect to Xperi common stock and Adeia common stock, the Company continued recognizing an incremental compensation expense of $1.4 million during the three months ended March 31, 2023.

Stock-based compensation expense categorized by various equity components for the three months ended March 31, 2023 and 2022 is summarized in the table below (in thousands):

	Three Months Ended March 31,
	2023		2022
Restricted stock awards and units	$	14,980	$	7,823
Employee stock purchase plan		988		814
Total stock-based compensation expense	$	15,968	$	8,637

In addition, for the three months ended March 31, 2022, $2.5 million of stock-based compensation expense was recognized in operating results as part of the corporate and shared functional employees expenses allocation.

The following assumptions were used to value the PSUs subject to market conditions granted during the period:

	March 2023
Expected life (years)		2.8
Risk-free interest rate		4.5	%
Dividend yield		0.0	%
Expected volatility		49.0	%

The Company uses the Black-Scholes option pricing model to determine the estimated fair value of options and ESPP shares.
The fair value of each option grant is determined on the date of grant and the expense is recorded on a straight-line basis. The
assumptions used in the model include expected life, volatility, risk-free interest rate, and dividend yield.

There were no stock options granted during the three months ended March 31, 2023 and 2022.

The following assumptions were used to value the Company’s ESPP shares offered in December 2022:

	December 2022
Expected life (years)		2.0
Risk-free interest rate		4.3	%
Dividend yield		0.0	%
Expected volatility		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 March 2022:

	March 2022
Expected life (years)		2.0
Risk-free interest rate		1.3	%
Dividend yield		1.1	%
Expected volatility		48.5	%