UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
Form 10-K/A
(Amendment No. 1)
________________________________________
| | | | | |
| (Mark One) | |
| ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended |
| December 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: 000-22339
________________________________________
RAMBUS INC.
(Exact name of registrant as specified in its charter)
________________________________________
| | | | | | | | | | | | | | |
| Delaware | | 94-3112828 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | |
| 4453 North First Street | | |
| Suite 100 | | |
| San Jose | , | California | | 95134 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code:
(408) 462-8000
________________________________________
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, $.001 Par Value | RMBS | The NASDAQ Stock Market LLC |
| | (The NASDAQ Global Select Market) |
Securities registered pursuant to Section 12(g) of the Act:
None
________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
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 and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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 the 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 has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant as of June 30, 2020 was approximately $1.3 billion based upon the closing price reported for such date on The NASDAQ Global Select Market. For purposes of this disclosure, shares of Common Stock held by officers and directors of the Registrant and persons that may be deemed to be affiliates under the Act have been excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The number of outstanding shares of the Registrant’s Common Stock, $.001 par value, was 111,730,337 as of January 29, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information is incorporated into Part III of this report by reference to the Proxy Statement for the Registrant’s annual meeting of stockholders to be held on or about April 29, 2021 to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K/A.
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A (the “Amended Annual Report”) amends the Annual Report on Form 10-K of Rambus Inc. (the “Company”) for the year ended December 31, 2020 (the “Original Form 10-K”), filed on February 26, 2021, with the Securities and Exchange Commission (the “SEC”). This Amended Annual Report restates the Company’s consolidated financial statements and related disclosures as of and for the years ended December 31, 2020 and 2019 and revises the Company’s consolidated financial statements for the year ended December 31, 2018. Refer to Note 1, “Restatement and Revision of Consolidated Financial Statements,” of Notes to Consolidated Financial Statements of this Form 10-K/A for additional information. The relevant unaudited interim financial information for each of the quarterly periods ended September 30, 2019 through December 31, 2020 will also be restated. The impact of such restatements is included herein. Refer to Note 22, “Restatement and Revision of Quarterly Condensed Consolidated Financial Statements (Unaudited),” of Notes to Consolidated Financial Statements of this Form 10-K/A.
During the quarter ending March 31, 2021, the Company determined that a portion of revenue under a single customer agreement (the “Impacted Agreement”) that had not yet been recognized should have been recognized beginning in the third quarter of 2019.
In connection with the restatement, the Company has also corrected errors that the Company determined to be immaterial, both individually and in the aggregate to the consolidated financial statements for the fiscal years ended December 31, 2020, 2019 and 2018. Refer to Note 1, “Restatement and Revision of Consolidated Financial Statements,” of Notes to Consolidated Financial Statements of this Form 10-K/A for additional information.
A summary of the accounting impacts of these adjustments to the Company’s consolidated financial statements as of and for the years ended December 31, 2020 and 2019 and for the year ended December 31, 2018 is provided in Note 1, “Restatement and Revision of Consolidated Financial Statements,” of Notes to Consolidated Financial Statements of this Form 10-K/A.
This Amended Annual Report also amends and restates the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations, Risk Factors and other disclosures made in the Original Form 10-K as appropriate to reflect the restatement and revision of the relevant periods.
In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is also including with this Amended Annual Report currently dated certifications of the Company’s Chief Executive Officer and Principal Financial Officer (attached as Exhibits 31.1, 31.2, 32.1, and 32.2). Additionally, we included the information required under S-K Item 401 for an executive officer.
Except as discussed above and as further described in Note 1 to the consolidated financial statements, the Company has not modified or updated disclosures presented in this Amended Annual Report. Accordingly, the Amended Annual Report does not reflect events occurring after the Original Form 10-K or modify or update those disclosures affected by subsequent events. Information not affected by the restatement and revision is unchanged and reflects disclosures made at the time of the filing of the Original Form 10-K.
As a result of the restatement, the Company has concluded there was a material weakness in the Company's internal control over financial reporting as of December 31, 2020 and its disclosure controls and procedures were not effective for each of the quarterly periods in fiscal year 2020. See additional discussion included in Part II, Item 9A of this Amended Annual Report.
TABLE OF CONTENTS
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K/A (“Annual Report on Form 10-K/A”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include, without limitation, predictions regarding the following aspects of our future:
•Success in the markets of our products and services or our customers’ products;
•Sources of competition;
•Research and development costs and improvements in technology;
•Sources, amounts and concentration of revenue, including royalties;
•Success in signing and renewing license agreements;
•Terms of our licenses and amounts owed under license agreements;
•Technology product development;
•Dispositions, acquisitions, mergers or strategic transactions and our related integration efforts;
•Impairment of goodwill and long-lived assets;
•Pricing policies of our customers;
•Changes in our strategy and business model, including the expansion of our portfolio of inventions, products, software, services and solutions to address additional markets in memory, chip and security;
•Deterioration of financial health of commercial counterparties and their ability to meet their obligations to us;
•Effects of security breaches or failures in our or our customers’ products and services on our business;
•Engineering, sales and general and administration expenses;
•Contract revenue;
•Operating results;
•International licenses, operations and expansion;
•Effects of changes in the economy and credit market on our industry and business;
•Impact of the Novel Coronavirus (“COVID-19”) pandemic on our business operations and financial results;
•Ability to identify, attract, motivate and retain qualified personnel;
•Effects of government regulations on our industry and business;
•Manufacturing, shipping and supply partners and/or sale and distribution channels;
•Growth in our business;
•Methods, estimates and judgments in accounting policies;
•Adoption of new accounting pronouncements;
•Effective tax rates, including as a result of recent U.S. tax legislation;
•Restructurings and plans of termination;
•Realization of deferred tax assets/release of deferred tax valuation allowance;
•Trading price of our common stock;
•Internal control environment;
•The level and terms of our outstanding debt and the repayment or financing of such debt;
•Protection of intellectual property (“IP”);
•Any changes in laws, agency actions and judicial rulings that may impact the ability to enforce our IP rights;
•Indemnification and technical support obligations;
•Equity repurchase plans;
•Issuances of debt or equity securities, which could involve restrictive covenants or be dilutive to our existing stockholders;
•Effects of fluctuations in interest rates and currency exchange rates; and
•Outcome and effect of potential future IP litigation and other significant litigation.
You can identify these and other forward-looking statements by the use of words such as “may,” “future,” “shall,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continue,” “projecting” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.
Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Item 1A, “Risk Factors.” All forward-looking statements included in this document are based on our assessment of information available to us at this time. We assume no obligation to update any forward-looking statements.
PART I
Rambus is a trademark of Rambus Inc. Other trademarks or copyrights that may be mentioned in this Annual Report on Form 10-K/A are the property of their respective owners.
Overview
Rambus produces products and innovations that address the fundamental challenges of accelerating data. We make industry-leading chips and IP that enable critical performance improvements for data center and other growing markets. The ongoing shift to the cloud, along with the widespread advancement of artificial intelligence (“AI”) across the data center, 5G, automotive and Internet of Things (“IoT”), has led to exponential growth in data usage and tremendous demands on data infrastructure. Creating fast and safe connections, both in and across systems, remains one of the most mission-critical design challenges limiting performance in advanced hardware for these markets.
As an industry pioneer with over 30 years of advanced semiconductor design experience, Rambus is ideally positioned to address the challenges of moving and protecting data. We are a leader in high-performance memory subsystems, providing chips, IP and innovations that maximize the performance and security in data-intensive systems. Whether in the cloud, at the edge or in your hand, real-time and immersive applications depend on data throughput and integrity. Rambus products and innovations deliver the increased bandwidth, capacity and security required to meet the world’s data needs and drive ever-greater end-user experiences.
Our strategic objectives are focusing our product portfolio and research around our core strength in semiconductors, optimizing our operational efficiency, and leveraging our strong cash generation to re-invest for growth. We continue to maximize synergies across our businesses and customer base, leveraging the significant overlap in our ecosystem of customers, partners and influencers. The Rambus product and technology roadmap, as well as our go-to-market strategy, is driven by the application-specific requirements of our focus markets.
2020 was an unprecedented year, with the onset of COVID-19 triggering uncertainty in the global marketplace. Despite that turbulence, Rambus demonstrated great execution and significant product growth. Continued commitment to our customers, careful supply management and the tremendous dedication and agility of the Rambus team worldwide drove this success.
Annual product revenue increased 56% year-over-year between 2019 and 2020. Driven by continued gains in market share from our memory interface chips, we recognized record product revenue of $114.0 million in 2020. Silicon IP achieved sustained revenue growth with design-win momentum at tier-1 system on chip (“SoC”) customers and strong execution from the businesses acquired in 2019. Rambus successfully closed key patent licensing agreements with DRAM and SoC manufacturers, solidifying our foundation of sustained cash generation.
Memory Interface Chips
Made for high speed, reliability and power efficiency, our DDR memory interface chips for registered, load-reduced and non-volatile dual in-line memory modules (“RDIMM,” “LRDIMM” and “NVDIMM,” respectively) deliver top-of-the-line performance and capacity to the next wave of enterprise and cloud servers. Rambus offers DDR5, DDR4 and DDR3 memory interface chips to enable increased memory capacity, while maintaining peak performance for data-intensive work loads.
We sell our memory interface chips directly and indirectly to memory module manufacturers and OEMs worldwide through multiple channels, including our direct sales force and distributors. We operate direct sales offices in the United States, Japan, Korea, Taiwan and China, where we employ sales personnel who serve our direct customers and manage our channel partners.
We operate a fabless business model and use third-party foundries and manufacturing contractors to fabricate, assemble and test our memory interface chips. We also inspect and test parts in our US-based facilities. This outsourced manufacturing approach allows us to focus our investment and resources on the research, development, design, sale and marketing of our products. Outsourcing also allows us the flexibility needed to respond to new market opportunities, simplifies our operations and significantly reduces our capital requirements.
Silicon IP
Rambus’ Silicon IP offers both Interface and Security IP solutions. Our Interface IP solutions feature both high-speed memory and chip-to-chip interconnect technologies. With the acquisition of Northwest Logic, Inc. (“Northwest Logic”) in August of 2019, Rambus now offers a complementary portfolio of physical interface (“PHY”) and companion digital controller
IPs to create a one-stop-shop for SoC designers. These silicon-proven solutions are critical to high-performance data center, networking, AI, Machine Learning (“ML”) and automotive applications because they enable and optimize the transfer of data between chips and electronic devices.
The Rambus Security IP solutions include crypto cores, hardware roots of trust, high-speed protocol engines and chip provisioning technologies. With the acquisition of the Secure Silicon IP and Protocols business from Verimatrix in December 2019, Rambus offers one of the industry’s most comprehensive portfolio of silicon-proven Security IP. With the growing threat environment, hardware-based, embedded security solutions, are mission-critical for protecting data center, AI, networking, IoT, automotive and government applications.
Architecture Licenses
Rambus patented inventions are foundational to the semiconductor industry and licenses of our portfolio to our customers represent a significant portion of our revenue. Rambus is committed to continuing to innovate and invent, thereby advancing semiconductor technology. With a broad worldwide portfolio of patents covering memory architecture, high-speed serial links, and security, we enhance our value and relevance in our target markets and create a platform for investment in product development.
Our Architecture Licenses enable our customers to use specified portions of our portfolio of patented inventions in the customer’s own digital electronics products, systems or services. These licenses may also define the specific field of use where our customers may use or employ our inventions in their products. License agreements are structured with fixed or variable, or a hybrid of fixed and variable royalty payments over certain periods ranging up to ten years. Leading semiconductor and electronic system companies such as AMD, Broadcom, Cisco, Fujitsu, IBM, Marvell, Mediatek, Micron, Nanya, NVIDIA, Panasonic, Phison, Qualcomm, Renesas, Samsung, SK hynix, Socionext, STMicroelectronics, Toshiba, Western Digital, Winbond, and Xilinx have licensed our patents for use in their own products.
Competition
The semiconductor industry is intensely competitive and is characterized by rapid technological change, short product life cycles, cyclical market patterns, price erosion, increasing foreign and domestic competition and market consolidation. Rambus competes with product offerings from various companies depending upon the particular Rambus product line. In the market for memory interface chips, we compete with international semiconductor companies including Renesas and Montage Technology. In the Silicon IP market, Rambus competes with the in-house design teams at our potential customers, as well as with third-party IP suppliers such as Cadence and Synopsys. Many of our competitors are larger and have better access to financial, technical, sales and marketing resources than we possess.
To the extent that alternative technologies, which might provide comparable system performance at lower or similar cost to our patented technologies, are perceived to require the payment of no or lower fees or royalties, or to the extent other factors influence the industry, our customers and prospective customers may adopt and promote such alternative technologies. Even to the extent we determine that such alternative technologies infringe our patents, there can be no assurance that we would be able to negotiate agreements that would result in royalties being paid to us without litigation, which could be costly and the results of which would be uncertain. As in the past, litigation may be required to enforce and protect our IP rights, as well as the substantial investments undertaken to research and develop our innovations and technologies.
Research and Development
Building upon our foundation of core semiconductor technologies, our research priorities focus on innovation and patent development that enhance the value of our patent portfolio and differentiate our product offerings in the market. Key to our efforts is continuing to hire and retain world-class inventors, scientists and engineers to lead the development and deployment of inventions and technology solutions for our intended markets.
To foster our research and development efforts, we assembled a team of highly-skilled inventors, engineers and scientists whose activities are focused on continually developing new innovations within our chosen technology fields, and thereby securing the IP rights and legal protections for these ground-breaking inventions. Using this foundation of innovation, our technical teams develop new semiconductor solutions that enable increased performance, greater power efficiency and increased levels of security, as well as other improvements and benefits. Our solution design and development process is a multi-disciplinary effort requiring expertise in multiple fields across all of our operational units.
A significant number of our scientists and engineers spend all or a portion of their time on research and development. For the years ended December 31, 2020, 2019 and 2018, research and development expenses were $139.8 million, $156.8 million and $158.3 million, respectively. We expect to continue to invest substantial funds in research and development activities. In
addition, because our customer agreements often call for us to provide engineering support, a portion of our total engineering costs are allocated to the cost of contract and other revenue.
Human Capital Resources
As of December 31, 2020, we had 623 employees, of which approximately 44% were in the United States and 56% in other global regions. Additionally, approximately 67% of our employees were engineers with the remaining employees in sales, general and administrative positions. None of our employees are covered by collective bargaining agreements.
Throughout the COVID-19 pandemic, our primary focus has been on the safety and well-being of our employees and their families. Our global pandemic efforts include instituting a global employee assistance program while leveraging the advice and recommendations of infectious disease experts to establish proper safety standards. As the pandemic continues, the health and well-being of our workforce remains our top priority while we ensure productivity for those employees working from home.
We believe that our future success largely depends upon our continued ability to identify, attract, motivate and retain qualified personnel. We provide our employees with competitive compensation, as well as opportunities for equity ownership and developmental programs that enable continued learning and growth. We also offer employees benefits such as life and health insurance, paid time off, paid parental leave, and retirement savings plans. We utilize successful recruiting practices that yield qualified and dedicated employees who are driven to achieve our vision.
We are an equal opportunity employer and are committed to maintaining a diverse and inclusive work environment. Our commitment to diversity and inclusion helps us attract and retain the best talent, enables employees to realize their full potential and drives high performance through innovation and collaboration. Because we know that diversity is truly a competitive advantage that helps drive innovation, we strive to maintain a best-in-class work environment that fosters respect for individuals, their ideas and contributions. We benefit from the innovation that results when people with differing experiences, perspectives and cultures work together to achieve a common goal.
Intellectual Property
We maintain and support an active program to protect our IP, primarily through the filing of patent applications and the defense of issued patents against potential infringement. As of December 31, 2020, our technologies are covered by 2,407 U.S. and foreign patents, having expiration dates ranging from 2021 to 2039. Additionally, we have 617 patent applications pending. Some of the patents and pending patent applications are derived from a common parent patent application or are foreign counterpart patent applications. We believe our patented innovations provide our customers with the legal rights and licenses to use our inventions to achieve improved performance, greater cost-effectiveness and other technological benefits in their own products and services. We intend to continue our innovation efforts and allocate significant investment in our IP development programs.
We have a program to file applications for and obtain patents in the United States and in selected foreign countries where we believe filing for such protection is appropriate and would further our overall business strategy and objectives. In some instances, obtaining appropriate levels of protection may involve prosecuting continuation and counterpart patent applications based on a common parent application. In addition, we attempt to protect our trade secrets and other proprietary information through agreements with current and prospective customers, and confidentiality agreements with employees and consultants and other security measures. We also rely on copyright, trademarks and trade secret laws to protect our IP and other proprietary assets.
Backlog
Our sales of memory interface chips are generally made pursuant to short-term purchase orders. These purchase orders are made without deposits and may be, and often are, rescheduled, canceled or modified on relatively short notice, without substantial penalty. Therefore, we believe that purchase orders or backlog are not necessarily a reliable indicator of our future product sales.
Corporate and Available Information
Rambus Inc. was founded in 1990 and reincorporated in Delaware in March 1997. Our principal executive offices are located at 4453 North First Street, Suite 100, San Jose, California. Our website is www.rambus.com. We have used, and intend to continue to use, our investor relations website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. The inclusion of our website address in this report does not include or incorporate by reference into this report any information on our website. You can obtain copies of our Forms 10-K, 10-Q, 8-K, and other filings with the SEC, and all amendments to these filings, free of charge, from our website as soon as reasonably
practicable following our filing of any of these reports with the SEC. In addition, you may read and copy any material we file with the SEC at the SEC’s Public Reference Room at 100 F Street NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy, and information statements, and other information regarding registrants that file electronically with the SEC at www.sec.gov. Further, the Company’s references to the URLs for these websites are intended to be inactive textual references only.
Information concerning our revenue, results of operations and revenue by geographic area is set forth in Item 6, “Selected Financial Data,” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in Note 7, “Segments and Major Customers,” of Notes to Consolidated Financial Statements of this Form 10-K/A, all of which are incorporated herein by reference. Information concerning identifiable assets and segment reporting is also set forth in Note 7, “Segments and Major Customers,” of Notes to Consolidated Financial Statements of this Form 10-K/A. Information on customers that comprise 10% or more of our consolidated revenue and risks attendant to our foreign operations is set forth below in Item 1A, “Risk Factors.”
Our Executive Officers
Information regarding our current executive officers and their ages and positions, is contained in the table below. Our executive officers are appointed by, and serve at the discretion of, our Board of Directors. There is no family relationship between any of our executive officers.
| | | | | | | | | | | | | | |
| Name | | Age | | Position and Business Experience |
| | | | |
| Luc Seraphin | | 57 | | Mr. Seraphin is President & Chief Executive Officer. With over 20 years of experience managing global businesses, Mr. Seraphin brings the overall vision and leadership necessary to drive future growth for the company. Prior to this role, Mr. Seraphin was the senior vice president and general manager of the Memory and Interface Division, leading the development of the company’s innovative memory architectures and high-speed serial link solutions. Mr. Seraphin also served as the senior vice president of Worldwide Sales and Operations where he oversaw sales, business development, customer support and operations across the various business units within Rambus. Mr. Seraphin started his career as a field application engineer at NEC and later joined AT&T Bell Labs, which became Lucent Technologies and Agere Systems (now Broadcom Inc.). During his 18 years at Agere, Mr. Seraphin held several senior positions in sales, marketing and general management, culminating in his last position as executive vice president and general manager of the Wireless Business Unit. Following this, Mr. Seraphin held the position of general manager of a GPS startup company in Switzerland and was vice president of Worldwide Sales and Support at Sequans Communications. During his career, Mr. Seraphin has advised and supported companies in both the product and IP markets. Mr. Seraphin holds a bachelor’s degree in Mathematics and Physics and a master’s degree in Electrical Engineering from Ecole Superieure de Chimie, Physique, Electronique, based in Lyon, France where he majored in Computer Architecture. Mr. Seraphin also holds an MBA from the University of Hartford and has completed the senior executive program of Columbia University. |
| Rahul Mathur | | 47 | | Senior Vice President, Finance and Chief Financial Officer. Mr. Mathur joined us in his current position in October 2016. Prior to joining us, Mr. Mathur served as senior vice president of finance at Cypress Semiconductor Corp., a provider of embedded memory, microcontroller, and analog semiconductor system solutions, from March 2015 to September 2016, where he was responsible for financial planning and investor relations. From August 2012 to March 2015, Mr. Mathur served as vice president of finance at Spansion, Inc. (later acquired by Cypress Semiconductor Corp.). Mr. Mathur served as vice president of finance at Picaboo Corporation from January 2012 to August 2012 and vice president of finance at CDNetworks Inc. from January 2011 to December 2011. Prior to January 2011, Mr. Mathur held senior finance positions at Telesis Technologies, Inc., NetSuite Inc. and KLA Corporation. Mr. Mathur holds a Bachelor of Arts in applied mathematics from Dartmouth College and an M.B.A. from the Wharton School of Business at the University of Pennsylvania. |
| Jae Kim* | | 50 | | Mr. Kim served as the senior vice president, general counsel and secretary from February 2013 until February 2021 and as our vice president, corporate legal since July 2010. Prior to his tenure at Rambus, Mr. Kim held senior legal positions at Aricent Inc., a privately-held communications technology company and Electronics for Imaging Inc., a digital printing technology company. Mr. Kim has also had significant experience in private practice with the law firm of Wilson Sonsini Goodrich & Rosati, P.C., where he advised high technology and emerging growth companies on mergers and acquisitions, private financings, public offerings, securities compliance, public company reporting and corporate governance. Mr. Kim began his legal career as an attorney with the United States Securities and Exchange Commission, Division of Corporation Finance, in Washington, D.C. Mr. Kim is a member of both the California State Bar and New York State Bar, and received a J.D. from the American University, Washington College of Law, and his bachelor’s degree from Boston University. |
| Sean Fan | | 55 | | Senior Vice President, Chief Operating Office. Mr. Fan has served as the senior vice president, chief operating office since August 2019. Prior to Rambus from March 2019 to June 2019 he served as Vice President and General Manager at Renesas Electronics Corporation, responsible for the datacenter business unit, a premier supplier of advanced semiconductor solutions. Prior to his role at Renesas, Mr. Fan was Senior Vice President and Corporate General Manager of the Computing and Communications Group at Integrated Device Technology, Inc. (“IDT”), a leading supplier of analog mixed-signal products including sensors, connectivity and wireless power, from May 2017 until March 2019 when IDT was acquired by Renesas Electronics Corporation. Mr. Fan joined IDT in 1999 and held various management roles at IDT, including Vice President and General Manager of the Computing and Communications Division, Vice President and General Manager of the Interface Connectivity Division, Vice President of China Operations, Vice President and General Manager of the Memory Interface Division, General Manager of Standard Product Operations, and Senior Director of Silicon Timing Solutions. Prior to joining IDT, Mr. Fan served in various engineering and management roles with Lucent Microelectronics, Mitel Semiconductor, and the National Lab of Telecom Research in China. |
| John Shinn | | 52 | | Senior Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer. Mr. Shinn has served as the senior vice president, general counsel, corporate secretary and chief compliance officer since February 2021 and as our vice president, deputy general counsel since October 2016. Prior to Rambus, Mr. Shinn was Vice President and General Counsel at Toptal, LLC, a global remote company that provides a freelancing platform, connecting businesses with software engineers, designers, finance experts, product managers, and project managers, from February 2016 until October 2016, where he was responsible for all aspects of the corporate legal function, including corporate governance, regulatory compliance, commercial transactions, intellectual property matters and employment law. From February 2015 to January 2016, Mr. Shinn served as the Vice President of Legal at Tanium, Inc., an enterprise software company at the forefront of security and systems management, where he responsible for all aspects of the company legal function, including commercial licensing, partnership and vendor contracts, new hire and employment matters, sales compensation plan design and corporate legal matters. Prior to February 2015, Mr. Shinn held the Sr. Director of Legal, Commercial Transactions at Brocade Communication Systems, Inc. Mr. Shinn has also worked in private practice with the law firm of Wilson Sonsini Goodrich & Rosati, advising high tech and emerging growth companies on technology transactions and mergers and acquisitions. Mr. Shinn began his legal career as a litigation attorney with a boutique intellectual property and securities litigation law firm in San Jose. Mr. Shinn is a member of the State Bar of California and received his J.D. from Santa Clara University and his bachelor’s degree in American and European History from Stanford University. |
*Mr. Kim tendered his resignation from the Company, effective as of February 19, 2021.
Because of the following factors, as well as other variables affecting our operating results, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. See also “Note Regarding Forward-Looking Statements” at the beginning of this report.
Summary Risk Factors
Our business is subject to numerous risks and uncertainties that you should consider before investing in our company, as fully described below. The principal factors and uncertainties that make investing in our company risky include, among others:
•The success of our business depends on sustaining or growing our licensing revenue and the failure to achieve such revenue would lead to a material decline in our results of operations.
•Our licensing cycle is lengthy and costly, and our marketing and licensing efforts may be unsuccessful.
•Some of our license agreements may convert to fully paid-up licenses at the expiration of their terms, or upon certain milestones, and we may not receive royalties after that time.
•Future revenue is difficult to predict for several reasons, and our failure to predict revenue accurately may result in our stock price declining.
•Our revenue is concentrated in a few customers, and if we lose any of these customers through contract terminations or acquisitions, our revenue may decrease substantially.
•Some of our revenue is subject to the pricing policies of our customers over which we have no control.
•We have traditionally operated in, and may enter other, industries that are highly cyclical and competitive.
•We face risks related to the COVID-19 pandemic, which could significantly disrupt our research and development, operations, sales and financial results.
•Our customers often require our products to undergo a lengthy and expensive qualification process which does not assure product sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, our business and operating results would suffer.
•We may have to invest more resources in research and development than anticipated, which could increase our operating expenses and negatively impact our operating results.
•Our business and operations could suffer in the event of security breaches.
•Failures in our products and services or in the products of our customers, including those resulting from security vulnerabilities, defects, bugs or errors, could harm our business.
•We may fail to meet our publicly announced guidance or other expectations about our business, which would likely cause our stock price to decline.
•Changes in accounting principles and guidance could result in unfavorable accounting charges or effects.
•We have in the past made and may in the future make acquisitions or enter into mergers, strategic investments, sales of assets, divestitures or other arrangements that may not produce expected operating and financial results.
•A substantial portion of our revenue is derived from sources outside of the United States and this revenue and our business generally are subject to risks related to international operations that are often beyond our control.
•Weak global economic conditions may adversely affect demand for the products and services of our customers.
•If our counterparties are unable to fulfill their financial and other obligations to us, our business and results of operations may be affected adversely.
•If we are unable to attract and retain qualified personnel, our business and operations could suffer.
•We are subject to various government restrictions and regulations, including on the sale of products and services that use encryption technology and those related to privacy and other consumer protection matters.
•Participation in standards setting organizations may subject us to IP licensing requirements or limitations that could adversely affect our business and prospects.
•Our operations are subject to risks of natural disasters, acts of war, terrorism, widespread illness or security breach at our domestic and international locations, any one of which could result in a business stoppage and negatively affect our operating results.
•We do not have extensive experience in manufacturing and marketing products and, as a result, may be unable to sustain and grow a profitable commercial market for new and existing products.
•We rely upon the accuracy of our customers’ recordkeeping, and any inaccuracies or payment disputes for amounts owed to us under our licensing agreements may harm our results of operations.
•We rely on a number of third-party providers for data center hosting facilities, equipment, maintenance and other services, and the loss of, or problems with, one or more of these providers may impede our growth or cause us to lose customers.
•We rely on third parties for a variety of services, including manufacturing, and these third parties’ failure to perform these services adequately could materially and adversely affect our business.
•Warranty, service level agreement and product liability claims brought against us could cause us to incur significant costs and adversely affect our operating results as well as our reputation and relationships with customers.
•Any failure in our delivery of high-quality technical support services may adversely affect our relationships with our customers and our financial results.
•Certain software that we use in certain of our products is licensed from third parties and, for that reason, may not be available to us in the future, which has the potential to delay product development and production or cause us to incur additional expense, which could materially adversely affect our business, financial condition, operating results and cash flow.
•Certain software we use is from open source code sources, which, under certain circumstances, may lead to unintended consequences and, therefore, could materially adversely affect our business, financial condition, operating results and cash flow.
•Our business and operating results could be harmed if we undertake any restructuring activities.
•Problems with our information systems could interfere with our business and could adversely impact our operations.
•We are leveraged financially, which could adversely affect our ability to adjust our business to respond to competitive pressures and to obtain sufficient funds to satisfy our future research and development needs, to protect and enforce our intellectual property, and to meet other needs.
•Adverse litigation results could affect our business.
•We have in the past, and may in the future, become engaged in litigation stemming from our efforts to protect and enforce our patents and intellectual property and make other claims, which could adversely affect our intellectual property rights, distract our management and cause substantial expenses and declines in our revenue and stock price.
•From time to time, we are subject to proceedings by government agencies that may result in adverse determinations against us and could cause our revenue to decline substantially.
•Litigation or other third-party claims of intellectual property infringement could require us to expend substantial resources and could prevent us from developing or licensing our technology on a cost-effective basis.
•If we are unable to protect our inventions successfully through the issuance and enforcement of patents, our operating results could be adversely affected.
•Our inability to protect and own the intellectual property we create would cause our business to suffer.
•Third parties may claim that our products or services infringe on their intellectual property rights, exposing us to litigation that, regardless of merit, may be costly to defend.
•Any dispute regarding our intellectual property may require us to indemnify certain customers, the cost of which could severely hamper our business operations and financial condition.
•We have been party to, and may in the future be subject to, lawsuits relating to securities law matters which may result in unfavorable outcomes and significant judgments, settlements and legal expenses which could cause our business, financial condition and results of operations to suffer.
•The price of our common stock may continue to fluctuate.
•Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.
•Our certificate of incorporation and bylaws, Delaware law, our outstanding convertible notes and certain other agreements contain provisions that could discourage transactions resulting in a change in control, which may negatively affect the market price of our common stock.
•Unanticipated changes in our tax rates or in the tax laws and regulations could expose us to additional income tax liabilities which could affect our operating results and financial condition.
•We have identified a material weakness in our internal control over financial reporting and determined that our disclosure controls and procedures were ineffective as of December 31, 2020, which resulted in a restatement of our consolidated financial statements as of and for the years ended December 31, 2020 and 2019. Relevant unaudited interim financial information for each of the quarterly periods ended September 30, 2019 through December 31, 2020 will also be restated. In the future we may identify additional material weaknesses or otherwise fail to maintain an effective system of internal control over financial reporting or adequate disclosure controls and procedures, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.
Risks Associated With Our Business, Industry and Market Conditions
The success of our business depends on sustaining or growing our licensing revenue and the failure to achieve such revenue would lead to a material decline in our results of operations.
A significant portion of our revenue consists of patent and technology license fees paid for access to our patented technologies, existing technology and other development and support services we provide to our customers. Our ability to secure and renew the licenses from which our revenues are derived depends on our customers adopting our technology and using it in the products they sell. Once secured, license revenue may be negatively affected by factors within and outside our
control, including reductions in our customers’ sales prices, sales volumes, our failure to timely complete engineering deliverables, and the actual terms of such licenses themselves. In addition, our licensing cycle for new licensees as well as for renewals for existing licensees is lengthy, costly and unpredictable. We cannot provide any assurance that we will be successful in signing new license agreements or renewing existing license agreements on equal or favorable terms or at all. If we do not achieve our revenue goals, our results of operations could decline.
Our licensing cycle is lengthy and costly, and our marketing and licensing efforts may be unsuccessful.
The process of persuading customers to adopt and license our Chip interface, data Security IP, and other technologies can be lengthy. Even if successful, there can be no assurance that our technologies will be used in a product that is ultimately brought to market, achieves commercial acceptance or results in significant royalties to us. We generally incur significant marketing and sales expenses prior to entering into our license agreements, generating a license fee and establishing a royalty stream from each customer. The length of time it takes to establish a new licensing relationship can take many months or even years. We may incur costs in any particular period before any associated revenue stream begins, if at all. If our marketing and sales efforts are very lengthy or unsuccessful, then we may face a material adverse effect on our business and results of operations as a result of failure to obtain or an undue delay in obtaining royalties.
Some of our license agreements may convert to fully paid-up licenses at the expiration of their terms, or upon certain milestones, and we may not receive royalties after that time.
From time to time, we enter into license agreements that automatically convert to fully paid-up licenses upon expiration or upon reaching certain milestones. We may not receive further royalties from customers for any licensed technology under those agreements if they convert to fully paid-up licenses because such customers will be entitled to continue using some, if not all, of the relevant intellectual property (“IP”) or technology under the terms of the license agreements without further payment, even if relevant patents or technologies are still in effect. If we cannot find another source of royalties to replace the royalties from these license agreements converting to fully paid-up licenses, our results of operations following such conversion could be adversely affected.
Future revenue is difficult to predict for several reasons, and our failure to predict revenue accurately may result in our stock price declining.
Our lengthy license negotiation cycles could make our future revenue difficult to predict because we may not be successful in entering into or renewing licenses with our customers on our anticipated timelines. As we commercially launch each of our products, the sales volume of and resulting revenue from such products in any given period will be difficult to predict.
In addition, while some of our license agreements provide for fixed, quarterly royalty payments, many of our license agreements provide for volume-based royalties and may also be subject to caps on royalties in a given period. The sales volume and prices of our customers’ products in any given period can be difficult to predict. In addition, we began applying the new revenue recognition standard (“ASC 606”) during the first quarter of 2018, as required, and we anticipate that our revenue will vary greatly from quarter to quarter. As a result of the foregoing items, our actual results may differ substantially from analyst estimates or our forecasts in any given quarter.
Also, a portion of our revenue comes from development and support services provided to our customers. Depending upon the nature of the services, a portion of the related revenue may be recognized ratably over the support period, or may be recognized according to contract revenue accounting. Contract revenue accounting may result in deferral of the service fees to the completion of the contract, or may result in the recognition of service fees over the period in which services are performed on a percentage-of-completion basis.
Our revenue is concentrated in a few customers, and if we lose any of these customers through contract terminations or acquisitions, our revenue may decrease substantially.
We have a high degree of revenue concentration. Our top five customers for each reporting period represented approximately 46%, 45% and 49% of our revenue for the years ended December 31, 2020, 2019 and 2018, respectively. For 2020, revenue from Micron and SK hynix each accounted for 10% or more of our total revenue. For 2019, revenue from Broadcom and SK hynix each accounted for 10% or more of our total revenue. For 2018, revenue from Broadcom and NVIDIA each accounted for 10% or more of our total revenue. We expect to continue to experience significant revenue concentration for the foreseeable future.
In addition, our license agreements are complex and some contain terms that require us to provide certain customers with the lowest royalty rate that we provide to other customers for similar technologies, volumes and schedules. These clauses may limit our ability to effectively price differently among our customers, to respond quickly to market forces, or otherwise to compete on the basis of price. These clauses may also require us to reduce royalties payable by existing customers when we enter into or amend agreements with other customers. Any adjustment that reduces royalties from current customers or licensees may have a material adverse effect on our operating results and financial condition.
We continue to negotiate with customers and prospective customers to enter into license agreements. Any future agreement may trigger our obligation to offer comparable terms or modifications to agreements with our existing customers, which may be less favorable to us than the existing license terms. We expect licensing fees will continue to vary based on our success in renewing existing license agreements and adding new customers, as well as the level of variation in our customers’ reported shipment volumes, sales price and mix, offset in part by the proportion of customer payments that are fixed. In particular, under our license agreement with Samsung, the license fees payable by Samsung are subject to certain adjustments and conditions, and we therefore cannot provide assurances that the revenues generated by this license will not decline in the future. In addition, some of our material license agreements may contain rights by the customer to terminate for convenience, or upon certain other events, such as change of control, material breach, insolvency or bankruptcy proceedings. If we are unsuccessful in entering into license agreements with new customers or renewing license agreements with existing customers, on favorable terms or at all, or if they are terminated, our results of operations may decline significantly.
Some of our revenue is subject to the pricing policies of our customers over which we have no control.
We have no control over our customers’ pricing of their products and there can be no assurance that licensed products will be competitively priced or will sell in significant volumes. Any premium charged by our customers in the price of memory and controller chips or other products over alternatives must be reasonable. If the benefits of our technology do not match the price premium charged by our customers, the resulting decline in sales of products incorporating our technology could harm our operating results.
We have traditionally operated in, and may enter other, industries that are highly cyclical and competitive.
Our target customers are companies that develop and market high volume business and consumer products in semiconductors, computing, data centers, networks, tablets, handheld devices, mobile applications, gaming and graphics, high-definition televisions, cryptography and data security. The electronics industry is intensely competitive and has been impacted by rapid technological change, short product life cycles, cyclical market patterns, price erosion and increasing foreign and domestic competition. We are subject to many risks beyond our control that influence whether or not we are successful in winning target customers or retaining existing customers, including, primarily, competition in a particular industry, market acceptance of such customers’ products and the financial resources of such customers. In particular, DRAM manufacturers, which such customers make up a significant part of our revenue, are prone to significant business cycles and have suffered material losses and other adverse effects to their businesses, leading to industry consolidation from time-to-time that may result in loss of revenues under our existing license agreements or loss of target customers. As a result of ongoing competition in the industries in which we operate and volatility in various economies around the world, we may achieve a reduced number of licenses or may experience tightening of customers’ operating budgets, difficulty or inability of our customers to pay our licensing fees, lengthening of the approval process for new licenses and consolidation among our customers. All of these factors may adversely affect the demand for our technology and may cause us to experience substantial fluctuations in our operating results.
We face competition from semiconductor and digital electronics products and systems companies, and other semiconductor IP companies that provide security cores that are available to the market. We believe the principal competition for our technologies may come from our prospective customers, some of which are evaluating and developing products based on technologies that they contend or may contend will not require a license from us. Some of our competitors use a system-level design approach similar to ours, including activities such as board and package design, power and signal integrity analysis, and thermal management. Many of these companies are larger and may have better access to financial, technical and other resources than we possess.
To the extent that alternative technologies might provide comparable system performance at lower or similar cost to our technologies, or are perceived to require the payment of no or lower royalties, or to the extent other factors influence the industry, our customers and prospective customers may adopt and promote such alternative technologies. Even to the extent we determine that such alternative technologies infringe our patents, there can be no assurance that we would be able to negotiate
agreements that would result in royalties being paid to us without litigation, which could be costly and the results of which would be uncertain.
In addition, our expansion into new markets subjects us to additional risks. We may have limited or no experience in new products and markets, and our customers may not adopt our new offerings. These and other new offerings may present new and difficult challenges, which could negatively affect our operating results.
We face risks related to the COVID-19 pandemic, which could significantly disrupt our research and development, operations, sales and financial results.
Our business may be adversely impacted by the effects of the COVID-19 pandemic. In addition to global macroeconomic effects, the COVID-19 pandemic and any other related adverse public health developments may cause disruption to our domestic and international operations and sales activities. Our third-party manufacturers, suppliers, third-party distributors, sub-contractors and customers have been and will be disrupted by worker absenteeism, quarantines and restrictions on our employees’ ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, or other travel or health-related restrictions. For example, government-mandated shelter-in-place and other restrictions on movement may impact our planned headquarters relocation, the ability of our employees to perform their jobs, and our ability to develop and design our products in a timely manner or meet required milestones or customer commitments. Depending on the magnitude of such effects on the operations of our suppliers, third-party distributors, or sub-contractors, our supply chain and product shipments may be delayed, which could adversely affect our business, operations and customer relationships. In addition, the COVID-19 pandemic or other disease outbreak will in the short-run and may over the longer term adversely affect the economies and financial markets of many countries, resulting in an economic downturn that may affect demand for our products and impact our operating results. There can be no assurance that any decrease in sales resulting from the COVID-19 pandemic will be offset by increased sales in subsequent periods. Although the magnitude of the impact of the Novel COVID-19 pandemic on our business and operations remains uncertain, the continued spread of the COVID-19 pandemic or the occurrence of other epidemics and the imposition of related public health measures and travel and business restrictions could adversely impact our business, financial condition, operating results and cash flows.
Our customers often require our products to undergo a lengthy and expensive qualification process which does not assure product sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, our business and operating results would suffer.
Prior to purchasing our products, our customers often require that our products undergo extensive qualification processes, which involve testing of our products in the customers’ systems, as well as testing for reliability. This qualification process may continue for several months. However, qualification of a product by a customer does not assure any sales of the product to that customer. Even after successful qualification and sales of a product to a customer, a subsequent revision in third-party manufacturing processes may require a new qualification process with our customers, which may result in delays and in our holding excess or obsolete inventory. After our products are qualified, it can take several months or more before the customer commences volume production of components or systems that incorporate our products. Despite these uncertainties, we devote substantial resources, including design, engineering, sales, marketing and management efforts, to qualify our products with customers in anticipation of sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, sales of those products to the customer may be precluded or delayed, which may impede our growth and cause our business to suffer.
We may have to invest more resources in research and development than anticipated, which could increase our operating expenses and negatively impact our operating results.
If new competitors, technological advances by existing competitors, and/or development of new technologies or other competitive factors require us to invest significantly greater resources than anticipated in our research and development efforts, our operating expenses could increase. If we are required to invest significantly greater resources than anticipated in research and development efforts without an increase in revenue, our operating results would decline. We expect these expenses to increase in the foreseeable future as our technology development efforts continue.
Our business and operations could suffer in the event of security breaches.
Attempts by others to gain unauthorized access to our information technology systems are becoming more sophisticated. These attempts, which might be related to industrial or other espionage, include covertly introducing malware to our computers and networks and impersonating authorized users, among others. We seek to detect and investigate all security incidents and to prevent their recurrence, but in some cases, we might be unaware of an incident or its magnitude and effects. While we have not
identified any material incidents of unauthorized access to date, the theft, unauthorized use or publication of our IP and/or confidential business information could harm our competitive position and reputation, reduce the value of our investment in research and development and other strategic initiatives or otherwise adversely affect our business. To the extent that any future security breach results in inappropriate disclosure of our customers’ confidential information or any personally-identifiable information of our employees, we may incur liability.
Failures in our products and services or in the products of our customers, including those resulting from security vulnerabilities, defects, bugs or errors, could harm our business.
Our products and services are highly technical and complex, and among our various businesses our products and services are crucial to providing security and other critical functions for our customers’ operations. Our products and services have from time to time contained and may in the future contain undetected errors, bugs, defects or other security vulnerabilities. Some errors in our products and services may only be discovered after a product or service has been deployed and used by customers, and may in some cases only be detected under certain circumstances or after extended use. In addition, because the techniques used by hackers to access or sabotage our products and services and other technologies change and evolve frequently and generally are not recognized until launched against a target, we may be unable to anticipate, detect or prevent these techniques and may not address them in our data security technologies. Any errors, bugs, defects or security vulnerabilities discovered in our solutions after commercial release could adversely affect our revenue, our customer relationships and the market’s perception of our products and services. We may not be able to correct any errors, bugs, defects, security flaws or vulnerabilities promptly, or at all. Any breaches, defects, errors or vulnerabilities in our products and services could result in:
•expenditure of significant financial and research and development resources in efforts to analyze, correct, eliminate or work around breaches, errors, bugs or defects or to address and eliminate vulnerabilities;
•financial liability to customers for breach of certain contract provisions, including indemnification obligations;
•loss of existing or potential customers;
•product shipment restrictions or prohibitions to certain customers;
•delayed or lost revenue;
•delay or failure to attain market acceptance;
•negative publicity, which would harm our reputation; and
•litigation, regulatory inquiries or investigations that would be costly and harm our reputation.
We may fail to meet our publicly announced guidance or other expectations about our business, which would likely cause our stock price to decline.
We provide guidance regarding our expected financial and business performance including our anticipated future revenues, operating expenses and other financial and operation metrics. We enhanced our guidance following implementation of Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers in Accounting Standards Codification (“ASC”) Topic 606 (“ASC 606”, “the New Revenue Standard”) in the first quarter of 2018.
Correctly identifying the key factors affecting business conditions and predicting future events is an inherently uncertain process. Any guidance that we provide may not always be accurate, or may vary from actual results, due to our inability to correctly identify and quantify risks and uncertainties to our business and to quantify their impact on our financial performance. We offer no assurance that such guidance will ultimately be accurate, and investors should treat any such guidance with appropriate caution. If we fail to meet our guidance or if we find it necessary to revise such guidance, even if such failure or revision is seemingly insignificant, investors and analysts may lose confidence in us and the market value of our common stock could be materially adversely affected.
Changes in accounting principles and guidance could result in unfavorable accounting charges or effects.
We prepare our financial statements in accordance with accounting principles generally accepted in the United States and these principles are subject to interpretation by the SEC and various bodies. A change in these principles or application guidance, or in their interpretations, may have a material effect on our reported results, as well as our processes and related controls, and may retroactively affect previously reported results. For instance, we adopted ASC 842, the New Leasing Standard, effective for us on January 1, 2019, using the alternative transition method and recognized a cumulative-effect adjustment to the opening balance of accumulated deficit on January 1, 2019. We also adopted ASC 606, the New Revenue Standard, effective for us on January 1, 2018, on a modified retrospective basis, with a cumulative-effect adjustment to the
opening balance of accumulated deficit on January 1, 2018. The New Revenue Standard materially impacted the timing of revenue recognition for our fixed-fee IP licensing arrangements (including certain fixed-fee agreements that license our existing IP portfolio as well as IP added to our portfolio during the license term) as a majority of such revenue would be recognized at inception of the license term, as opposed to over time as is the case under prior U.S. GAAP, and we are required to compute and recognize interest income over time for certain licensing arrangements as control over the IP generally transfers significantly in advance of cash being received from customers. The impact of the adoption of the New Revenue Standard did not have a material impact on our other revenue streams. We have also enhanced the form and content of some of our guidance metrics that we provide following implementation of the New Revenue Standard. We expect that any change to current revenue recognition practices may significantly increase volatility in our quarterly revenue, financial results and trends, and may impact our stock price.
We have in the past made and may in the future make acquisitions or enter into mergers, strategic investments, sales of assets, divestitures or other arrangements that may not produce expected operating and financial results.
From time to time, we engage in acquisitions, strategic transactions, strategic investments, divestitures and potential discussions with respect thereto. For example, in 2019, we acquired Northwest Logic and the Secure Silicon IP and Protocols business from Verimatrix, formerly Inside Secure. Many of our acquisitions or strategic investments entail a high degree of risk, including those involving new areas of technology and such investments may not become liquid for several years after the date of the investment, if at all. Our acquisitions or strategic investments may not provide the advantages that we anticipated or generate the financial returns we expect, including if we are unable to close any pending acquisitions. For example, for any pending or completed acquisitions, we may discover unidentified issues not discovered in due diligence, and we may be subject to regulatory approvals or liabilities that are not covered by indemnification protection or become subject to litigation. Achieving the anticipated benefits of business acquisitions depends in part upon our ability to integrate the acquired businesses in an efficient and effective manner. The integration of companies that have previously operated independently may result in significant challenges, including, among others: retaining key employees; successfully integrating new employees, business systems and technology; retaining customers of the acquired business; minimizing the diversion of management’s and other employees’ attention from ongoing business matters; coordinating geographically separate organizations; consolidating research and development operations; and consolidating corporate and administrative infrastructures.
Our strategic investments in new areas of technology may involve significant risks and uncertainties, including distraction of management from current operations, greater than expected liabilities and expenses, inadequate return of capital, and unidentified issues not discovered in due diligence. These investments are inherently risky and may not be successful.
In addition, we may record impairment charges related to our acquisitions or strategic investments. Any losses or impairment charges that we incur related to acquisitions, strategic investments or sales of assets will have a negative impact on our financial results and the market value of our common stock, and we may continue to incur new or additional losses related to acquisitions or strategic investments.
We may have to incur debt or issue equity securities to pay for any future acquisitions, which debt could involve restrictive covenants or which equity security issuance could be dilutive to our existing stockholders. We may also use cash to pay for any future acquisitions which will reduce our cash balance.
From time to time, we may also divest certain assets. These divestitures or proposed divestitures may involve the loss of revenue and/or potential customers, and the market for the associated assets may dictate that we sell such assets for less than what we paid. In addition, in connection with any asset sales or divestitures, we may be required to provide certain representations, warranties and covenants to buyers. While we would seek to ensure the accuracy of such representations and warranties and fulfillment of any ongoing obligations, we may not be completely successful and consequently may be subject to claims by a purchaser of such assets.
A substantial portion of our revenue is derived from sources outside of the United States and this revenue and our business generally are subject to risks related to international operations that are often beyond our control.
For the years ended December 31, 2020, 2019 and 2018, revenues received from our international customers constituted approximately 44%, 41% and 44%, respectively, of our total revenue. We expect that future revenue derived from international sources will continue to represent a significant portion of our total revenue.
To the extent that customer sales are not denominated in U.S. dollars, any royalties which are based on a percentage of the customers’ sales that we receive as a result of such sales could be subject to fluctuations in currency exchange rates. In addition, if the effective price of licensed products sold by our foreign customers were to increase as a result of fluctuations in the
exchange rate of the relevant currencies, demand for licensed products could fall, which in turn would reduce our royalties. We do not use financial instruments to hedge foreign exchange rate risk.
Trade-related government actions, whether implemented by the US government, China or other countries, that impose barriers or restrictions that would impact our ability to sell or ship products to certain customers may have a negative impact on our financial condition and results of operations. We cannot predict the actions government entities may take in this context and may be unable to quickly offset or effectively react to government actions that restrict our ability to sell to certain customers or in certain jurisdictions. Government actions that affect our customers’ ability to sell products or access critical elements of their supply chains may result in a decreased demand for their products, which may consequently reduce their demand for our products.
We currently have international business operations in the United Kingdom, France and the Netherlands, international design operations in Canada, India and Finland, and business development operations in China, Japan, Korea, and Taiwan. Our international operations and revenue are subject to a variety of risks which are beyond our control, including:
•hiring, maintaining and managing a workforce and facilities remotely and under various legal systems, including compliance with local labor and employment laws;
•non-compliance with our code of conduct or other corporate policies;
•natural disasters, acts of war, terrorism, widespread global pandemics or illness, such as the current Novel Coronavirus (COVID-19), or security breaches;
•export controls, tariffs, import and licensing restrictions and other trade barriers;
•profits, if any, earned abroad being subject to local tax laws and not being repatriated to the United States or, if repatriation is possible, limited in amount;
•adverse tax treatment of revenue from international sources and changes to tax codes, including being subject to foreign tax laws and being liable for paying withholding, income or other taxes in foreign jurisdictions;
•unanticipated changes in foreign government laws and regulations;
•increased financial accounting and reporting burdens and complexities;
•lack of protection of our IP and other contract rights by jurisdictions in which we may do business to the same extent as the laws of the United States;
•potential vulnerability to computer system, internet or other systemic attacks, such as denial of service, viruses or other malware which may be caused by criminals, terrorists or other sophisticated organizations;
•social, political and economic instability;
•geopolitical issues, including changes in diplomatic and trade relationships, in particular with China; and
•cultural differences in the conduct of business both with customers and in conducting business in our international facilities and international sales offices.
We and our customers are subject to many of the risks described above with respect to companies which are located in different countries. There can be no assurance that one or more of the risks associated with our international operations will not result in a material adverse effect on our business, financial condition or results of operations.
Weak global economic conditions may adversely affect demand for the products and services of our customers.
Our operations and performance depend significantly on worldwide economic conditions. Future uncertainty about global or regional economic and political conditions poses a risk as consumers and businesses may postpone spending in response to tighter credit, negative financial news and declines in income or asset values, which could have a material negative effect on the demand for the products of our customers in the foreseeable future. If our customers experience reduced demand for their products as a result of global or regional economic conditions or otherwise, this could result in reduced royalty revenue and our business and results of operations could be harmed.
If our counterparties are unable to fulfill their financial and other obligations to us, our business and results of operations may be affected adversely.
Any downturn in economic conditions or other business factors could threaten the financial health of our counterparties, including companies with which we have entered into licensing and/or settlement agreements, and their ability to fulfill their
financial and other obligations to us. Such financial pressures on our counterparties may eventually lead to bankruptcy proceedings or other attempts to avoid financial obligations that are due to us. Because bankruptcy courts have the power to modify or cancel contracts of the petitioner which remain subject to future performance and alter or discharge payment obligations related to pre-petition debts, we may receive less than all of the payments that we would otherwise be entitled to receive from any such counterparty as a result of bankruptcy proceedings.
If we are unable to attract and retain qualified personnel, our business and operations could suffer.
Our success is dependent upon our ability to identify, attract, compensate, motivate and retain qualified personnel, especially engineers, senior management and other key personnel. The loss of the services of any key employees could be disruptive to our development efforts, business relationships and strategy, and could cause our business and operations to suffer.
Recently, we have experienced significant changes in our management team, including in the role of chief executive officer and other senior executives. Our future success depends in large part upon the continued service and enhancement of our management team and our employees. If there are further changes in management, such changes could be disruptive and could negatively affect our sales, operations, culture, future recruiting efforts and strategic direction. Competition for qualified executives is intense and if we are unable to compensate our key talent appropriately and continue expanding our management team, or successfully integrate new additions to our management team in a manner that enables us to scale our business and operations effectively, our ability to operate effectively and efficiently could be limited or negatively impacted. In addition, changes in key management positions may temporarily affect our financial performance and results of operations as new management becomes familiar with our business, processes and strategy. The loss of any of our key personnel, or our inability to attract, integrate and retain qualified employees, could require us to dedicate significant financial and other resources to such personnel matters, disrupt our operations and seriously harm our operations and business.
We are subject to various government restrictions and regulations, including on the sale of products and services that use encryption technology and those related to privacy and other consumer protection matters.
Various countries have adopted controls, license requirements and restrictions on the export, import and use of products or services that contain encryption technology. In addition, governmental agencies have proposed additional requirements for encryption technology, such as requiring the escrow and governmental recovery of private encryption keys. Restrictions on the sale or distribution of products or services containing encryption technology may impact our ability to license data security technologies to the manufacturers and providers of such products and services in certain markets or may require us or our customers to make changes to the licensed data security technology that is embedded in such products to comply with such restrictions. Government restrictions, or changes to the products or services our customers to comply with such restrictions, could delay or prevent the acceptance and use of such customers’ products and services. In addition, the United States and other countries have imposed export controls that prohibit the export of encryption technology to certain countries, entities and individuals. Our failure to comply with export and use regulations concerning encryption technology could subject us to sanctions and penalties, including fines, and suspension or revocation of export or import privileges.
We are subject to a variety of laws and regulations in the United States, the European Union and other countries that involve, for example, user privacy, data protection and security, content and consumer protection. A number of proposals are pending before federal, state, and foreign legislative and regulatory bodies that could significantly affect our business. For example, in 2016, a new EU data protection regime, the General Data Protection Regulation (“GDPR”) was adopted, with it fully effective on May 25, 2018, and California enacted the California Consumer Privacy Act as of January 1, 2020 (“CCPA”). The GDPR and CCPA may require us to modify our existing practices with respect to the collection, use, and disclosure of data. In particular, the GDPR provides for significant penalties in the case of non-compliance of up to €20 million or four percent of worldwide annual revenues, whichever is greater. The GDPR, CCPA and other existing and proposed laws and regulations can be costly to comply with and can delay or impede the development of new products, result in negative publicity, increase our operating costs and subject us to claims or other remedies.
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC established new disclosure and reporting requirements for those companies that use “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries in their products, whether or not these products are manufactured by third parties. These requirements could affect the sourcing and availability of minerals that are used in the manufacture of our products. We have to date incurred costs and expect to incur significant additional costs associated with complying with the disclosure requirements, including for example, due diligence in regard to the sources of any conflict minerals used in our products, in addition to the cost of remediation and other changes to products, processes, or sources of supply as a consequence of such verification activities. Additionally, we may face reputational challenges with our customers and other stakeholders if we are unable to sufficiently
verify the origins of all minerals used in our products through the due diligence procedures that we implement. We may also face challenges with government regulators and our customers and suppliers if we are unable to sufficiently verify that the metals used in our products are conflict free.
Participation in standards setting organizations may subject us to IP licensing requirements or limitations that could adversely affect our business and prospects.
In the course of our participation in the development of emerging standards for some of our present and future products, we may be obligated to grant to all other participants a license to our patents that are essential to the practice of those standards on reasonable and non-discriminatory, or RAND, terms. If we fail to limit to whom we license our patents, or fail to limit the terms of any such licenses, we may be required to license our patents or other IP to others in the future, which could limit the effectiveness of our patents against competitors.
Our operations are subject to risks of natural disasters, acts of war, terrorism, widespread illness or security breach at our domestic and international locations, any one of which could result in a business stoppage and negatively affect our operating results.
Our business operations depend on our ability to maintain and protect our facilities, computer systems and personnel, which are primarily located in the San Francisco Bay Area in the United States, the Netherlands and India. The San Francisco Bay Area is in close proximity to known earthquake fault zones. Our facilities and transportation for our employees are susceptible to damage from earthquakes and other natural disasters such as fires, floods and similar events. Should a catastrophe disable our facilities, we do not have readily available alternative facilities from which we could conduct our business, so any resultant work stoppage could have a negative effect on our operating results. We also rely on our network infrastructure and technology systems for operational support and business activities which are subject to physical and cyber damage, and also susceptible to other related vulnerabilities common to networks and computer systems. Acts of terrorism, widespread illness, or global pandemics, including the current Novel Coronavirus (COVID-19) pandemic, war and any event that causes failures or interruption in our network infrastructure and technology systems could have a negative effect at our international and domestic facilities and could harm our business, financial condition, and operating results.
We do not have extensive experience in manufacturing and marketing products and, as a result, may be unable to sustain and grow a profitable commercial market for new and existing products.
We do not have extensive experience in creating, manufacturing and marketing products. Our product offerings may present new and difficult challenges, and we may be subject to claims if customers of our offerings experience delays, failures, non-performance or other quality issues. In particular, we may experience difficulties with product design, qualification, manufacturing, marketing or certification that could delay or prevent our development, introduction or marketing and sales of products. Although we intend to design our products to be fully compliant with applicable industry standards, proprietary enhancements may not in the future result in full conformance with existing industry standards under all circumstances.
If we fail to introduce products that meet the demand of our customers, penetrate new markets in which we expend significant resources, or our marketing and sales cycles that we experience are longer than we anticipate, our revenues will be difficult to predict, may decrease over time and our financial condition could suffer. Additionally, if we concentrate resources on a new market that does not prove profitable or sustainable, it could damage our reputation and limit our growth, and our financial condition could decline.
We rely upon the accuracy of our customers’ recordkeeping, and any inaccuracies or payment disputes for amounts owed to us under our licensing agreements may harm our results of operations.
Many of our license agreements require our customers to document the manufacture and sale of products that incorporate our technology and report this data to us on a quarterly basis. While licenses with such terms give us the right to audit books and records of our customers to verify this information, audits rarely are undertaken because they can be expensive, time consuming, and potentially detrimental to our ongoing business relationship with our customers. Therefore, we typically rely on the accuracy of the reports from customers without independently verifying the information in them. Our failure to audit our customers’ books and records may result in our receiving more or less royalty revenue than we are entitled to under the terms of our license agreements. If we conduct royalty audits in the future, such audits may trigger disagreements over contract terms with our customers and such disagreements could hamper customer relations, divert the efforts and attention of our management from normal operations and impact our business operations and financial condition.
We are subject to increased inventory risks and costs because we build our products based on forecasts provided by customers before receiving purchase orders for the product.
We rely on a number of third-party providers for data center hosting facilities, equipment, maintenance and other services, and the loss of, or problems with, one or more of these providers may impede our growth or cause us to lose customers.
We rely on third-party providers to supply data center hosting facilities, equipment, maintenance and other services in order to enable us to provide some of our services, and have entered into various agreements for such services. The continuous availability of our services depends on the operations of those facilities, on a variety of network service providers and on third-party vendors. In addition, we depend on our third-party facility providers’ ability to protect these facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts, cyber-attacks and similar events. If there are any lapses of service or damage to a facility, we could experience lengthy interruptions in our service as well as delays and additional expenses in arranging new facilities and services. Even with current and planned disaster recovery arrangements, our business could be harmed. Any interruptions or delays in our service, whether as a result of third-party error, our own error, natural disasters, criminal acts, security breaches or other causes, whether accidental or willful, could harm our relationships with customers, harm our reputation and cause our revenue to decrease and/or our expenses to increase. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could further reduce our revenue, subject us to liability and cause us to issue credits or cause us to lose customers, any of which could materially adversely affect our business.
We rely on third parties for a variety of services, including manufacturing, and these third parties’ failure to perform these services adequately could materially and adversely affect our business.
We rely on third parties for a variety of services, including our manufacturing supply chain partners and third parties within our sales and distribution channels. Certain of these third parties are, and may be, our sole manufacturer or sole source of certain production materials. If we fail to manage our relationships with these manufacturers and suppliers effectively, or if they experience delays, disruptions, capacity constraints or quality control problems in their operations, our ability to ship products to our customers could be impaired and our competitive position and reputation could be harmed. In addition, any adverse change in any of our manufacturers and suppliers’ financial or business condition could disrupt our ability to supply quality products to our customers. If we are required to change our manufacturers, we may lose revenue, incur increased costs and damage our end-customer relationships. In addition, qualifying a new manufacturer and commencing production can be an expensive and lengthy process. If our third-party manufacturers or suppliers are unable to provide us with adequate supplies of high-quality products for any other reason, we could experience a delay in our order fulfillment, and our business, operating results and financial condition would be adversely affected. In the event these and other third parties we rely on fail to provide their services adequately, including as a result of errors in their systems or events beyond their control, or refuse to provide these services on terms acceptable to us or at all, and we are not able to find suitable alternatives, our business may be materially and adversely affected. In addition, our orders may represent a relatively small percentage of the overall orders received by our manufacturers from their customers. As a result, fulfilling our orders may not be considered a priority in the event our manufacturers are constrained in their ability to fulfill all of their customer obligations in a timely manner. If our manufacturers are unable to provide us with adequate supplies of high-quality products, or if we or our manufacturers are unable to obtain adequate quantities of components, it could cause a delay in our order fulfillment, in which case our business, operating results and financial condition could be adversely affected.
Warranty, service level agreement and product liability claims brought against us could cause us to incur significant costs and adversely affect our operating results as well as our reputation and relationships with customers.
We may from time to time be subject to warranty, service level agreement and product liability claims with regard to product performance and our services. We could incur material losses as a result of warranty, support, repair or replacement costs in response to customer complaints or in connection with the resolution of contemplated or actual legal proceedings relating to such claims. In addition to potential losses arising from claims and related legal proceedings, warranty and product liability claims could affect our reputation and our relationship with customers. We generally attempt to limit the maximum amount of indemnification or liability that we could be exposed to under our contracts, however, this is not always possible.
Any failure in our delivery of high-quality technical support services may adversely affect our relationships with our customers and our financial results.
Our customers depend on our support organization to resolve technical issues and provide ongoing maintenance relating to our products and services. We may be unable to respond quickly enough to accommodate short-term increases in customer
demand for support services. Increased customer demand for these services, without corresponding revenues, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependent on our offerings and business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could adversely affect our reputation, our ability to sell our solutions to existing and prospective customers, and our business, operating results and financial position.
Certain software that we use in certain of our products is licensed from third parties and, for that reason, may not be available to us in the future, which has the potential to delay product development and production or cause us to incur additional expense, which could materially adversely affect our business, financial condition, operating results and cash flow.
Some of our products and services contain software licensed from third parties. Some of these licenses may not be available to us in the future on terms that are acceptable to us or allow our products to remain competitive. The loss of these licenses or the inability to maintain any of them on commercially acceptable terms could delay development of future offerings or the enhancement of existing products and services. We may also choose to pay a premium price for such a license in certain circumstances where continuity of the licensed product would outweigh the premium cost of the license. The unavailability of these licenses or the necessity of agreeing to commercially unreasonable terms for such licenses could materially adversely affect our business, financial condition, operating results and cash flow.
Certain software we use is from open source code sources, which, under certain circumstances, may lead to unintended consequences and, therefore, could materially adversely affect our business, financial condition, operating results and cash flow.
We use open source software in our services and we intend to continue to use open source software in the future. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products or alleging that these companies have violated the terms of an open source license. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software or alleging that we have violated the terms of an open source license. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional research and development resources to change our solutions. In addition, if we were to combine our proprietary software solutions with open source software in certain manners, we could, under certain open source licenses, be required to publicly release the source code of our proprietary software solutions. If we inappropriately use open source software, we may be required to re-engineer our solutions, discontinue the sale of our solutions, release the source code of our proprietary software to the public at no cost or take other remedial actions. There is a risk that open source licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our solutions, which could adversely affect our business, operating results and financial condition.
Our business and operating results could be harmed if we undertake any restructuring activities.
From time to time, we may undertake restructurings of our business, including discontinuing certain products, services and technologies and planned reductions in force. There are several factors that could cause restructurings to have adverse effects on our business, financial condition and results of operations. These include potential disruption of our operations, the development of our technology, the deliveries to our customers and other aspects of our business. Loss of sales, service and engineering talent, in particular, could damage our business. Any restructuring would require substantial management time and attention and may divert management from other important work. Employee reductions or other restructuring activities also would cause us to incur restructuring and related expenses such as severance expenses. Moreover, we could encounter delays in executing any restructuring plans, which could cause further disruption and additional unanticipated expense.
Problems with our information systems could interfere with our business and could adversely impact our operations.
We rely on our information systems and those of third parties for fulfilling licensing and contractual obligations, processing customer orders, delivering products, providing services and support to our customers, billing and tracking our customer orders, performing accounting operations and otherwise running our business. If our systems fail, our disaster and data recovery planning and capacity may prove insufficient to enable timely recovery of important functions and business records. Any disruption in our information systems and those of the third parties upon whom we rely could have a significant impact on our business. Additionally, our information systems may not support new business models and initiatives and significant investments could be required in order to upgrade them. Delays in adapting our information systems to address new business models and accounting standards could limit the success or result in the failure of such initiatives and impair the effectiveness
of our internal controls. Even if we do not encounter these adverse effects, the implementation of these enhancements may be much more costly than we anticipated. If we are unable to successfully implement the information systems enhancements as planned, our operating results could be negatively impacted.
We are leveraged financially, which could adversely affect our ability to adjust our business to respond to competitive pressures and to obtain sufficient funds to satisfy our future research and development needs, to protect and enforce our intellectual property, and to meet other needs.
We have material indebtedness. In November 2017, we issued $172.5 million aggregate principal amount of our 2023 Notes, the entire amount of which remains outstanding. The degree to which we are leveraged could have negative consequences, including, but not limited to, the following:
•we may be more vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in responding to changing business and economic conditions;
•our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, litigation, general corporate or other purposes may be limited;
•a substantial portion of our cash flows from operations in the future may be required for the payment of interest and principal when due at maturity in February 2023; and
•we may be required to make cash payments upon any conversion of the 2023 Notes, which would reduce our cash on hand.
A failure to comply with the covenants and other provisions of our debt instruments could result in events of default under such instruments, which could permit acceleration of all of our outstanding 2023 Notes. Any required repurchase of the 2023 Notes as a result of a fundamental change or acceleration of the 2023 Notes would reduce our cash on hand such that we would not have those funds available for use in our business.
If we are at any time unable to generate sufficient cash flows from operations to service our indebtedness when payment is due, we may be required to attempt to renegotiate the terms of the instruments relating to the indebtedness, seek to refinance all or a portion of the indebtedness or obtain additional financing. There can be no assurance that we will be able to successfully renegotiate such terms, that any such refinancing would be possible or that any additional financing could be obtained on terms that are favorable or acceptable to us.
We have identified a material weakness in our internal control over financial reporting and determined that our disclosure controls and procedures were ineffective as of December 31, 2020, which resulted in a restatement of our consolidated financial statements as of and for the years ended December 31, 2020 and 2019. Relevant unaudited interim financial information for each of the quarterly periods ended September 30, 2019 through December 31, 2020 will also be restated. In the future we may identify additional material weaknesses or otherwise fail to maintain an effective system of internal control over financial reporting or adequate disclosure controls and procedures, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2020. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. In Management’s Report on Internal Control over Financial Reporting included in our Original Form 10-K for the year ended December 31, 2020, our management previously concluded that we maintained effective internal control over financial reporting as of December 31, 2020. Our management subsequently concluded that a material weakness existed and our internal control over financial reporting was not effective as of December 31, 2020. During the quarter ending March 31, 2021, we determined that a portion of revenue under a single customer agreement that had not yet been recognized, should have been recognized beginning in the third quarter of 2019. As a result, we determined that a material misstatement of the consolidated financial statements had occurred which required a restatement of the 2020 and 2019 consolidated financial statements included in our Form 10-K for the year ended December 31, 2020 and our Form 10-Qs for the quarterly periods ended September 30, 2019 through September 30, 2020. This was due to the inadequate design and maintenance of controls to evaluate and monitor the accounting for patent and technology licensing arrangements with unusual contract terms. Additionally, this control deficiency could result in a misstatement of the royalties revenue, unbilled receivables and interest income account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness, and as a result, management has concluded that, as of
December 31, 2020, our internal control over financial reporting was not effective based on the criteria in Internal Control — Integrated Framework (2013) issued by the COSO. Accordingly, management has subsequently restated its report on internal control over financial reporting as of December 31, 2020. Additionally, we reassessed our prior conclusion of our disclosure controls and procedures as of December 31, 2020 to reflect that such disclosure controls and procedures were ineffective.
Management is actively engaged in the planning for, and implementation of, remediation efforts to address our material weakness and improve our internal control over financial reporting. The remediation plan includes enhancement of our existing contract review control for patent and technology licensing arrangements with unusual terms to require review of the facts as summarized in the contract review analysis by legal and the licensing group to confirm appropriate understanding of the terms by the revenue recognition team as well as implementation of a new control designed to evaluate and monitor, at inception and on a quarterly basis, the accounting assessment of patent and technology licensing arrangements with unusual terms. If we are not successful in our remediation efforts and do not improve our internal control over financial reporting, we may have future material misstatements in our periodic reports we file. This would cause us to restate our previously filed consolidated financial statements and cause us to fail to meet our reporting obligations and adversely impact our results of operations. We may also identify additional material weaknesses. Additionally, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
If we are not able to comply with the requirements of the Sarbanes-Oxley Act or if we are unable to maintain effective internal control over financial reporting, we may not be able to produce timely and accurate consolidated financial statements or guarantee that information required to be disclosed by us in the reports that we file with the SEC, is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. Any failure of our internal control over financial reporting or disclosure controls and procedures could cause our investors to lose confidence in our publicly reported information, cause the market price of our stock to decline, expose us to sanctions or investigations by the SEC or other regulatory authorities, or impact our results of operations.
Risks Associated with Litigation, Regulation and Our Intellectual Property
Adverse litigation results could affect our business.
We may be subject to legal claims or regulatory matters involving consumer, stockholder, employment, competition, IP and other issues on a global basis. Litigation can be lengthy, expensive and disruptive to our operations, and results cannot be predicted with certainty. An adverse decision could include monetary damages or, in cases for which injunctive relief is sought, an injunction prohibiting us from manufacturing or selling one or more of our products or technologies. If we were to receive an unfavorable ruling on a matter, our business, operating results or financial condition could be materially harmed.
We have in the past, and may in the future, become engaged in litigation stemming from our efforts to protect and enforce our patents and intellectual property and make other claims, which could adversely affect our intellectual property rights, distract our management and cause substantial expenses and declines in our revenue and stock price.
We seek to diligently protect our IP rights and will continue to do so. While we are not currently involved in IP litigation, any future litigation, whether or not determined in our favor or settled by us, would be expected to be costly, may cause delays applicable to our business (including delays in negotiating licenses with other actual or potential customers), would be expected to discourage future design partners, would tend to impair adoption of our existing technologies and would divert the efforts and attention of our management and technical personnel from other business operations. In addition, we may be unsuccessful in any litigation if we have difficulty obtaining the cooperation of former employees and agents who were involved in our business during the relevant periods related to our litigation and are now needed to assist in cases or testify on our behalf. Furthermore, any adverse determination or other resolution in litigation could result in our losing certain rights beyond the rights at issue in a particular case, including, among other things: our being effectively barred from suing others for violating certain or all of our IP rights; our patents being held invalid or unenforceable or not infringed; our being subjected to significant liabilities; our being required to seek licenses from third parties; our being prevented from licensing our patented technology; or our being required to renegotiate with current customers on a temporary or permanent basis.
From time to time, we are subject to proceedings by government agencies that may result in adverse determinations against us and could cause our revenue to decline substantially.
An adverse resolution by or with a governmental agency could result in severe limitations on our ability to protect and license our IP, and could cause our revenue to decline substantially. Third parties have and may attempt to use adverse findings
by a government agency to limit our ability to enforce or license our patents in private litigations, to challenge or otherwise act against us with respect to such government agency proceedings.
Further, third parties have sought and may seek review and reconsideration of the patentability of inventions claimed in certain of our patents by the U.S. Patent and Trademark Office (“USPTO”) and/or the European Patent Office (the “EPO”). Any re-examination or inter parties review proceedings may be initiated by the USPTO’s Patent Trial and Appeal Board (“PTAB”). The PTAB and the related former Board of Patent Appeals and Interferences have previously issued decisions in a few cases, finding some challenged claims of Rambus’ patents to be valid, and others to be invalid. Decisions of the PTAB are subject to further USPTO proceedings and/or appeal to the Court of Appeals for the Federal Circuit. A final adverse decision, not subject to further review and/or appeal, could invalidate some or all of the challenged patent claims and could also result in additional adverse consequences affecting other related U.S. or European patents, including in any IP litigation. If a sufficient number of such patents are impaired, our ability to enforce or license our IP would be significantly weakened and could cause our revenue to decline substantially.
The pendency of any governmental agency acting as described above may impair our ability to enforce or license our patents or collect royalties from existing or potential customers, as any litigation opponents may attempt to use such proceedings to delay or otherwise impair any pending cases and our existing or potential customers may await the final outcome of any proceedings before agreeing to new licenses or to paying royalties.
Litigation or other third-party claims of intellectual property infringement could require us to expend substantial resources and could prevent us from developing or licensing our technology on a cost-effective basis.
Our research and development programs are in highly competitive fields in which numerous third parties have issued patents and patent applications with claims closely related to the subject matter of our programs. We have also been named in the past, and may in the future be named, as a defendant in lawsuits claiming that our technology infringes upon the IP rights of third parties. As we develop additional products and technology, we may face claims of infringement of various patents and other IP rights by third parties. In the event of a third-party claim or a successful infringement action against us, we may be required to pay substantial damages, to stop developing and licensing our infringing technology, to develop non-infringing technology, and to obtain licenses, which could result in our paying substantial royalties or our granting of cross licenses to our technologies. We may not be able to obtain licenses from other parties at a reasonable cost, or at all, which could cause us to expend substantial resources, or result in delays in, or the cancellation of, new products. Moreover, customers and/or suppliers of our products may seek indemnification for alleged infringement of IP rights. We could be liable for direct and consequential damages and expenses including attorneys’ fees. A future obligation to indemnify our customers and/or suppliers may harm our business, financial condition and operating results.
If we are unable to protect our inventions successfully through the issuance and enforcement of patents, our operating results could be adversely affected.
We have an active program to protect our proprietary inventions through the filing of patents. There can be no assurance, however, that:
•any current or future U.S. or foreign patent applications will be approved and not be challenged by third parties;
•our issued patents will protect our IP and not be challenged by third parties;
•the validity of our patents will be upheld;
•our patents will not be declared unenforceable;
•the patents of others will not have an adverse effect on our ability to do business;
•Congress or the U.S. courts or foreign countries will not change the nature or scope of rights afforded patents or patent owners or alter in an adverse way the process for seeking or enforcing patents;
•changes in law will not be implemented, or changes in interpretation of such laws will occur, that will affect our ability to protect and enforce our patents and other IP;
•new legal theories and strategies utilized by our competitors will not be successful;
•others will not independently develop similar or competing chip interfaces or design around any patents that may be issued to us; or
•factors such as difficulty in obtaining cooperation from inventors, pre-existing challenges or litigation, or license or other contract issues will not present additional challenges in securing protection with respect to patents and other IP that we acquire.
If any of the above were to occur, our operating results could be adversely affected.
Furthermore, patent reform legislation, such as the Leahy-Smith America Invents Act, could increase the uncertainties and costs surrounding the prosecution of any patent applications and the enforcement or defense of our licensed patents. The federal courts, the USPTO, the Federal Trade Commission, and the U.S. International Trade Commission have also recently taken certain actions and issued rulings that have been viewed as unfavorable to patentees. While we cannot predict what form any new patent reform laws or regulations may ultimately take, or what impact recent or future reforms may have on our business, any laws or regulations that restrict or negatively impact our ability to enforce our patent rights against third parties could have a material adverse effect on our business.
In addition, our patents will continue to expire according to their terms, with expected expiration dates ranging from 2021 to 2039. Our failure to continuously develop or acquire successful innovations and obtain patents on those innovations could significantly harm our business, financial condition, results of operations, or cash flows.
Our inability to protect and own the intellectual property we create would cause our business to suffer.
We rely primarily on a combination of license, development and nondisclosure agreements, trademark, trade secret and copyright law and contractual provisions to protect our non-patentable IP rights. If we fail to protect these IP rights, our customers and others may seek to use our technology without the payment of license fees and royalties, which could weaken our competitive position, reduce our operating results and increase the likelihood of costly litigation. The growth of our business depends in part on the use of our IP in the products of third-party manufacturers, and our ability to enforce IP rights against them to obtain appropriate compensation. In addition, effective trade secret protection may be unavailable or limited in certain foreign countries. Although we intend to protect our rights vigorously, if we fail to do so, our business will suffer.
Effective protection of trademarks, copyrights, domain names, patent rights, and other IP rights is expensive and difficult to maintain, both in terms of application and maintenance costs, as well as the costs of defending and enforcing those rights. The efforts we have taken to protect our IP rights may not be sufficient or effective. Our IP rights may be infringed, misappropriated, or challenged, which could result in them being narrowed in scope or declared invalid or unenforceable. In addition, the laws or practices of certain countries do not protect our proprietary rights to the same extent as do the laws of the United States. Significant impairments of our IP rights, and limitations on our ability to assert our IP rights against others, could have a material and adverse effect on our business.
Third parties may claim that our products or services infringe on their intellectual property rights, exposing us to litigation that, regardless of merit, may be costly to defend.
Our success and ability to compete are also dependent upon our ability to operate without infringing upon the patent, trademark and other IP rights of others. Third parties may claim that our current or future products or services infringe upon their IP rights. Any such claim, with or without merit, could be time consuming, divert management’s attention from our business operations and result in significant expenses. We cannot assure you that we would be successful in defending against any such claims. In addition, parties making these claims may be able to obtain injunctive or other equitable relief affecting our ability to license the products that incorporate the challenged IP. As a result of such claims, we may be required to obtain licenses from third parties, develop alternative technology or redesign our products. We cannot be sure that such licenses would be available on terms acceptable to us, if at all. If a successful claim is made against us and we are unable to develop or license alternative technology, our business, financial condition, operating results and cash flows could be materially adversely affected.
Any dispute regarding our intellectual property may require us to indemnify certain customers, the cost of which could severely hamper our business operations and financial condition.
In any potential dispute involving our patents or other IP, our customers could also become the target of litigation. While we generally do not indemnify our customers, some of our agreements provide for indemnification, and some require us to provide technical support and information to a customer that is involved in litigation involving use of our technology. In addition, we may be exposed to indemnification obligations, risks and liabilities that were unknown at the time that we acquired assets or businesses for our operations. Any of these indemnification and support obligations could result in substantial and material
expenses. In addition to the time and expense required for us to indemnify or supply such support to our customers, a customer’s development, marketing and sales of licensed semiconductors, mobile communications and data security technologies could be severely disrupted or shut down as a result of litigation, which in turn could severely hamper our business operations and financial condition as a result of lower or no royalty payments.
We have been party to, and may in the future be subject to, lawsuits relating to securities law matters which may result in unfavorable outcomes and significant judgments, settlements and legal expenses which could cause our business, financial condition and results of operations to suffer.
We and certain of our current and former officers and directors, as well as our current auditors, were subject from 2006 to 2011 to several stockholder derivative actions, securities fraud class actions and/or individual lawsuits filed in federal court against us and certain of our current and former officers and directors. The complaints generally alleged that the defendants violated the federal and state securities laws and stated state law claims for fraud and breach of fiduciary duty. Although to date these complaints have either been settled or dismissed, the amount of time to resolve any future lawsuits is uncertain, and these matters could require significant management and financial resources. Unfavorable outcomes and significant judgments, settlements and legal expenses in litigation related to any future securities law claims could have material adverse impacts on our business, financial condition, results of operations, cash flows and the trading price of our common stock.
General Risks Factors
The price of our common stock may continue to fluctuate.
Our common stock is listed on The NASDAQ Global Select Market under the symbol “RMBS.” The trading price of our common stock has at times experienced price volatility and may continue to fluctuate significantly in response to various factors, some of which are beyond our control. Some of these factors include:
•any progress, or lack of progress, real or perceived, in the development of products that incorporate our innovations and technology companies’ acceptance of our products, including the results of our efforts to expand into new target markets;
•our signing or not signing new licenses or renewing existing licenses, and the loss of strategic relationships with any customer;
•announcements of technological innovations or new products by us, our customers or our competitors;
•changes in our strategies, including changes in our licensing focus and/or acquisitions or dispositions of companies or businesses with business models or target markets different from our core;
•positive or negative reports by securities analysts as to our expected financial results and business developments;
•developments with respect to patents or proprietary rights and other events or factors;
•new litigation and the unpredictability of litigation results or settlements;
•repurchases of our common stock on the open market;
•issuance of additional securities by us, including in acquisitions, or large cash payments, including in acquisitions; and
•changes in accounting pronouncements, including the effects of ASC 606 and ASC 842.
In addition, the stock market in general, and prices for companies in our industry in particular, have experienced extreme volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our common stock, regardless of our operating performance.
We have outstanding senior convertible notes in an aggregate principal amount totaling $172.5 million. Because these notes are convertible into shares of our common stock, volatility or depressed prices of our common stock could have a similar effect on the trading price of such notes. In addition, the existence of these notes may encourage short selling in our common stock by market participants because the conversion of the notes could depress the price of our common stock.
Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.
Changing laws, regulations and standards relating to corporate governance and public disclosure have historically created uncertainty for companies such as ours. Any new or changed laws, regulations and standards are subject to varying interpretations due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Our certificate of incorporation and bylaws, Delaware law, our outstanding convertible notes and certain other agreements contain provisions that could discourage transactions resulting in a change in control, which may negatively affect the market price of our common stock.
Our certificate of incorporation, our bylaws and Delaware law contain provisions that might enable our management to discourage, delay or prevent a change in control. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our common stock. Pursuant to such provisions:
•our board of directors is authorized, without prior stockholder approval, to create and issue preferred stock, commonly referred to as “blank check” preferred stock, with rights senior to those of common stock, which means that a stockholder rights plan could be implemented by our board;
•our board of directors is staggered into two classes, only one of which is elected at each annual meeting;
•stockholder action by written consent is prohibited;
•nominations for election to our board of directors and the submission of matters to be acted upon by stockholders at a meeting are subject to advance notice requirements;
•certain provisions in our bylaws and certificate of incorporation such as notice to stockholders, the ability to call a stockholder meeting, advance notice requirements and action of stockholders by written consent may only be amended with the approval of stockholders holding 66 2/3% of our outstanding voting stock;
•our stockholders have no authority to call special meetings of stockholders; and
•our board of directors is expressly authorized to make, alter or repeal our bylaws.
We are also subject to Section 203 of the Delaware General Corporation Law, which provides, subject to enumerated exceptions, that if a person acquires 15% or more of our outstanding voting stock, the person is an “interested stockholder” and may not engage in any “business combination” with us for a period of three years from the time the person acquired 15% or more of our outstanding voting stock.
Certain provisions of our outstanding Notes could make it more difficult or more expensive for a third party to acquire us. Upon the occurrence of certain transactions constituting a fundamental change, holders of such Notes will have the right, at their option, to require us to repurchase, at a cash repurchase price equal to 100% of the principal amount plus accrued and unpaid interest on such Notes, all or a portion of their Notes. We may also be required to increase the conversion rate of such Notes in the event of certain fundamental changes.
Unanticipated changes in our tax rates or in the tax laws and regulations could expose us to additional income tax liabilities which could affect our operating results and financial condition.
We are subject to income taxes in both the United States and various foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. Our effective tax rate could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws and regulations as well as other factors. Our tax determinations are regularly subject to audit by tax authorities and developments in those audits could adversely affect our income tax provision, and we are currently undergoing such audits of certain of our tax returns. Although we believe that our tax estimates are reasonable, the final determination of tax audits or tax disputes may be different from what is reflected in our historical income tax provisions which could affect our operating results.
| | | | | |
| Item 1B. | Unresolved Staff Comments |
None.
As of December 31, 2020, we occupied offices in the leased facilities described below:
| | | | | | | | | | | | | | |
Number of
Offices
Under Lease | | Location | | Primary Use |
| 4 | | United States | | |
| | San Jose, CA (Corporate Headquarters) | | Executive and administrative offices, research and development, sales and marketing and service functions |
| | Chapel Hill, NC | | Research and development |
| | Beaverton, OR | | Research and development |
| | Agoura Hills, CA | | Research and development |
| 1 | | Bangalore, India | | Administrative offices, research and development and service functions |
| 1 | | Seoul, Korea | | Business development |
| 1 | | Rotterdam, The Netherlands | | Research and development |
| 1 | | Vught, The Netherlands | | Research and development |
| 1 | | Toronto, Canada | | Research and development |
| 1 | | Espoo, Finland | | Research and development |
We are not currently a party to any material pending legal proceeding; however, from time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business, operating results, financial position or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management attention and resources and other factors.
| | | | | |
| Item 4. | Mine Safety Disclosures |
Not applicable.
PART II
| | | | | |
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Our Common Stock is listed on The NASDAQ Global Select Market under the symbol “RMBS.” The following table sets forth for the periods indicated the high and low sales price per share of our common stock as reported on The NASDAQ Global Select Market.
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended | | Year Ended |
| December 31, 2020 | | December 31, 2019 |
| High | | Low | | High | | Low |
| First Quarter | $ | 16.98 | | | $ | 9.01 | | | $ | 10.93 | | | $ | 7.55 | |
| Second Quarter | $ | 16.50 | | | $ | 10.36 | | | $ | 12.24 | | | $ | 10.50 | |
| Third Quarter | $ | 15.61 | | | $ | 13.08 | | | $ | 14.29 | | | $ | 11.23 | |
| Fourth Quarter | $ | 18.54 | | | $ | 13.48 | | | $ | 14.83 | | | $ | 12.45 | |
The graph below compares the cumulative 5-year total return of holders of Rambus Inc.’s common stock with the cumulative total returns of the NASDAQ Composite index and the RDG Semiconductor Composite index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from December 31, 2015 to December 31, 2020.
Fiscal years ending:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Base Period
12/31/15 | | 12/31/16 | | 12/31/17 | | 12/31/18 | | 12/31/19 | | 12/31/20 |
| Rambus Inc. | | $100.00 | | $118.81 | | $122.69 | | $66.18 | | $118.85 | | $150.65 |
| NASDAQ Composite | | $100.00 | | $108.87 | | $141.13 | | $137.12 | | $187.44 | | $271.64 |
| RDG Semiconductor Composite | | $100.00 | | $131.64 | | $177.48 | | $164.63 | | $242.61 | | $351.91 |
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Information regarding our securities authorized for issuance under equity compensation plans will be included in Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” of this report on Form 10-K/A.
As of January 29, 2021, there were 480 holders of record of our common stock. Since many of the shares of our common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial stockholders represented by these record holders.
We have never paid or declared any cash dividends on our common stock or other securities.
Share Repurchase Program
On October 29, 2020, our Board approved a new share repurchase program authorizing the repurchase of up to an aggregate of 20.0 million shares (the “2020 Repurchase Program”). Share repurchases under the 2020 Repurchase Program may be made through the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules, and regulations. There is no expiration date applicable to the 2020 Repurchase Program. The 2020 Repurchase Program replaced the previous program approved by the Board in January 2015 (the “2015 Repurchase Program) and canceled the remaining shares outstanding as part of the previous authorization. As part of the broader share repurchase program authorized by our Board on October 29, 2020, we entered into an accelerated share repurchase program with Deutsche Bank AG, London Branch as counterparty, through its agent Deutsche Bank Securities Inc. (“Deutsche Bank”) on November 11, 2020 (the “2020 ASR Program”). After giving effect to the 2020 ASR Program, detailed in the table below, we had remaining authorization to repurchase approximately 17.4 million shares.
We record stock repurchases as a reduction to stockholders’ equity. We record a portion of the purchase price of the repurchased shares as an increase to accumulated deficit when the price of the shares repurchased exceeds the average original proceeds per share received from the issuance of common stock.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Maximum Number of Shares that May Yet be Purchased Under the Program |
| | | | | | | | |
October 1, 2020 - December 31, 2020 (1) | | 2,616,089 | | | N/A (2) | | 2,616,089 | | | 17,383,911 | |
| | | | | | | | |
| Cumulative shares repurchased as of December 31, 2020 | | 2,616,089 | | | | | 2,616,089 | | | |
_________________________________________
(1) In November 2020, we entered into the 2020 ASR Program with Deutsche Bank to repurchase an aggregate of $50.0 million of our common stock. We made an upfront payment of $50.0 million pursuant to the accelerated share repurchase program and received an initial delivery of 2.6 million shares which were retired and recorded as a $40.0 million reduction to stockholders' equity. The remaining $10.0 million of the initial payment was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to our stock. The number of shares to be ultimately purchased by us will be determined based on the volume-weighted-average price of the common stock during the terms of the transaction, minus an agreed upon discount between the parties. The program is expected to be completed within six months from the beginning of the program. Refer to Note 15, “Stockholders’ Equity,” of Notes to Consolidated Financial Statements of this Form 10-K/A for further discussion.
(2) N/A—The average price paid per share will be determined at the end of the current accelerated share repurchase program.
Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Equity Securities
None.
| | | | | |
| Item 6. | Selected Financial Data |
The following selected consolidated financial data as of and for the years ended December 31, 2020, 2019, 2018, 2017 and 2016 was derived from our consolidated financial statements. The following selected consolidated financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 8, “Financial Statements and Supplementary Data,” and other financial data included elsewhere in this report. Our historical results of operations are not necessarily indicative of results of operations to be expected for any future period. The amounts for fiscal years ended December 31, 2020 and 2019 presented below have been adjusted to reflect the restatement of our consolidated financial statements as described in the “Explanatory Note” at the beginning of this Amended Annual Report and in Note 1, “Restatement and Revision of Consolidated Financial Statements,” in Notes to the Consolidated Financial Statements of this Amended Annual Report on Form 10-K/A.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In thousands, except per share amounts) | | 2020 (3) (As Restated) | | 2019 (1) (As Restated) | | 2018 (2) (3) (4) | | 2017 (2) (3) | | 2016 (5) |
| Total revenue | | $ | 246,322 | | | $ | 227,603 | | | $ | 231,201 | | | $ | 393,096 | | | $ | 336,597 | |
| Net income (loss) | | $ | (40,471) | | | $ | (85,964) | | | $ | (157,957) | | | $ | (22,862) | | | $ | 6,820 | |
| Net income (loss) per share: | | | | | | | | | | |
| Basic | | $ | (0.36) | | | $ | (0.77) | | | $ | (1.46) | | | $ | (0.21) | | | $ | 0.06 | |
| Diluted | | $ | (0.36) | | | $ | (0.77) | | | $ | (1.46) | | | $ | (0.21) | | | $ | 0.06 | |
| Consolidated Balance Sheet Data | | | | | | | | | | |
| Cash, cash equivalents and marketable securities | | $ | 502,649 | | | $ | 407,664 | | | $ | 277,764 | | | $ | 329,376 | | | $ | 172,182 | |
| Total assets | | $ | 1,251,409 | | | $ | 1,343,441 | | | $ | 1,361,155 | | | $ | 891,072 | | | $ | 783,496 | |
| Convertible notes | | $ | 156,031 | | | $ | 148,788 | | | $ | 141,934 | | | $ | 213,898 | | | $ | 126,167 | |
| Stockholders’ equity | | $ | 912,706 | | | $ | 975,373 | | | $ | 1,012,112 | | | $ | 571,584 | | | $ | 552,782 | |
______________________________________
(1) The net loss for the year ended December 31, 2019 included $7.4 million of impairment of assets held for sale related to the Company’s Payments and Ticketing businesses, which was included in operating costs and expenses. Refer to Note 17, “Divestiture,” of Notes to Consolidated Financial Statements of this Form 10-K/A for further discussion.
(2) The net loss for the year ended December 31, 2018 included a $113.7 million impact of an increase in our deferred tax asset valuation allowance. The net loss for the year ended December 31, 2017 included a $21.5 million impact due to the recording of a deferred tax asset valuation allowance and $20.7 million related to re-measurement of deferred tax assets as a result of the tax law changes.
(3) Stockholders’ equity includes $50.0 million paid under the accelerated share repurchase programs initiated in November 2020, March 2018 and May 2017.
(4) Reflects the impact from the adoption of ASC 606 in 2018.
(5) The net income for the year ended December 31, 2016 included $18.3 million of impairment of in-process research and development (“IPR&D”) intangible asset and a reduction of operating expenses due to the change in our contingent consideration liability of $6.8 million.
| | | | | |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as described in more detail under “Note Regarding Forward-Looking Statements.” Our forward-looking statements are based on current expectations, forecasts and assumptions and are subject to risks, uncertainties and changes in condition, significance, value and effect. As a result of the factors described herein, and in the documents incorporated herein by reference, including, in particular, those factors described under “Risk Factors,” we undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this report with the Securities and Exchange Commission.
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes that are included elsewhere in this report.
The following information has been adjusted to reflect the restatement and revision of our consolidated financial statements as described in the “Explanatory Note” at the beginning of this Amended Annual Report and in Note 1, “Restatement and Revision of Consolidated Financial Statements,” in Notes to the Consolidated Financial Statements of this Amended Annual Report.
Executive Summary
Highlights from our annual results for the year ended December 31, 2020 were as follows:
•Revenue of $246.3 million;
•Operating expenses of $229.6 million;
•GAAP diluted net loss per share of $0.36;
•Net cash provided by operating activities of $185.5 million
We had record annual product revenue of $114.0 million in 2020, which was primarily driven by our memory interface chips, and was up 56% as compared to 2019. In addition, our cash provided by operating activities for 2020 was up 44% as compared to 2019.
Business Overview
Rambus produces products and innovations that address the fundamental challenges of accelerating data. We make industry-leading chips and IP that enable critical performance improvements for data center and other growing markets. The ongoing shift to the cloud, along with the widespread advancement of AI across the data center, 5G, automotive and IoT, has led to exponential growth in data usage and tremendous demands on data infrastructure. Creating fast and safe connections, both in and across systems, remains one of the most mission-critical design challenges limiting performance in advanced hardware for these markets.
As an industry pioneer with over 30 years of advanced semiconductor design experience, Rambus is ideally positioned to address the challenges of moving and protecting data. We are a leader in high-performance memory subsystems, providing chips, IP and innovations that maximize the performance and security in data-intensive systems. Whether in the cloud, at the edge or in your hand, real-time and immersive applications depend on data throughput and integrity. Rambus products and innovations deliver the increased bandwidth, capacity and security required to meet the world’s data needs and drive ever-greater end-user experiences.
Our strategic objectives are focusing our product portfolio and research around our core strength in semiconductors, optimizing our operational efficiency, and leveraging our strong cash generation to re-invest for growth. We continue to maximize synergies across our businesses and customer base, leveraging the significant overlap in our ecosystem of customers, partners and influencers. The Rambus product and technology roadmap, as well as our go-to-market strategy, is driven by the application-specific requirements of our focus markets.
Revenue Sources
Our patented inventions are offered to our customers through patent, technology, software and IP core licenses, as well as memory interface chips. Today, a significant source of revenue is derived from our Architecture Licenses, through which we provide our customers a license to use a certain portion of our broad worldwide portfolio of patented inventions. Our Architecture Licenses enable our customers to use the licensed portion of our portfolio of patented inventions in the customer’s own digital electronics products, systems or services. The licenses may also define the specific field of use where our customers may use or employ our inventions in their products. License agreements are structured with fixed or variable or a hybrid of fixed and variable royalty payments over certain defined periods ranging for periods of up to ten years. Leading semiconductor and electronic system companies such as AMD, Broadcom, Cisco, Fujitsu, IBM, Marvell, Mediatek, Micron, Nanya, NVIDIA, Panasonic, Phison, Qualcomm, Renesas, Samsung, SK hynix, Socionext, STMicroelectronics, Toshiba, Western Digital, Winbond, and Xilinx have licensed our patents. The vast majority of our patents were secured through our internal research and development efforts.
We also offer our customers technology licenses to support the implementation and adoption of our technology in their products or services. Our customers include leading companies such as IBM, Panasonic, Qualcomm, Samsung, Sony and Toshiba. Our technology license offerings include a range of technologies for incorporation into our customers’ products and systems. We also offer a range of services as part of our technology licenses which can include know-how and technology transfer, product design and development, system integration, and other services. These technology license agreements may have both a fixed price (non-recurring) component and ongoing use fees and in some cases, royalties. Further, under technology licenses, our customers typically receive licenses to our patents necessary to implement these solutions in their products with specific rights and restrictions to the applicable patents elaborated in their individual contracts with us.
Revenues from royalties accounted for 34%, 41% and 56% of our consolidated revenue for the years ended December 31, 2020, 2019 and 2018, respectively.
The remainder of our revenue is product revenue, contract and other revenue, which includes our product sales, IP core licenses, software licenses and related implementation, support and maintenance fees, and engineering services fees. The timing and amounts invoiced to customers can vary significantly depending on specific contract terms and can therefore have a significant impact on deferred revenue or accounts receivable in any given period. Product revenue accounted for 46%, 32% and 17% of our consolidated revenue for the years ended December 31, 2020, 2019 and 2018, respectively. Contract and other revenue accounted for 19%, 27% and 27% of our consolidated revenue for the years ended December 31, 2020, 2019 and 2018, respectively.
Costs and Expenses
Cost of product revenue for 2020 increased approximately $10.5 million to $37.7 million from $27.2 million as compared to 2019 primarily due to increased cost of sales associated with our memory interface chips.
Cost of contract and other revenue for 2020 decreased approximately $4.3 million to $5.6 million from $9.9 million as compared to 2019 primarily due to incurring lower costs as a result of the divestiture of our former Payments and Ticketing businesses in the fourth quarter of 2019.
Research and development expenses continue to play a key role in our efforts to maintain product innovations. Our research and development expenses for 2020 decreased $17.0 million as compared to 2019 primarily due to decreased headcount-related expenses of $11.8 million (which includes the reduction in headcount due to the divestiture of the Payments and Ticketing businesses in 2019), consulting costs of $5.2 million, travel costs of $1.9 million and stock-based compensation expense of $1.0 million, offset by increased retention bonus expense related to acquisitions of $2.0 million and prototyping costs of $0.9 million.
Sales, general and administrative expenses for 2020 decreased $14.2 million as compared to 2019 primarily due to decreased headcount-related expenses of $5.4 million, acquisition and divestiture-related costs of $4.1 million, travel costs of $3.4 million and consulting costs of $2.7 million, offset by increased bonus accrual expense of $0.5 million and stock-based compensation expense of $0.3 million.
Impact of the COVID-19 Pandemic
In December 2019, the Novel Coronavirus (COVID-19) was reported in China, in January 2020 the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern, and in March 2020 the WHO declared it a pandemic. The COVID-19 pandemic has created significant global economic uncertainty and may adversely impact the business of our customers, partners and vendors. The extent of the impact of the Novel Coronavirus (COVID-19) on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers and our sales cycles, and impact on our partners or employees, all of which are uncertain and cannot be predicted. At this point, the extent to which the Novel Coronavirus (COVID-19) may impact our financial condition or results of operations remains uncertain. Actual results could differ from any estimates and any such differences could be material to our financial statements. Furthermore, the effect of the Novel Coronavirus (COVID-19) may not be fully reflected in our results of operations until future periods, if at all.
Trends
There are a number of trends that may have a material impact on us in the future, including but not limited to, the evolution of memory and SerDes technology, adoption of security solutions, the use and adoption of our inventions or technologies generally, industry consolidation, and global economic conditions with the resulting impact on sales of consumer electronic systems.
We have a high degree of revenue concentration. Our top five customers for each reporting period represented approximately 46% of our revenue for 2020 as compared to 45% in 2019 and 49% in 2018. The particular customers which account for revenue concentration have varied from period-to-period as a result of the addition of new contracts, expiration of existing contracts, renewals of existing contracts, industry consolidation, and the volumes and prices at which the customers have recently sold to their customers. These variations are expected to continue in the foreseeable future.
Our revenue from companies headquartered outside of the United States accounted for approximately 44% in 2020 as compared to 41% in 2019 and 44% in 2018. We expect that revenue derived from international customers will continue to represent a significant portion of our total revenue in the future. Currently, our revenue from international customers is denominated in U.S. dollars. For additional information concerning international revenue, refer to Note 7, “Segments and Major Customers,” of Notes to Consolidated Financial Statements of this Form 10-K/A.
The royalties we receive from our semiconductor customers are partly a function of the adoption of our technologies by system companies. Many system companies purchase semiconductors containing our technologies from our customers and do not have a direct contractual relationship with us. Our customers generally do not provide us with details as to the identity or volume of licensed semiconductors purchased by particular system companies. As a result, we face difficulty in analyzing the extent to which our future revenue will be dependent upon particular system companies.
As a part of our overall business strategy, from time to time, we evaluate businesses and technologies for potential acquisition that are aligned with our core business and designed to supplement our growth, including the 2019 acquisitions of Northwest Logic and the Secure Silicon IP and Protocols business from Verimatrix, formerly Inside Secure. Similarly, we
evaluate our current businesses and technologies that are not aligned with our core business for potential divestiture, such as the sale of our Payments and Ticketing businesses to Visa International Service Association in 2019. We expect to continue to evaluate and potentially enter into strategic acquisitions or divestitures which may adversely impact our business and operating results.
Results of Operations
The following table sets forth, for the periods indicated, the percentage of total revenue represented by certain items reflected in our consolidated statements of operations:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020
(As Restated) | | 2019
(As Restated) | | 2018 |
| Revenue: | | | | | |
| Royalties | 34.3 | % | | 41.4 | % | | 56.4 | % |
| Product revenue | 46.3 | % | | 32.1 | % | | 16.7 | % |
| Contract and other revenue | 19.4 | % | | 26.5 | % | | 26.9 | % |
| Total revenue | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Cost of revenue: | | | | | |
| Cost of product revenue | 15.3 | % | | 11.9 | % | | 7.9 | % |
| Cost of contract and other revenue | 2.3 | % | | 4.4 | % | | 5.1 | % |
| Amortization of acquired intangible assets | 7.1 | % | | 6.3 | % | | 10.2 | % |
| Total cost of revenue | 24.7 | % | | 22.6 | % | | 23.2 | % |
| Gross profit | 75.3 | % | | 77.4 | % | | 76.8 | % |
| Operating expenses: | | | | | |
| Research and development | 56.8 | % | | 68.9 | % | | 68.5 | % |
| Sales, general and administrative | 35.0 | % | | 44.2 | % | | 42.5 | % |
| Amortization of acquired intangible assets | 0.4 | % | | 1.2 | % | | 2.4 | % |
| Restructuring and other charges | 1.7 | % | | 3.9 | % | | 1.0 | % |
| Loss on divestiture | — | % | | 3.3 | % | | — | % |
| | | | | |
| Change in fair value of earn-out liability | (0.7) | % | | — | % | | — | % |
| | | | | |
| | | | | |
| Total operating expenses | 93.2 | % | | 121.4 | % | | 114.4 | % |
| Operating loss | (17.9) | % | | (44.0) | % | | (37.6) | % |
| Interest income and other income (expense), net | 7.3 | % | | 12.0 | % | | 14.1 | % |
| | | | | |
| Interest expense | (4.2) | % | | (4.3) | % | | (7.0) | % |
| Interest and other income (expense), net | 3.1 | % | | 7.7 | % | | 7.1 | % |
| Loss before income taxes | (14.8) | % | | (36.3) | % | | (30.5) | % |
| Provision for income taxes | 1.6 | % | | 1.5 | % | | 37.8 | % |
| Net loss | (16.4) | % | | (37.8) | % | | (68.3) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | 2019 to 2020 | | 2018 to 2019 |
| (Dollars in millions) | | 2020
(As Restated) | | 2019
(As Restated) | | 2018 | | Change | | Change |
| Total Revenue | | | | | | | | | | |
| Royalties | | $ | 84.6 | | | $ | 94.4 | | | $ | 130.5 | | | (10.4) | % | | (27.7) | % |
| Product revenue | | 114.0 | | | 73.0 | | | 38.7 | | | 56.2 | % | | 88.6 | % |
| Contract and other revenue | | 47.7 | | | 60.2 | | | 62.0 | | | (20.7) | % | | (2.9) | % |
| Total revenue | | $ | 246.3 | | | $ | 227.6 | | | $ | 231.2 | | | 8.2 | % | | (1.6) | % |
Royalty Revenue
Royalty revenue, which includes patent and technology license royalties, decreased approximately $9.8 million to $84.6 million for the year ended December 31, 2020 from $94.4 million for 2019. The decrease was due primarily to the timing of renewals and the related structure of architecture license agreements which include both fixed and variable components.
Royalty revenue decreased approximately $36.1 million to $94.4 million for the year ended December 31, 2019 from $130.5 million for 2018. The decrease was due primarily to the timing of renewals and the related structure of architecture license agreements which include both fixed and variable components.
We are continuously in negotiations for licenses with prospective customers. We expect patent royalties will continue to vary from period to period based on our success in adding new customers, renewing or extending existing agreements, as well as the level of variation in our customers’ reported shipment volumes, sales price and mix, offset in part by the proportion of customer payments that are fixed or hybrid in nature. We also expect that our technology royalties will continue to vary from period to period based on our customers’ shipment volumes, sales prices, and product mix.
Product Revenue
Product revenue consists of revenue from the sale of memory and security products.
Product revenue increased approximately $41.0 million to $114.0 million for the year ended December 31, 2020 from $73.0 million for 2019. The increase was due to market share gains of our memory interface chips.
Product revenue increased approximately $34.3 million to $73.0 million for the year ended December 31, 2019 from $38.7 million for 2018. The increase was primarily due to greater market share gains of our memory interface chips.
We believe that product revenue will continue to increase in 2021 as compared to 2020, mainly from the sale of our memory interface chips. Our ability to continue to grow product revenue is dependent on, among other things, our ability to continue to obtain orders from customers and our ability to meet our customers’ demands.
Contract and Other Revenue
Contract and other revenue consists of revenue from technology development projects.
Contract and other revenue decreased approximately $12.5 million to $47.7 million for the year ended December 31, 2020 from $60.2 million for 2019. The decrease was primarily due to the divestiture of our former Payments and Ticketing businesses resulting in no corresponding revenue in 2020, offset by growth experienced in our Silicon IP offerings.
Contract and other revenue decreased approximately $1.8 million to $60.2 million for the year ended December 31, 2019 from $62.0 million for 2018. The decrease was primarily due to lower revenue associated with our Payments and Ticketing businesses, which were divested in the fourth quarter of 2019, offset by growth experienced in our Silicon IP offerings.
We believe that contract and other revenue will fluctuate over time based on our ongoing technology development contractual requirements, the amount of work performed, the timing of completing engineering deliverables, and the changes to work required, as well as new technology development contracts booked in the future.
Cost of Product Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | 2019 to 2020 | | 2018 to 2019 |
| (Dollars in millions) | | 2020 | | 2019 | | 2018 | | Change | | Change |
| Cost of product revenue | | $ | 37.7 | | | $ | 27.2 | | | $ | 18.3 | | | 39.0 | % | | 48.4 | % |
Cost of product revenue are costs attributable to the sale of memory and security products. Cost of product revenue also included costs attributable to the sale of lighting products in 2018.
For the year ended December 31, 2020 as compared to 2019, cost of product revenue increased 39.0% primarily due to increased cost of sales associated with higher sales of memory interface chips.
For the year ended December 31, 2019 as compared to 2018, cost of product revenue increased 48.4% primarily due to increased cost of sales associated with higher sales of memory products.
In the near term, we expect costs of product revenue to be higher as we expect higher sales of our various products in 2021 as compared to 2020.
Cost of Contract and Other Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | 2019 to 2020 | | 2018 to 2019 |
| (Dollars in millions) | | 2020 | | 2019 | | 2018 | | Change | | Change |
| Cost of contract and other revenue | | $ | 5.6 | | | $ | 9.9 | | | $ | 11.7 | | | (43.0) | % | | (15.4) | % |
Cost of contract and other revenue reflects the portion of the total engineering costs which are specifically devoted to individual customer development and support services.
For the year ended December 31, 2020 as compared to 2019, cost of contract and other revenue decreased 43.0% primarily due to the divestiture of our Payments and Ticketing businesses in the fourth quarter of 2019.
For the year ended December 31, 2019 as compared to 2018, cost of contract and other revenue decreased 15.4% primarily due to lower revenue associated with our former Payments and Ticketing businesses, which were divested in the fourth quarter of 2019.
In the near term, we expect cost of contract and other revenue to vary from period to period based on varying revenue recognized from contract and other revenue.
Research and Development Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | 2019 to 2020 | | 2018 to 2019 |
| (Dollars in millions) | | 2020 | | 2019 | | 2018 | | Change | | Change |
| Research and development expenses | | | | | | | | | | |
| Research and development expenses | | $ | 129.8 | | | $ | 145.8 | | | $ | 145.7 | | | (11.0) | % | | 0.0 | % |
| Stock-based compensation | | 10.0 | | | 11.0 | | | 12.6 | | | (9.1) | % | | (12.3) | % |
| Total research and development expenses | | $ | 139.8 | | | $ | 156.8 | | | $ | 158.3 | | | (10.8) | % | | (1.0) | % |
Research and development expenses are those expenses incurred for the development of applicable technologies.
For the year ended December 31, 2020 as compared to 2019, total research and development expenses decreased 10.8% primarily due to decreased headcount-related expenses of $11.8 million (which includes the reduction in headcount due to the divestiture of the Payments and Ticketing businesses in 2019), consulting costs of $5.2 million, travel costs of $1.9 million and stock-based compensation expense of $1.0 million, offset by increased retention bonus expense related to acquisitions of $2.0 million and prototyping costs of $0.9 million.
For the year ended December 31, 2019 as compared to 2018, total research and development expenses decreased 1.0% primarily due to decreased headcount-related expenses of $3.9 million, allocated information technology costs of $1.6 million and stock-based compensation expense of $1.5 million, offset by increased facilities costs of $2.1 million as discussed below, retention bonus accrual related to acquisitions of $2.0 million and engineering development tool costs of $1.2 million.
On January 1, 2019, we adopted the New Leasing Standard using the alternative transition method. In accordance with the New Leasing Standard, we were required to derecognize our previous Sunnyvale and Ohio facilities as imputed facility obligations (as accounted for under the previous leasing guidance) and recognize these facilities as operating leases. This change resulted in no longer recognizing interest expense associated with these imputed facility lease obligations, but instead, recognizing lease expense that was included in operating costs and expenses.
In the near term, we expect research and development expenses to be higher as we continue to make investments in the infrastructure and technologies required to maintain our product innovation in semiconductor, security and other technologies.
Sales, General and Administrative Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | 2019 to 2020 | | 2018 to 2019 |
| (Dollars in millions) | | 2020
(As Restated) | | 2019
(As Restated) | | 2018 | | Change | | Change |
| Sales, general and administrative expenses | | | | | | | | | | |
| Sales, general and administrative expenses | | $ | 70.7 | | | $ | 85.2 | | | $ | 89.1 | | | (16.9) | % | | (4.5) | % |
| | | | | | | | | | |
| Stock-based compensation | | 15.7 | | | 15.4 | | | 9.1 | | | 2.0 | % | | 68.8 | % |
| Total sales, general and administrative expenses | | $ | 86.4 | | | $ | 100.6 | | | $ | 98.2 | | | (14.0) | % | | 2.3 | % |
Sales, general and administrative expenses include expenses and costs associated with trade shows, public relations, advertising, litigation, general legal, insurance and other sales, marketing and administrative efforts. Consistent with our business model, our licensing, sales and marketing activities aim to develop or strengthen relationships with potential new and current customers. In addition, we work with current customers through marketing, sales and technical efforts to drive adoption of their products that use our innovations and solutions, by system companies. Due to the long business development cycles we face and the semi-fixed nature of sales, general and administrative expenses in a given period, these expenses generally do not correlate to the level of revenue in that period or in recent or future periods.
For the year ended December 31, 2020 as compared to 2019, total sales, general and administrative costs decreased 14.0% primarily due to decreased headcount-related expenses of $5.4 million, acquisition and divestiture-related costs of $4.1 million, travel costs of $3.4 million and consulting costs of $2.7 million, offset by increased bonus accrual expense of $0.5 million and stock-based compensation expense of $0.3 million.
For the year ended December 31, 2019 as compared to 2018, total sales, general and administrative costs increased 2.3% primarily due to increased stock-based compensation expense of $6.3 million primarily due to the termination of the former chief executive officer at the end of June 2018, acquisition and divestiture related costs of $5.2 million and facilities costs of $2.6 million (primarily due to the adoption of the New Leasing Standard beginning in 2019 as discussed above), offset by decreased headcount related expenses of $3.8 million, sales and marketing costs of $1.2 million, travel expenses of $1.2 million, consulting costs of $1.0 million, bonus accrual expense of $1.0 million, depreciation expense of $1.7 million and recruiting costs of $0.6 million.
In the future, sales, general and administrative expenses will vary from period to period based on the trade shows, advertising, legal, acquisition and other sales, marketing and administrative activities undertaken, and the change in sales, marketing and administrative headcount in any given period. In the near term, we expect our sales, general and administrative expenses to remain relatively flat.
Amortization of Acquired Intangible Assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | 2019 to 2020 | | 2018 to 2019 |
| (Dollars in millions) | | 2020 | | 2019 | | 2018 | | Change | | Change |
| Amortization of acquired intangible assets | | | | | | | | | | |
| Amortization of acquired intangible assets included in total cost of revenue | | $ | 17.4 | | | $ | 14.3 | | | $ | 23.7 | | | 21.2 | % | | (39.6) | % |
| Amortization of acquired intangible assets included in total operating expenses | | 1.0 | | | 2.7 | | | 5.7 | | | (61.3) | % | | (51.5) | % |
| | | | | | | | | | |
| Total amortization of acquired intangible assets | | $ | 18.4 | | | $ | 17.0 | | | $ | 29.4 | | | 7.9 | % | | (41.9) | % |
Amortization expense is related to various acquired IP.
For the year ended December 31, 2020 as compared to 2019, total amortization of acquired intangible assets increased 7.9% primarily due to additional amortization from intangible assets acquired as part of the acquisitions from the second half of 2019, partially offset by certain other intangible assets being fully amortized.
For the year ended December 31, 2019 as compared to 2018, total amortization of acquired intangible assets decreased 41.9% primarily due to certain intangible assets being fully amortized.
Restructuring and Other Charges
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | 2019 to 2020 | | 2018 to 2019 |
| (Dollars in millions) | | 2020 | | 2019 | | 2018 | | Change | | Change |
| Restructuring and other charges | | $ | 4.1 | | | $ | 8.8 | | | $ | 2.2 | | | (53.6) | % | | NM* |
_____________________________________
* NM — percentage is not meaningful
In November 2020, we initiated a restructuring program to reduce overall expenses which is expected to improve future profitability by reducing spending on research and development efforts and sales, general and administrative programs. As a result, we recorded a charge of $3.3 million primarily related to headcount costs.
During 2019, we initiated a restructuring program to reduce overall expenses. Additionally, we recorded other severance-related charges of $1.4 million.
During 2018, we closed our lighting division and manufacturing operations in Brecksville, Ohio. As a result, we recorded a charge of $2.2 million related to employee terminations and severance costs, and facility-related costs.
Refer to Note 18, “Restructuring and Other Charges,” of Notes to Consolidated Financial Statements of this Form 10-K/A for further discussion.
Loss on Divestiture
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | 2019 to 2020 | | 2018 to 2019 |
| (Dollars in millions) | | 2020 | | 2019 | | 2018 | | Change | | Change |
| Loss on divestiture | | $ | — | | | $ | 7.4 | | | $ | — | | | — | % | | 100.0 | % |
During 2020 and 2018, we did not record a charge for loss on divestiture.
During 2019, we entered into a share purchase agreement with Visa International Service Association (the “Purchaser”), pursuant to which the Purchaser had agreed to acquire all of the outstanding shares of our subsidiary, Smart Card Software Limited, which was comprised of our Payments and Ticketing businesses. The decision to sell these businesses reflected our review of our business to focus on products and offerings that are core to our semiconductor business.
Consequently, we measured these businesses at the lower of their carrying value or fair value less any costs to sell, and subsequently recognized a loss of approximately $7.4 million during the year ended December 31, 2019.
Refer to Note 17, “Divestiture,” of Notes to Consolidated Financial Statements of this Form 10-K/A for further discussion.
Change in Fair Value of Earn-Out Liability
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | 2019 to 2020 | | 2018 to 2019 |
| (Dollars in millions) | | 2020 | | 2019 | | 2018 | | Change | | Change |
| Change in fair value of earn-out liability | | $ | (1.8) | | | $ | — | | | $ | — | | | 100.0 | % | | — | % |
During 2020, we recorded a full reduction in the fair value of the earn-out liability related to the 2019 asset purchase agreement to acquire the Secure Silicon IP and Protocols business from Verimatrix, formerly Inside Secure, since the specified performance milestones were not met for calendar year 2020, which resulted in a gain in our consolidated statements of operations.
Interest and Other Income (Expense), Net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | 2019 to 2020 | | 2018 to 2019 |
| (Dollars in millions) | | 2020
(As Restated) | | 2019
(As Restated) | | 2018 | | Change | | Change |
| Interest income and other income (expense), net | | $ | 17.8 | | | $ | 27.5 | | | $ | 32.6 | | | (34.9) | % | | (15.9) | % |
| | | | | | | | | | |
| Interest expense | | (10.3) | | | (9.9) | | | (16.3) | | | 5.0 | % | | (39.5) | % |
| Interest and other income (expense), net | | $ | 7.5 | | | $ | 17.6 | | | $ | 16.3 | | | (57.3) | % | | 7.7 | % |
Interest income and other income (expense), net, primarily consists of interest income of $14.6 million, $20.5 million and $27.2 million for the years ended December 31, 2020, 2019 and 2018, respectively, due to the significant financing component
of licensing agreements. Interest income and other income (expense), net, also includes interest income generated from investments in high quality fixed income securities and any gains or losses from the re-measurement of our monetary assets or liabilities denominated in foreign currencies.
Interest expense for all periods disclosed primarily consists of interest expense associated with the non-cash interest expense related to the amortization of the debt discount and issuance costs on the 1.375% convertible senior notes due 2023 (the “2023 Notes”) and the 1.125% convertible senior notes due 2018 (the “2018 Notes”), as well as the coupon interest related to these notes. Interest expense decreased in 2019 as compared to the same period in 2018 primarily due to the 2018 Notes maturing in the third quarter of 2018. We expect our non-cash interest expense to increase steadily as the notes reach maturity. Refer to Note 12, “Convertible Notes,” of Notes to Consolidated Financial Statements of this Form 10-K/A for additional details.
Prior to 2019, interest expense also included the interest expense associated with our previous imputed facility lease obligations on the Sunnyvale and Ohio facilities. For the year ended December 31, 2018, we recognized $4.3 million of interest expense in connection with the imputed financing obligations in our statements of operations. In accordance with the adoption of ASC 842, the New Leasing Standard, we were required to derecognize our previous Sunnyvale and Ohio facilities as imputed facility obligations (as accounted for under the previous leasing standard) and recognize these facilities as operating leases. This change resulted in no longer recognizing interest expense associated with these imputed facility lease obligations, but instead, recognizing lease expense which would be included in operating costs and expenses.
Provision for Income Taxes
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | 2019 to 2020 | | 2018 to 2019 |
| (Dollars in millions) | | 2020
(As Restated) | | 2019
(As Restated) | | 2018 | | Change | | Change |
| Provision for income taxes | | $ | 3.9 | | | $ | 3.4 | | | $ | 87.3 | | | 15.1 | % | | (96.1) | % |
| Effective tax rate | | (10.8) | % | | (4.1) | % | | (123.6) | % | | | | |
Our effective tax rate for the year ended December 31, 2020 differed from the U.S. statutory rate primarily due to the expiration of foreign tax credits, partially offset by the change in the valuation allowance against U.S. deferred tax assets. Our effective tax rate for the year ended December 31, 2019 was different from the U.S. statutory rate primarily due to the full valuation allowance on the current year tax loss. Our effective tax rate for the year ended December 31, 2018 was different from the U.S. statutory rate primarily due to the establishment of a full valuation allowance on U.S. federal deferred tax assets.
We recorded a provision for incomes taxes of $3.9 million for the year ended December 31, 2020, which was primarily comprised of taxes on foreign earnings, the full valuation allowance on U.S. federal deferred tax assets, withholding tax expense, tax expense from the amortization of indefinite-lived intangibles, partially offset by a partial California deferred tax asset valuation allowance release. For the year ended December 31, 2020, we paid withholding taxes of $19.7 million. We recorded a provision for incomes taxes of $3.4 million for the year ended December 31, 2019, which was primarily comprised of taxes on foreign earnings, the full valuation allowance on U.S. federal deferred tax assets, withholding tax expense, and acquisition-related impacts. For the year ended December 31, 2019, we paid withholding taxes of $17.1 million. We recorded a provision for incomes taxes of $87.3 million for the year ended December 31, 2018, which was primarily comprised of the full valuation allowance on U.S. federal deferred tax assets. For the year ended December 31, 2018, we paid withholding taxes of $20.4 million.
We periodically evaluate the realizability of our net deferred tax assets based on all available evidence, both positive and negative. During the third quarter of 2018, we assessed the changes in our underlying facts and circumstances and evaluated the realizability of our existing deferred tax assets based on all available evidence, both positive and negative, and the weight accorded to each, and concluded a full valuation allowance associated with U.S. federal and California deferred tax assets was appropriate. During 2020, as a result of the enactment of California A.B. 85 and the temporary suspension of California net operating loss utilization for tax years 2020 through 2022, we released $0.7 million of the valuation allowance on our deferred tax asset for California research and development tax credits. We continue to maintain a full valuation allowance on the remainder of our California and U.S. federal deferred tax assets as we do not expect to be able to fully utilize them.
Liquidity and Capital Resources
| | | | | | | | | | | | | | |
| (In millions) | | December 31,
2020 | | December 31,
2019 |
| Cash and cash equivalents | | $ | 136.1 | | | $ | 102.2 | |
| Marketable securities | | 366.5 | | | 305.5 | |
| Total cash, cash equivalents, and marketable securities | | $ | 502.6 | | | $ | 407.7 | |
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In millions) | | 2020
(As Restated) | | 2019
(As Restated) | | 2018 |
| Net cash provided by operating activities | | $ | 185.5 | | | $ | 128.5 | | | $ | 86.2 | |
| Net cash used in investing activities | | $ | (90.4) | | | $ | (141.5) | | | $ | (67.1) | |
| Net cash used in financing activities | | $ | (61.2) | | | $ | (0.3) | | | $ | (127.7) | |
Liquidity
We currently anticipate that existing cash, cash equivalents and marketable securities balances and cash flows from operations will be adequate to meet our cash needs for at least the next 12 months. Additionally, the majority of our cash and cash equivalents is in the United States. Our cash needs for the year ended December 31, 2020 were funded primarily from cash collected from our customers.
We do not anticipate any liquidity constraints as a result of either the current credit environment or investment fair value fluctuations. Additionally, we have the intent and ability to hold our debt investments that have unrealized losses in accumulated other comprehensive gain (loss) for a sufficient period of time to allow for recovery of the principal amounts invested. Further, we have no significant exposure to European sovereign debt. We continually monitor the credit risk in our portfolio and mitigate our credit risk exposures in accordance with our policies.
As a part of our overall business strategy, from time to time, we evaluate businesses and technologies for potential acquisitions that are aligned with our core business and designed to supplement our growth.
To provide us with more flexibility in returning capital to our stockholders, on October 29, 2020, our Board approved the 2020 Repurchase Program authorizing the repurchase of up to an aggregate of 20.0 million shares. Share repurchases under the 2020 Repurchase Program may be made through the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules, and regulations. There is no expiration date applicable to the 2020 Repurchase Program. The 2020 Repurchase Program replaced the previous 2015 Repurchase Program approved by our Board in January 2015 and canceled the remaining shares outstanding as part of the previous authorization.
On November 11, 2020, we entered into the 2020 ASR Program with Deutsche Bank. The 2020 ASR Program was part of the broader share repurchase program previously authorized by our Board on October 29, 2020. Under the 2020 ASR Program, we pre-paid to Deutsche Bank the $50.0 million purchase price for our common stock and, in turn, we received an initial delivery of approximately 2.6 million shares of our common stock from Deutsche Bank in the fourth quarter of 2020, which were retired and recorded as a $40.0 million reduction to stockholders’ equity. The remaining $10.0 million of the initial payment was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to our stock.
As of December 31, 2020, there remained an outstanding authorization to repurchase approximately 17.4 million shares of our outstanding common stock under the 2020 Repurchase Plan. Refer to “Share Repurchase Program” below.
Operating Activities
Cash provided by operating activities of $185.5 million for the year ended December 31, 2020 was primarily attributable to the cash generated from customer licensing, product sales and engineering services fees. Changes in operating assets and liabilities for the year ended December 31, 2020 primarily included decreases in unbilled receivables, accounts receivable, prepaids and other current assets, and an increase in accrued salaries and benefits, offset by a decrease in income taxes payable and an increase in inventories.
Cash provided by operating activities of $128.5 million for the year ended December 31, 2019 was primarily attributable to the cash generated from customer licensing, technology and software licenses and related implementation, support and maintenance fees, product sales, and engineering services fees. Changes in operating assets and liabilities for the year ended
December 31, 2019 primarily included decreases in accounts receivable, unbilled receivables and deferred revenue, offset by increases in prepaids and other current assets, inventories and accrued salaries and benefits.
Cash provided by operating activities of $86.2 million for the year ended December 31, 2018 was primarily attributable to the cash generated from customer licensing, technology and software licenses and related implementation, support and maintenance fees, product sales and engineering services fees. Changes in operating assets and liabilities for the year ended December 31, 2018 primarily included increases in unbilled receivables, accounts receivable and prepaids and other current assets, offset by decreases in accounts payable and accrued salaries and benefits and other liabilities.
Investing Activities
Cash used in investing activities of $90.4 million for the year ended December 31, 2020 consisted of purchases of available-for-sale marketable securities of $899.0 million, $29.7 million paid to acquire property, plant and equipment, and $1.1 million paid to settle a net working capital adjustment related to the divestiture of our Payments and Ticketing businesses, offset by proceeds from the maturities and sale of available-for-sale marketable securities of $817.8 million and $21.6 million, respectively.
Cash used in investing activities of $141.5 million for the year ended December 31, 2019 primarily consisted of purchases of available-for-sale marketable securities of $657.4 million, $21.9 million paid for the acquisition of Northwest Logic, net of cash acquired of $0.1 million, $45.0 million paid for the acquisition of the Secure Silicon IP and Protocols business from Verimatrix, formerly Inside Secure, and $6.5 million paid to acquire property, plant and equipment, offset by proceeds from the maturities and sale of available-for-sale marketable securities of $507.4 million and $6.8 million, respectively, and net proceeds of $76.0 million from the divestiture of our Payments and Ticketing businesses.
Cash used in investing activities of $67.1 million for the year ended December 31, 2018 primarily consisted of purchases of available-for-sale marketable securities of $282.1 million, $10.8 million paid to acquire property, plant and equipment and $3.0 million paid for investment in a privately held company, offset by proceeds from the maturities of available-for-sale marketable securities of $223.1 million, proceeds from the sale of assets held for sale of $4.6 million and proceeds from the sale of an equity security of $1.3 million.
Financing Activities
Cash used in financing activities of $61.2 million for the year ended December 31, 2020 was primarily due to an aggregate payment of $50.0 million to Deutsche Bank as part of the 2020 ASR Program. We also paid $13.2 million under installment payment arrangements to acquire fixed assets, $9.4 million in payments of taxes on restricted stock units and $0.1 million in fees related to the 2020 ASR Program, offset by $11.5 million in proceeds from the issuance of common stock under equity incentive plans.
Cash used in financing activities was $0.3 million for the year ended December 31, 2019 and was primarily due to $8.4 million in payments under installment payment arrangements to acquire fixed assets and $7.0 million in payments of taxes on restricted stock units, offset by $15.1 million proceeds from the issuance of common stock under equity incentive plans.
Cash used in financing activities was $127.7 million for the year ended December 31, 2018 and was primarily due to the repayment of the remaining aggregate principal of the 2018 Notes amounting to $81.2 million, which became due in August 2018, an aggregate payment of $50.0 million to Citibank N.A., as part of our accelerated share repurchase program, and $6.8 million in payments of taxes on restricted stock units, offset by $11.4 million proceeds from the issuance of common stock under equity incentive plans.
Contractual Obligations
On December 15, 2009, we entered into a lease agreement for approximately 125,000 square feet of office space located at 1050 Enterprise Way in Sunnyvale, California, which commenced on July 1, 2010 and expired on June 30, 2020. The office space was used for our corporate headquarters, as well as engineering, sales, marketing and administrative operations and activities.
On July 8, 2019, we entered into a definitive triple net space lease agreement with 237 North First Street Holdings, LLC (the “Landlord”), whereby we leased office space located at 4453 North First Street in San Jose, California, (the “Lease”). In April 2020, the lease was amended for certain terms (the “Amended Lease”). The Amended Lease includes approximately 90,000 square feet of office space, which serves as our corporate headquarters and includes engineering, sales, marketing and administrative functions. The Amended Lease has a term of 128 months from the amended commencement date in April 2020. The starting rent of the Amended Lease is approximately $3.26 per square foot on a triple net basis. The annual base rent increases each year to certain fixed amounts over the course of the term as set forth in the Amended Lease and will be $4.38 per
square foot in the final year of the Amended Lease term. In addition to the base rent, we will also pay operating expenses, insurance expenses, real estate taxes, and a management fee under the Amended Lease. The Amended Lease also allows for an option to expand, wherein we have the right of first refusal to rent additional space in the building. We have a one-time option to extend the Amended Lease for a period of 60 months and may elect to terminate the Amended Lease, via written notice to the Landlord, in the event the office space is damaged or destroyed. Total required payments under the Amended Lease are approximately $41 million. Pursuant to the terms of the Amended Lease, the landlord agreed to reimburse us up to $9.0 million, related to a tenant improvement allowance.
On November 17, 2017, we entered into an Indenture with U.S. Bank, National Association, as trustee, relating to the issuance by us of $172.5 million aggregate principal amount of the 2023 Notes. Refer to Note 12, “Convertible Notes,” of Notes to Consolidated Financial Statements of this Form 10-K/A for additional details.
As of December 31, 2020, our material contractual obligations were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Total | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | |
Contractual obligations (1) (2) (3) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Software licenses (4) | | $ | 18,970 | | | $ | 12,541 | | | $ | 6,429 | | | $ | — | | | $ | — | | | $ | — | | | |
Acquisition retention bonuses (5) | | 6,370 | | | 3,370 | | | 3,000 | | | — | | | — | | | — | | | |
| Convertible notes | | 172,500 | | | — | | | — | | | 172,500 | | | — | | | — | | | |
| Interest payments related to convertible notes | | 5,936 | | | 2,372 | | | 2,372 | | | 1,192 | | | — | | | — | | | |
| Total | | $ | 203,776 | | | $ | 18,283 | | | $ | 11,801 | | | $ | 173,692 | | | $ | — | | | $ | — | | | |
______________________________________
(1) The above table does not reflect possible payments in connection with unrecognized tax benefits of approximately $25.5 million including $23.6 million recorded as a reduction of long-term deferred tax assets and $1.9 million in long-term income taxes payable, as of December 31, 2020. As noted in Note 19, “Income Taxes,” of Notes to Consolidated Financial Statements of this Form 10-K/A, although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, we cannot reasonably estimate the outcome at this time.
(2) For our lease commitments as of December 31, 2020, refer to Note 10, Leases,” of Notes to Consolidated Financial Statements of this Form 10-K/A.
(3) Our other contractual obligations as of December 31, 2020 were not material.
(4) We have commitments with various software vendors for agreements generally having terms longer than one year.
(5) In connection with the acquisitions of Northwest Logic in August 2019 and the Secure Silicon IP and Protocols business in December 2019, we are obligated to pay retention bonuses to certain employees subject to certain eligibility and acceleration provisions including the condition of employment.
Share Repurchase Program
On January 21, 2015, our Board approved a share repurchase program authorizing the repurchase of up to an aggregate of 20.0 million shares (the “2015 Repurchase Program”). Share repurchases under the 2015 Repurchase Program were made through the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules, and regulations. During the years ended December 31, 2020 and 2019, we did not repurchase any shares of our common stock under the 2015 Repurchase Program.
On October 29, 2020, our Board approved the 2020 Repurchase Program authorizing the repurchase of up to an aggregate of 20.0 million shares. Share repurchases under the 2020 Repurchase Program may be made through the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules, and regulations. There is no expiration date applicable to the 2020 Repurchase Program. The 2020 Repurchase Program replaced the previous program approved by the Board in January 2015 and canceled the remaining shares outstanding as part of the previous authorization.
On November 11, 2020, we entered into the 2020 ASR Program with Deutsche Bank. The 2020 ASR Program was part of the broader 2020 Repurchase Program. Under the 2020 ASR Program, we pre-paid to Deutsche Bank the $50.0 million purchase price for our common stock and, in turn, we received an initial delivery of approximately 2.6 million shares of our common stock from Deutsche Bank in the fourth quarter of 2020, which were retired and recorded as a $40.0 million reduction to stockholders’ equity. The remaining $10.0 million of the initial payment was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to our stock.
The number of shares to be ultimately purchased by us will be determined based on the volume-weighted-average price of the common stock during the terms of the transaction, minus an agreed upon discount between the parties. The 2020 ASR Program is expected to be completed within six months from the beginning of the program. There were no other repurchases of our common stock during 2020.
As of December 31, 2020, there remained an outstanding authorization to repurchase approximately 17.4 million shares of our outstanding common stock under the current share repurchase program.
We record share repurchases as a reduction to stockholders’ equity. We record a portion of the purchase price of the repurchased shares as an increase to accumulated deficit when the price of the shares repurchased exceeds the average original proceeds per share received from the issuance of common stock. During the year ended December 31, 2020, the cumulative price of $31.5 million was recorded as an increase to accumulated deficit.
Warrants
In connection with the 2023 Notes, we separately entered into privately negotiated warrant transactions, whereby we sold to the Counterparties warrants (the “Warrants”) to acquire, collectively, subject to anti-dilution adjustments, approximately 9.1 million shares of our common stock at an initial strike price of approximately $23.30 per share, which represents a premium of 60% over the last reported sale price of our common stock of $14.56 on November 14, 2017. We received aggregate proceeds of approximately $23.2 million from the sale of the Warrants to the Counterparties. The Warrants are separate transactions and are not part of the 2023 Notes or Convertible Note Hedge Transactions. Holders of the 2023 Notes and Convertible Note Hedge Transactions will not have any rights with respect to the Warrants. Refer to Note 12, “Convertible Notes,” of Notes to Consolidated Financial Statements of this Form 10-K/A for additional details.
Internal Control Over Financial Reporting
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2020. Based on the results of this assessment, management concluded that a material weakness existed as of December 31, 2020. During the quarter ending March 31, 2021, we determined that a portion of revenue under a single customer agreement that had not yet been recognized should have been recognized beginning in the third quarter of 2019. As a result, we determined that a material misstatement of the consolidated financial statements had occurred which required a restatement of the 2020 and 2019 consolidated financial statements included in our Form 10-K for the year ended December 31, 2020 and our Form 10-Qs for the quarterly periods ended September 30, 2019 through September 30, 2020. This was due to the inadequate design and maintenance of controls to evaluate and monitor the accounting for patent and technology licensing arrangements with unusual contract terms. Additionally, this control deficiency could result in a misstatement of the royalties revenue, unbilled receivables and interest income account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness, and as a result, management has concluded that, as of December 31, 2020, our internal control over financial reporting was not effective based on the criteria in Internal Control — Integrated Framework (2013) issued by the COSO. Accordingly, management has restated its report on internal control over financial reporting.
We are actively engaged in the planning for, and implementation of, remediation efforts to address the material weakness. The remediation plan includes enhancement of our existing contract review control for patent and technology licensing arrangements with unusual terms to require review of the facts as summarized in the contract review analysis by legal and the licensing group to confirm appropriate understanding of the terms by the revenue recognition team as well as implementation of a new control designed to evaluate and monitor, at inception and on a quarterly basis, the accounting assessment of patent and technology arrangements with unusual terms. See the section titled “Risk Factors—We have identified a material weakness in our internal control over financial reporting and determined that our disclosure controls and procedures were ineffective as of December 31, 2020, which resulted in a restatement of our consolidated financial statements as of and for the years ended December 31, 2020 and 2019. Relevant unaudited interim financial information for each of the quarterly periods ended September 30, 2019 through December 31, 2020 will also be restated. In the future we may identify additional material weaknesses or otherwise fail to maintain an effective system of internal control over financial reporting or adequate disclosure controls and procedures, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.”
Notwithstanding the identified material weakness, management has concluded that the consolidated financial statements and notes thereto included elsewhere in this Amended Annual Report present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with U.S. GAAP.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, investments, income taxes, litigation and other contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
Overview
We recognize revenue upon transfer of control of promised goods and services in an amount that reflects the consideration we expect to receive in exchange for those goods and services. Substantially all of the goods and services are distinct and are accounted for as separate performance obligations.
Where an arrangement includes multiple performance obligations, the transaction price is allocated to these on a relative standalone selling price basis. We have established standalone selling prices for all of our offerings - specifically, the same pricing methodology is consistently applied to all licensing arrangements; all services offerings are priced within tightly controlled bands and all contracts that include support and maintenance state a renewal rate or price that is systematically enforced.
Our revenue consists of royalty, product and contract and other revenue. Royalty revenue consists of patent and technology license royalties. Products primarily consist of memory interface chips sold directly and indirectly to module manufacturers and OEMs worldwide through multiple channels, including our direct sales force and distributors. Contract and other revenue consists of software license fees, engineering fees associated with integration of our technology solutions into our customers’ products and support and maintenance fees.
Royalty Revenue
Our patent and technology licensing arrangements generally range between one year and ten years in duration and generally grant the licensee the right to use our entire IP portfolio as it evolves over time. These arrangements do not typically grant the licensee the right to terminate for convenience and where such rights exist, termination is prospective, with no refund of fees already paid by the licensee. There is no interdependency or interrelation between the IP included in the portfolio licensed upon contract inception and any IP subsequently made available to the licensee, and we would be able to fulfill our promises by transferring the portfolio and the additional IP use rights independently. However, the numbers of additions to, and removals from the portfolio (for example when a patent expires and renewal is not granted to us) in any given period have historically been relatively consistent; as such, we do not allocate the transaction price between the rights granted at contract inception and those subsequently granted over time as a function of these additions.
Patent and technology licensing arrangements result in fixed payments received over time, with guaranteed minimum payments on occasion, variable payments calculated based on the licensee’s sale or use of the IP, or a mix of fixed and variable payments.
•For fixed-fee arrangements (including arrangements that include minimum guaranteed amounts), we recognize revenue upon control over the underlying IP use right transferring to the licensee, net of the effect of significant financing components calculated using customer-specific, risk-adjusted lending rates ranging between 3% and 5%, with the related interest income being recognized over time on an effective rate basis. Where a licensee has the contractual right to terminate a fixed-fee arrangement for convenience without any substantive penalty payable upon such termination, we only recognize revenue on contracts in which the parties have present enforceable rights and obligations and that are due and payable.
•For variable arrangements, we recognize revenue based on an estimate of the licensee’s sale or usage of the IP during the period of reference, typically quarterly, with a true-up recorded when we receive the actual royalty report from the licensee.
Product Revenue
Product revenue is recognized upon shipment of product to customers, net of accruals for estimated sales returns and allowances, and to distributors, net of accruals for price protection and rights of return on products unsold by the distributors. To date, none of these accruals have been significant. We transact with direct customers primarily pursuant to standard purchase orders for delivery of products and generally allow customers to cancel or change purchase orders within limited notice periods prior to the scheduled shipment date.
Contract and Other Revenue
Contract and other revenue consists of software license fees and engineering fees associated with integration of our technology solutions into our customers’ related support and maintenance.
An initial software arrangement generally consists of a term-based or perpetual license, significant software customization services and support and maintenance services that include post-implementation customer support and the right to unspecified software updates and enhancements on a when and if available basis. We recognize license and customization services revenue based on an over time model, measured using the input method. License and customization services revenue is reported as part of contract and other revenue. Due to the nature of the work performed in these arrangements, the estimation of the over time model is complex and involves significant judgment. The key factor reviewed by us to estimate costs to complete each contract is the estimated man-months necessary to complete the project. We recognize license renewal revenue at the beginning of the renewal period.
Significant Judgments
Historically and with the exception noted below, no significant judgment has generally been required in determining the amount and timing of revenue from our contracts with customers.
•We have adequate tools and controls in place, and substantial experience and expertise in timely and accurately tracking man-months incurred in completing customization and other professional services, and quantifying changes in estimates.
Key estimates used in recognizing revenue predominantly consist of the following:
•For fixed-fee arrangements in which cash is being received over a period exceeding a year, we calculate a customer-specific lending rate using a Daily Treasury Yield Curve Rate that changes depending on the date on which the licensing arrangement was entered into and the term (in years) of the arrangement, and take into consideration a licensee-specific risk profile determined based on a review of the licensee’s “Full Company View” Dun & Bradstreet report obtained on the date the licensing arrangement was signed by the parties, with a risk premium being added to the Daily Treasury Yield Curve Rate considering the overall business risk, financing strength and risk indicators, as listed.
•We recognize revenue on variable fee licensing arrangements on the basis of estimates.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. Goodwill is not subject to amortization, but is subject to at least an annual assessment for impairment. We perform our impairment analysis of goodwill on an annual basis during the fourth quarter of the year unless conditions arise that warrant a more frequent evaluation.
When goodwill is assessed for impairment, we have the option to perform an assessment of qualitative factors of impairment (optional assessment) prior to necessitating a quantitative impairment test. Should the optional assessment be used for any given year, qualitative factors to consider for a reporting unit include: cost factors; financial performance; legal, regulatory, contractual, political, business, or other factors; entity specific factors; industry and market considerations; macroeconomic conditions; and other relevant events and factors affecting the reporting unit. If we determine in the qualitative assessment that it is more likely than not that the fair value of the reporting unit is less than its carrying value, a quantitative test is then performed. Otherwise, no further testing is required. For a reporting unit tested using a quantitative approach, we compare the fair value of the reporting unit with the carrying amount of the reporting unit, including goodwill. The fair value of the reporting unit is estimated using an income approach.
Under the income approach, we measure fair value of the reporting unit based on a projected cash flow method using a discount rate determined by our management which is commensurate with the risk inherent in its current business model. Our discounted cash flow projections are based on its annual financial forecasts developed internally by management for use in
managing our business. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, then the amount of goodwill impairment will be the amount by which the reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
Intangible Assets
Intangible assets are comprised of existing technology, customer contracts and contractual relationships, and other definite-lived and indefinite-lived intangible assets. Identifiable intangible assets resulting from the acquisitions of entities accounted for using the purchase method of accounting are estimated by management based on the fair value of assets received. Identifiable definite-lived intangible assets are being amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from six months to ten years.
We amortize definite-lived assets over their estimated useful lives. We evaluate definite-lived and indefinite-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The carrying value is not recoverable if it exceeds the undiscounted cash flows resulting from the use of the asset and its eventual disposition. Our estimates of future cash flows attributable to our assets require significant judgment based on our historical and anticipated results and are subject to many factors. Factors we consider important which could trigger an impairment review include significant negative industry or economic trends, significant loss of clients, and significant changes in the manner of our use of the acquired assets or the strategy for our overall business.
When we determine that the carrying value of the assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure the potential impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model. An impairment loss is recognized only if the carrying amount of the asset is not recoverable and exceeds its fair value. Different assumptions and judgments could materially affect the calculation of the fair value of our assets.
Acquired indefinite-lived intangible assets related to our IPR&D are capitalized and subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each project, we make a separate determination of the useful life of the acquired indefinite-lived intangible assets and the related amortization is recorded as an expense over the estimated useful life of the specific projects. Indefinite-lived intangible assets are subject to at least an annual assessment for impairment, applying a fair-value based test. Under the income approach, we measure fair value of the indefinite-lived intangible assets based on a projected cash flow method using a discount rate determined by our management which is commensurate with the risk inherent in our current business model. Our discounted cash flow projections are based on our annual financial forecasts developed internally by our management for use in managing our business. If the fair value of the indefinite-lived intangible assets exceeds its carrying value, the indefinite-lived intangible assets are not impaired and no further testing is required. If the implied fair value of the indefinite-lived intangible assets is less than the carrying value, the difference is recorded as an impairment loss.
Income Taxes
As part of preparing our consolidated financial statements, we are required to calculate the income tax expense (benefit) which relates to the pretax income or loss for the period. In addition, we are required to assess the realization of the deferred tax asset or liability to be included on the consolidated balance sheet as of the reporting dates.
As of December 31, 2020, our consolidated balance sheet included net deferred tax assets, before valuation allowance, of approximately $164.2 million, which consists of net operating loss carryovers, tax credit carryovers, amortization, employee stock-based compensation expenses, certain liabilities and certain assets. As of December 31, 2020, we have a valuation allowance of $174.1 million resulting in net deferred tax liabilities of $9.9 million.
We maintain liabilities for uncertain tax positions within our long-term income taxes payable accounts and as a reduction to existing deferred tax assets or other refundable taxes to the extent tax attributes are available to offset such liabilities. These liabilities involve judgment and estimation and are monitored by us based on the best information available including changes in tax regulations, the outcome of relevant court cases and other information.
The calculation of our tax liabilities involves uncertainties in the application of complex tax law and regulations in a multitude of jurisdictions. Although ASC 740, “Income Taxes,” provides further clarification on the accounting for uncertainty in income taxes, significant judgment is required by us. If the ultimate resolution of tax uncertainties is different from what is currently estimated, it could materially affect income tax expense.
Stock-Based Compensation
We maintain stock plans covering a broad range of potential equity grants including stock options, nonvested equity stock and equity stock units and performance-based instruments. In addition, we sponsor an Employee Stock Purchase Plan (“ESPP”), whereby eligible employees are entitled to purchase Common Stock semi-annually, by means of limited payroll deductions, at a 15% discount from the fair market value of the Common Stock as of specific dates.
The accounting guidance for share-based payments requires the measurement and recognition of compensation expense in our statement of operations for all share-based payment awards made to our employees, directors and consultants including employee stock options, nonvested equity stock and equity stock units, and employee stock purchase grants. Stock-based compensation expense is measured at grant date, based on the estimated fair value of the award, reduced by an estimate of the annualized rate of expected forfeitures, and is recognized as expense over the employees’ expected requisite service period, generally using the straight-line method. In addition, the accounting guidance for share-based payments requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow. Our forfeiture rate represents the historical rate at which our stock-based awards were surrendered prior to vesting. The accounting guidance for share-based payments requires forfeitures to be estimated at the time of grant and revised on a cumulative basis, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Refer to Note 14. Equity Incentive Plans and Stock-Based Compensation,” of Notes to Consolidated Financial Statements of this Form 10-K/A for more information regarding the valuation of stock-based compensation.
Business Combinations
We account for acquisitions of businesses using the purchase method of accounting, which requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.
Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date including our estimates for intangible assets, contractual obligations assumed and pre-acquisition contingencies where applicable. Although we believe the assumptions and estimates made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Significant estimates and assumptions made by us in estimating the fair value of the existing technologies included revenue growth rates, operating expense margins, technology obsolescence rates and discount rates. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
Recent Accounting Pronouncements
Refer to Note 3, Recent Accounting Pronouncements,” of Notes to Consolidated Financial Statements of this Form 10-K/A for a full description of recent accounting pronouncements including the respective expected dates of adoption.
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| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to financial market risks, primarily arising from the effect of interest rate fluctuations on our investment portfolio. Interest rate fluctuation may arise from changes in the market’s view of the quality of the security issuer, the overall economic outlook, and the time to maturity of our portfolio. We mitigate this risk by investing only in high quality, highly liquid instruments. Securities with original maturities of one year or less must be rated by two of the three industry standard rating agencies as follows: A1 by Standard & Poor’s, P1 by Moody’s and/or F-1 by Fitch. Securities with original maturities of greater than one year must be rated by two of the following industry standard rating agencies as follows: AA- by Standard & Poor’s, Aa3 by Moody’s and/or AA- by Fitch. By corporate investment policy, we limit the amount of exposure to $15.0 million or 10% of the portfolio, whichever is lower, for any single non-U.S. Government issuer. A single U.S. Agency can represent up to 25% of the portfolio. No more than 20% of the total portfolio may be invested in the securities of an industry sector, with money market fund investments evaluated separately. Our policy requires that at least 10% of the portfolio be in securities with a maturity of 90 days or less. We may make investments in U.S. Treasuries, U.S. Agencies, corporate bonds and municipal bonds and notes with maturities up to 36 months. However, the bias of our investment portfolio is shorter
maturities. All investments must be U.S. dollar denominated. Additionally, we have no significant exposure to European sovereign debt.
We invest our cash equivalents and marketable securities in a variety of U.S. dollar financial instruments such as U.S. Treasuries, U.S. Government Agencies, commercial paper and corporate notes. Our policy specifically prohibits trading securities for the sole purposes of realizing trading profits. However, we may liquidate a portion of our portfolio if we experience unforeseen liquidity requirements. In such a case, if the environment has been one of rising interest rates we may experience a realized loss, similarly, if the environment has been one of declining interest rates we may experience a realized gain. As of December 31, 2020, we had an investment portfolio of fixed income marketable securities of $441.2 million including cash equivalents. If market interest rates were to increase immediately and uniformly by 1.0% from the levels as of December 31, 2020, the fair value of the portfolio would decline by approximately $2.3 million. Actual results may differ materially from this sensitivity analysis.
The fair value of our convertible notes is subject to interest rate risk, market risk and other factors due to the convertible feature. The fair value of the convertible notes will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of the convertible notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines in value. The interest and market value changes affect the fair value of our convertible notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation.
We invoice the majority of our customers in U.S. dollars. Although the fluctuation of currency exchange rates may impact our customers, and thus indirectly impact us, we do not attempt to hedge this indirect and speculative risk. Our overseas operations consist primarily of international business operations in the Netherlands and the United Kingdom, design centers in Canada, India and Finland and small business development offices in Australia, China, Japan, Korea and Taiwan. We monitor our foreign currency exposure; however, as of December 31, 2020, we believe our foreign currency exposure is not material enough to warrant foreign currency hedging.
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| Item 8. | Financial Statements and Supplementary Data |
Refer to Item 15, “Exhibits and Financial Statement Schedules,” of this Form 10-K/A for required financial statements and supplementary data.
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| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
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| Item 9A. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures (As Restated)
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Securities and Exchange Act of 1934 as amended (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report. At the time our Annual Report on Form 10-K for the year ended December 31, 2020 was filed on February 26, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020, our disclosure controls and procedures were effective.
Subsequent to that evaluation, as a result of the material weakness described below, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020, our disclosure controls and procedures were not effective.
The Chief Executive Officer of the Company (in such individual’s capacity as the Principal Executive Officer of Rambus Inc.) and the Chief Financial Officer of the Company (in such individual’s capacity as the Principal Financial Officer of Rambus Inc.) previously concluded that the Company’s disclosure controls and procedures were effective for the interim periods ended March 31, 2020, June 30, 2020 and September 30, 2020. However, the Chief Executive Officer and Chief Financial Officer have subsequently concluded that the Company’s disclosure controls and procedures were not effective for the interim periods ended March 31, 2020, June 30, 2020 and September 30, 2020, due to the material weakness in the
Company’s internal control over financial reporting as described in “Management’s Report on Internal Control over Financial Reporting (As Restated)” below.
Management’s Report on Internal Control over Financial Reporting (As Restated)
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
(i)pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of assets;
(ii)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and
(iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, our management used the criteria set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
In Management’s Report on Internal Control over Financial Reporting included in our Original Form 10-K for the year ended December 31, 2020, our management previously concluded that we maintained effective internal control over financial reporting as of December 31, 2020. Management subsequently concluded that the material weakness existed as of December 31, 2020. During the quarter ending March 31, 2021, we determined that a portion of revenue under a single customer agreement that had not yet been recognized, should have been recognized beginning in the third quarter of 2019. As a result, we determined that a material misstatement of the consolidated financial statements had occurred which required a restatement of the 2020 and 2019 consolidated financial statements included in our Form 10-K for the year ended December 31, 2020 and our Form 10-Qs for the quarterly periods ended September 30, 2019 through September 30, 2020. This was due to the inadequate design and maintenance of controls to evaluate and monitor the accounting for patent and technology licensing arrangements with unusual contract terms. Additionally, this control deficiency could result in a misstatement of the royalties revenue, unbilled receivables and interest income account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness, and as a result, management has concluded that, as of December 31, 2020, our internal control over financial reporting was not effective based on the criteria in Internal Control — Integrated Framework (2013) issued by the COSO. Accordingly, management has restated its report on internal control over financial reporting.
The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Remediation Plan for Material Weakness
Management is actively engaged in the planning for, and implementation of, remediation efforts to address the material weakness. The remediation plan includes enhancement of our existing contract review control for patent and technology licensing arrangements with unusual terms to require review of the facts as summarized in the contract review analysis by legal and the licensing group to confirm appropriate understanding of the terms by the revenue recognition team as well as
implementation of a new control designed to evaluate and monitor, at inception and on a quarterly basis, the accounting assessment of patent and technology licensing arrangements with unusual terms.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our fiscal quarter ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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| Item 9B. | Other Information |
None.
PART III
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| Item 10. | Directors, Executive Officers and Corporate Governance |
The information responsive to this item is incorporated herein by reference to our Proxy Statement for our 2021 annual meeting of stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K/A. The information under the heading “Our Executive Officers” in Part I, Item 1 of this Annual Report on Form 10-K/A is also incorporated herein by reference.
We have a Code of Business Conduct and Ethics for all of our directors, officers and employees. Our Code of Business Conduct and Ethics is available on our website at https://investor.rambus.com/corporate-governance/committee-composition/code-of-business-conduct-and-ethics/default.aspx. To date, there have been no waivers under our Code of Business Conduct and Ethics. We will post any amendments or waivers, if and when granted, of our Code of Business Conduct and Ethics on our website.
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| Item 11. | Executive Compensation |
The information responsive to this item is incorporated herein by reference to our Proxy Statement for our 2021 annual meeting of stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K/A.
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| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information responsive to this item is incorporated herein by reference to our Proxy Statement for our 2021 annual meeting of stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K/A.
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| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The information responsive to this item is incorporated herein by reference to our Proxy Statement for our 2021 annual meeting of stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K/A.
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| Item 14. | Principal Accountant Fees and Services |
The information responsive to this item is incorporated herein by reference to our Proxy Statement for our 2021 annual meeting of stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K/A.
PART IV
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| Item 15. | Exhibits and Financial Statement Schedules |
(a) (1) Financial Statements
The following consolidated financial statements of the Registrant and Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm, are included herewith:
(a) (2) Financial Statement Schedule
All schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or the notes thereto.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Rambus Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Rambus Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date related to the inadequate design and maintenance of controls to evaluate and monitor the accounting for patent and technology licensing arrangements with unusual contract terms.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2020 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.
Restatement of Previously Issued Financial Statements and Management’s Conclusion Regarding Internal Control over Financial Reporting
As discussed in Note 1 to the consolidated financial statements, the Company has restated its 2020 and 2019 financial statements to correct errors.
Management and we previously concluded that the Company maintained effective internal control over financial reporting as of December 31, 2020. However, management has subsequently determined that a material weakness in internal control over financial reporting existed as of that date related to the Company’s inadequate design and maintenance of controls to evaluate and monitor the accounting for patent and technology licensing arrangements with unusual contract terms. Accordingly, management’s report has been restated and our present opinion on internal control over financial reporting, as presented herein, is different from that expressed in our previous report.
Changes in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues from contracts with customers in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition - License and Customization Services Revenue
As described in Note 2 to the consolidated financial statements, the Company recognizes license and customization services revenue based on an over time model, measured using the input method. License and customization services revenue is reported as part of contract and other revenue which was $19.8 million for the year ended December 31, 2020. Due to the nature of the work performed in these arrangements, the estimation of the over time model is complex and involves significant judgment. The key factor reviewed by management to estimate costs to complete each contract is the estimated man-months necessary to complete the project.
The principal considerations for our determination that performing procedures relating to revenue recognition for license and customization services revenue is a critical audit matter are the significant judgment by management in determining the estimated man-months necessary to contract completion for each contract, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s estimate of man-months necessary to complete each project.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s license and customization services revenue recognition process, including controls over management’s determination of the estimate of total man-months to complete each contract. These procedures also included, among others, for a sample of contracts, testing management’s process for determining the estimate of total man-months. Evaluating management’s assumption related to the estimate of man-months involved (i) performing a comparison of the estimated man-
months to completed projects of similar size and (ii) evaluating the timely identification of circumstances which may warrant a modification to a previous cost estimate, including an assessment of total man-months.
| | | | | |
| /s/ PricewaterhouseCoopers LLP | |
| San Jose, California | |
| February 26, 2021, except for the effects of the restatement and revision discussed in Note 1 to the consolidated financial statements and the matter discussed in the penultimate paragraph of Management’s Report on Internal Control over Financial Reporting, as to which the date is March 29, 2021 |
| |
| We have served as the Company’s auditor since 1991. | |
RAMBUS INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
| 2020
(As Restated) | | 2019
(As Restated) |
| | | |
| (In thousands, except shares and per share amounts) |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 136,146 | | | $ | 102,176 | |
| Marketable securities | 366,503 | | | 305,488 | |
| Accounts receivable | 27,903 | | | 44,039 | |
| Unbilled receivables | 138,813 | | | 184,366 | |
| Inventories | 14,466 | | | 10,086 | |
| Prepaids and other current assets | 15,881 | | | 18,512 | |
| | | |
| Total current assets | 699,712 | | | 664,667 | |
| Intangible assets, net | 36,487 | | | 54,900 | |
| Goodwill | 183,222 | | | 183,465 | |
| Property, plant and equipment, net | 57,693 | | | 45,536 | |
| Operating lease right-of-use assets | 28,708 | | | 37,020 | |
| Deferred tax assets | 4,353 | | | 4,574 | |
| Unbilled receivables, long-term | 236,699 | | | 347,348 | |
| | | |
| Other assets | 4,535 | | | 5,931 | |
| Total assets | $ | 1,251,409 | | | $ | 1,343,441 | |
| LIABILITIES & STOCKHOLDERS’ EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 8,993 | | | $ | 9,549 | |
| Accrued salaries and benefits | 23,326 | | | 20,291 | |
| | | |
| | | |
| Deferred revenue | 10,198 | | | 11,947 | |
| Income taxes payable, short-term | 20,064 | | | 19,142 | |
| Operating lease liabilities | 4,724 | | | 6,357 | |
| Other current liabilities | 18,559 | | | 18,893 | |
| Total current liabilities | 85,864 | | | 86,179 | |
| | | |
| Convertible notes, long-term | 156,031 | | | 148,788 | |
| Long-term operating lease liabilities | 34,305 | | | 39,889 | |
| Long-term income taxes payable | 41,333 | | | 60,094 | |
| Deferred tax liabilities | 14,276 | | | 13,846 | |
| Other long-term liabilities | 6,894 | | | 19,272 | |
| Total liabilities | 338,703 | | | 368,068 | |
| Commitments and contingencies (Notes 10, 13 and 20) | 0 | | 0 |
| Stockholders’ equity: | | | |
| Convertible preferred stock, $.001 par value: | | | |
| Authorized: 5,000,000 shares; Issued and outstanding: no shares at December 31, 2020 and December 31, 2019 | 0 | | | 0 | |
| Common Stock, $.001 par value: | | | |
| Authorized: 500,000,000 shares; Issued and outstanding: 111,697,994 shares at December 31, 2020 and 112,131,352 shares at December 31, 2019 | 112 | | | 112 | |
| Additional paid in capital | 1,270,426 | | | 1,261,142 | |
| Accumulated deficit | (357,751) | | | (285,789) | |
| Accumulated other comprehensive loss | (81) | | | (92) | |
| Total stockholders’ equity | 912,706 | | | 975,373 | |
| Total liabilities and stockholders’ equity | $ | 1,251,409 | | | $ | 1,343,441 | |
Refer to Notes to Consolidated Financial Statements
RAMBUS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020
(As Restated) | | 2019
(As Restated) | | 2018 |
| | | | | |
| (In thousands, except per share amounts) |
| Revenue: | | | | | |
| Royalties | $ | 84,560 | | | $ | 94,361 | | | $ | 130,452 | |
| Product revenue | 113,996 | | | 72,972 | | | 38,690 | |
| Contract and other revenue | 47,766 | | | 60,270 | | | 62,059 | |
| Total revenue | 246,322 | | | 227,603 | | | 231,201 | |
| Cost of revenue: | | | | | |
| Cost of product revenue | 37,749 | | | 27,156 | | | 18,299 | |
| Cost of contract and other revenue | 5,647 | | | 9,905 | | | 11,718 | |
| Amortization of acquired intangible assets | 17,352 | | | 14,314 | | | 23,684 | |
| Total cost of revenue | 60,748 | | | 51,375 | | | 53,701 | |
| Gross profit | 185,574 | | | 176,228 | | | 177,500 | |
| Operating expenses: | | | | | |
| Research and development | 139,837 | | | 156,815 | | | 158,339 | |
| Sales, general and administrative | 86,441 | | | 100,551 | | | 98,254 | |
| Amortization of acquired intangible assets | 1,061 | | | 2,743 | | | 5,657 | |
| Restructuring and other charges | 4,089 | | | 8,821 | | | 2,217 | |
| | | | | |
| Loss on divestiture | 0 | | | 7,439 | | | 0 | |
| Change in fair value of earn-out liability | (1,800) | | | 0 | | | 0 | |
| | | | | |
| | | | | |
| | | | | |
| Total operating expenses | 229,628 | | | 276,369 | | | 264,467 | |
| Operating loss | (44,054) | | | (100,141) | | | (86,967) | |
| Interest income and other income (expense), net | 17,855 | | | 27,445 | | | 32,621 | |
| | | | | |
| Interest expense | (10,340) | | | (9,852) | | | (16,282) | |
| Interest and other income (expense), net | 7,515 | | | 17,593 | | | 16,339 | |
| Loss before income taxes | (36,539) | | | (82,548) | | | (70,628) | |
| Provision for income taxes | 3,932 | | | 3,416 | | | 87,329 | |
| Net loss | $ | (40,471) | | | $ | (85,964) | | | $ | (157,957) | |
| Net loss per share: | | | | | |
| Basic | $ | (0.36) | | | $ | (0.77) | | | $ | (1.46) | |
| Diluted | $ | (0.36) | | | $ | (0.77) | | | $ | (1.46) | |
| Weighted-average shares used in per share calculations: | | | | | |
| Basic | 113,254 | | | 110,948 | | | 108,450 | |
| Diluted | 113,254 | | | 110,948 | | | 108,450 | |
Refer to Notes to Consolidated Financial Statements
RAMBUS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020
(As Restated) | | 2019
(As Restated) | | 2018 |
| | | | | |
| (In thousands) |
| Net loss | $ | (40,471) | | | $ | (85,964) | | | $ | (157,957) | |
| Other comprehensive income (loss): | | | | | |
| Foreign currency translation adjustment | 24 | | | 10,145 | | | (4,447) | |
| Unrealized gain (loss) on marketable securities, net of tax | (13) | | | 54 | | | (747) | |
| Total comprehensive loss | $ | (40,460) | | | $ | (75,765) | | | $ | (163,151) | |
Refer to Notes to Consolidated Financial Statements
RAMBUS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Gain (Loss) | | |
| Common Stock | | | | | |
| Shares | | Amount | | | | | Total |
| | | | | | | | | | | |
| (In thousands) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balances at December 31, 2017 | 109,764 | | | $ | 110 | | | $ | 1,212,798 | | | $ | (636,227) | | | $ | (5,097) | | | $ | 571,584 | |
| Net loss | — | | | — | | | — | | | (157,957) | | | — | | | (157,957) | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (4,447) | | | (4,447) | |
| Unrealized loss on marketable securities, net of tax | — | | | — | | | — | | | — | | | (747) | | | (747) | |
| Issuance of common stock upon exercise of options, equity stock and employee stock purchase plan | 2,616 | | | 3 | | | 4,627 | | | — | | | — | | | 4,630 | |
| Repurchase and retirement of common stock under repurchase plan | (3,786) | | | (4) | | | (12,573) | | | (37,456) | | | — | | | (50,033) | |
| Stock-based compensation | — | | | — | | | 21,736 | | | — | | | — | | | 21,736 | |
| Issuance of common stock in connection with the maturity of the 2018 Notes related to the settlement of the in-the-money conversion feature of the 2018 Notes | 424 | | | — | | | — | | | — | | | — | | | — | |
| Cumulative effect adjustment from adoption of ASU 2016-01 | — | | | — | | | — | | | 1,058 | | | — | | | 1,058 | |
| Cumulative effect adjustment from the adoption of ASC 606 | — | | | — | | | — | | | 626,288 | | | — | | | 626,288 | |
| | | | | | | | | | | |
| Balances at December 31, 2018 | 109,018 | | | 109 | | | 1,226,588 | | | (204,294) | | | (10,291) | | | 1,012,112 | |
| Net loss (As Restated) | — | | | — | | | — | | | (85,964) | | | — | | | (85,964) | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | 10,145 | | | 10,145 | |
| Unrealized gain on marketable securities, net of tax | — | | | — | | | — | | | — | | | 54 | | | 54 | |
| Issuance of common stock upon exercise of options, equity stock and employee stock purchase plan | 3,113 | | | 3 | | | 8,078 | | | — | | | — | | | 8,081 | |
| | | | | | | | | | | |
| Stock-based compensation | — | | | — | | | 26,476 | | | — | | | — | | | 26,476 | |
| | | | | | | | | | | |
| Cumulative effect adjustment from the adoption of ASC 842 | — | | | — | | | — | | | 4,469 | | | — | | | 4,469 | |
| | | | | | | | | | | |
| Balances at December 31, 2019 (As Restated) | 112,131 | | | 112 | | | 1,261,142 | | | (285,789) | | | (92) | | | 975,373 | |
| Net loss (As Restated) | — | | | — | | | — | | | (40,471) | | | — | | | (40,471) | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | 24 | | | 24 | |
| Unrealized loss on marketable securities, net of tax | — | | | — | | | — | | | — | | | (13) | | | (13) | |
| Issuance of common stock upon exercise of options, equity stock and employee stock purchase plan | 2,183 | | | 3 | | | 2,081 | | | — | | | — | | | 2,084 | |
| Repurchase and retirement of common stock under repurchase plan | (2,616) | | | (3) | | | (18,575) | | | (31,491) | | | — | | | (50,069) | |
| Stock-based compensation | — | | | — | | | 25,778 | | | — | | | — | | | 25,778 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balances at December 31, 2020 (As Restated) | 111,698 | | | $ | 112 | | | $ | 1,270,426 | | | $ | (357,751) | | | $ | (81) | | | $ | 912,706 | |
Refer to Notes to Consolidated Financial Statements
RAMBUS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020
(As Restated) | | 2019
(As Restated) | | 2018 |
| | | | | |
| (In thousands) |
| Cash flows from operating activities: | | | | | |
| Net loss | $ | (40,471) | | | $ | (85,964) | | | $ | (157,957) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | |
| Stock-based compensation | 25,778 | | | 26,476 | | | 21,736 | |
| Depreciation | 29,773 | | | 23,644 | | | 10,745 | |
| Amortization of intangible assets | 18,413 | | | 17,058 | | | 29,341 | |
| Non-cash interest expense and amortization of convertible debt issuance costs | 7,243 | | | 6,854 | | | 9,243 | |
| | | | | |
| | | | | |
| Deferred income taxes | 624 | | | (1,816) | | | 79,954 | |
| Non-cash restructuring | 0 | | | 0 | | | 670 | |
| Loss on divestiture | 0 | | | 7,439 | | | 0 | |
| Loss on equity investment | 747 | | | 696 | | | 67 | |
| Gain from sale of marketable equity security | 0 | | | 0 | | | (291) | |
| Gain from sale of assets held for sale | 0 | | | 0 | | | (1,266) | |
| (Gain) loss from disposal of property, plant and equipment | (77) | | | 157 | | | 395 | |
| Change in fair value of earn-out liability | (1,800) | | | 0 | | | 0 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Change in operating assets and liabilities, net of effects of acquisitions and divestiture: | | | | | |
| Accounts receivable | 16,136 | | | 4,994 | | | (24,933) | |
| Unbilled receivables | 156,202 | | | 147,868 | | | 145,164 | |
| Prepaid expenses and other assets | 2,057 | | | 4,076 | | | (4,978) | |
| Inventories | (4,380) | | | (3,353) | | | (1,856) | |
| Accounts payable | (2,176) | | | 2,934 | | | (2,268) | |
| Accrued salaries and benefits and other liabilities | 3,353 | | | 6,176 | | | (3,221) | |
| | | | | |
| Income taxes payable | (17,852) | | | (15,925) | | | (14,550) | |
| Deferred revenue | (1,486) | | | (3,497) | | | 228 | |
| Operating lease liabilities | (6,625) | | | (9,282) | | | 0 | |
| Net cash provided by operating activities | 185,459 | | | 128,535 | | | 86,223 | |
| Cash flows from investing activities: | | | | | |
| Purchases of property, plant and equipment | (29,728) | | | (6,472) | | | (10,762) | |
| Acquisition of intangible assets | 0 | | | 0 | | | (350) | |
| Purchases of marketable securities | (898,957) | | | (657,433) | | | (282,117) | |
| Maturities of marketable securities | 817,834 | | | 507,385 | | | 223,079 | |
| Proceeds from sale of marketable securities | 21,588 | | | 6,758 | | | 0 | |
| Proceeds from divestiture, net of cash disposed | 0 | | | 76,039 | | | 0 | |
| Proceeds from sale of assets held for sale | 0 | | | 0 | | | 4,648 | |
| Proceeds from sale of property and property, plant and equipment | 0 | | | 29 | | | 10 | |
| Settlement of working capital adjustment from disposal of business | (1,131) | | | 0 | | | 0 | |
| Proceeds from sale of equity security | 0 | | | 0 | | | 1,350 | |
| Investment in privately-held companies | 0 | | | (1,000) | | | (3,000) | |
| Acquisition of businesses, net of cash acquired | 0 | | | (66,780) | | | 0 | |
| Net cash used in investing activities | (90,394) | | | (141,474) | | | (67,142) | |
| Cash flows from financing activities: | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Repayment of 1.125% convertible notes | 0 | | | 0 | | | (81,207) | |
| Proceeds received from issuance of common stock under employee stock plans | 11,487 | | | 15,104 | | | 11,402 | |
| Payments under installment payment arrangement | (13,201) | | | (8,379) | | | 0 | |
| Principal payments against financing lease obligation | 0 | | | 0 | | | (1,080) | |
| Repurchase and retirement of common stock, including prepayment under accelerated share repurchase program | (50,069) | | | 0 | | | (50,033) | |
| Payments of taxes on restricted stock units | (9,403) | | | (7,023) | | | (6,766) | |
| | | | | |
| Net cash used in financing activities | (61,186) | | | (298) | | | (127,684) | |
| Effect of exchange rate changes on cash and cash equivalents | 106 | | | (497) | | | (989) | |
| | | | | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 33,985 | | | (13,734) | | | (109,592) | |
| Cash, cash equivalents and restricted cash at beginning of year | 102,518 | | | 116,252 | | | 225,844 | |
| Cash, cash equivalents and restricted cash at end of year | $ | 136,503 | | | $ | 102,518 | | | $ | 116,252 | |
| | | | | |
| Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| | | | | |
| (In thousands) |
| Supplemental disclosure of cash flow information: | | | | | |
| Cash paid during the period for: | | | | | |
| Interest | $ | 2,372 | | | $ | 2,372 | | | $ | 3,044 | |
| Income taxes, net of refunds | $ | 21,312 | | | $ | 17,835 | | | $ | 23,581 | |
| Non-cash investing and financing activities: | | | | | |
| | | | | |
| Property, plant and equipment received and accrued in accounts payable and other accrued liabilities | $ | 20,952 | | | $ | 29,844 | | | $ | 8,225 | |
| | | | | |
| | | | | |
| | | | | |
| As of December 31, |
| 2020 | | 2019 | | 2018 |
| | | | | |
| (In thousands) |
| Reconciliation of the cash, cash equivalents and restricted cash balances as shown in the consolidated statement of cash flows: | | | | | |
| Cash and cash equivalents | $ | 136,146 | | | $ | 102,176 | | | $ | 115,924 | |
| Restricted cash | 357 | | | 342 | | | 328 | |
| Cash, cash equivalents and restricted cash | $ | 136,503 | | | $ | 102,518 | | | $ | 116,252 | |
Refer to Notes to Consolidated Financial Statements
RAMBUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Restatement and Revision of Consolidated Financial Statements
Rambus Inc. (the “Company” or “Rambus”) has restated its previously issued consolidated financial statements and related disclosures as of and for the fiscal years ended December 31, 2020 and 2019 included in its Original Form 10-K (as defined below) filed with the Securities and Exchange Commission (the “SEC”) in order to correct errors resulting from the incorrect application of generally accepted accounting principles relating to revenue recognition as it pertains to a single customer agreement (the “Impacted Agreement”). Additionally, to correct errors that the Company has determined to be immaterial, both individually and in aggregate, the Company has also restated the consolidated financial statements for the fiscal years ended December 31, 2020 and 2019, and revised the consolidated financial statements for the fiscal year ended December 31, 2018. The applicable Notes were also updated to reflect the restatement and revision.
Impact of Restatement and Revision
The following errors in the Company’s consolidated financial statements were identified and corrected:
a) Correction of revenue related to the Impacted Agreement: During the quarter ending March 31, 2021, the Company determined that a portion of revenue under a single customer agreement that had not yet been recognized, should have been recognized during the quarters ended September 30, 2019, December 31, 2019, March 31, 2020, and June 30, 2020. The Impacted Agreement contained a single performance obligation for a license to the Company’s patents and technology in exchange for consideration, a portion of which was fixed at the inception of the contract and a portion that was dependent on the customer’s applicable sales (as stipulated in the agreement) for the four consecutive quarters commencing on July 1, 2019 and ending on June 30, 2020. The Company accounted for the agreement as a right-to-use IP license agreement with the fixed portion of the consideration appropriately recognized at the inception of the agreement when control of the license was transferred to the customer. However, the Company did not recognize as revenue the portion of the consideration that depended on the customer’s sales beginning in the quarter ended September 30, 2019. During the quarter ending March 31, 2021, the Company reassessed its accounting for this uncertain portion of the consideration and determined that revenue associated with that uncertain portion of the consideration should have been recognized over the four quarters commencing on July 1, 2019 and ending June 30, 2020, which are the periods when the uncertainty surrounding the amount of the contingent consideration was resolved (that is when the customer’s sales occurred for which the contingent payments were based). This error resulted in royalty revenue being corrected by approximately $3.6 million in each of the years ended December 31, 2020 and 2019, resulting in an increase in royalty revenue for each of the respective periods. Unbilled receivables (both current and non-current, as applicable) on the Consolidated Balance Sheets are also increased by the correction, given this additional revenue recognized is payable by the customer in ten equal quarterly installments with the first installment payable in the quarter ending March 31, 2021. Additionally, due to the significant financing component of the Impacted Agreement, immaterial amounts are corrected to increase interest and other income (expense), net, on the Consolidated Statements of Operations.
b) Correction of immaterial asset retirement obligation (“ARO”) related to the Company’s previous Sunnyvale, California headquarters of approximately $1.0 million in fiscal year 2019 related to facility restoration costs. The Company originally recorded a liability for the ARO but expensed (included in sales, general and administrative expenses on the Consolidated Statements of Operations) the entire amount in the year ended December 31, 2019. The Company has corrected the consolidated financial statements to record the ARO asset within property, plant and equipment, net, within the Consolidated Balance Sheets and reflect the amortization of the ARO asset over the remaining life of the lease of seven months beginning in December of 2019 through June 2020.
c) Correction of immaterial proceeds from the sale of certain items designated as assets held for sale of $0.9 million in fiscal year 2018 related to the closure of the Company’s lighting division. The Company has reclassified the proceeds from the sale of assets held for sale from the “prepaid expenses and other assets” line item within cash flows from operating activities to the “proceeds from sale of assets held for sale” line item within cash flows from investing activities on the Consolidated Statement of Cash Flows for the fiscal year ended December 31, 2018.
d) Recording of provision for income taxes impacts due to adjustments a) and b) above.
A summary of the accounting impact of these adjustments to the Company’s condensed consolidated financial statements as of and for the related interim periods is provided in Note 22, “Restatement and Revision of Quarterly Condensed Consolidated Financial Statements (Unaudited)”.
The following tables reflect the impact of the restatement adjustments and revision to the specific line items presented in the Company’s previously reported consolidated financial statements for the annual periods. The amounts originally reported were derived from the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “Original Form 10-K”), filed with the SEC on February 26, 2021 (in thousands, except per share amounts):
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| | December 31, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Balance Sheet | | | | | | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
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| Unbilled receivables | | $ | 135,897 | | | $ | 2,916 | | | $ | 138,813 | |
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| Prepaids and other current assets | | 15,907 | | | (26) | | | 15,881 | |
| Total current assets | | 696,822 | | | 2,890 | | | 699,712 | |
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| Unbilled receivables, long-term | | 232,056 | | | 4,643 | | | 236,699 | |
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| Total assets | | 1,243,876 | | | 7,533 | | | 1,251,409 | |
| LIABILITIES & STOCKHOLDERS’ EQUITY | | | | | | |
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| Deferred tax liabilities | | 14,336 | | | (60) | | | 14,276 | |
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| Total liabilities | | 338,763 | | | (60) | | | 338,703 | |
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| Stockholders’ equity: | | | | | | |
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| Accumulated deficit | | (365,344) | | | 7,593 | | | (357,751) | |
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| Total stockholders’ equity | | 905,113 | | | 7,593 | | | 912,706 | |
| Total liabilities and stockholders’ equity | | 1,243,876 | | | 7,533 | | | 1,251,409 | |
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| | December 31, 2019 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Balance Sheet | | | | | | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
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| Prepaids and other current assets | | $ | 18,524 | | | $ | (12) | | | $ | 18,512 | |
| Total current assets | | 664,679 | | | (12) | | | 664,667 | |
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| Property, plant and equipment, net | | 44,714 | | | 822 | | | 45,536 | |
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| Unbilled receivables, long-term | | 343,703 | | | 3,645 | | | 347,348 | |
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| Total assets | | 1,338,986 | | | 4,455 | | | 1,343,441 | |
| LIABILITIES & STOCKHOLDERS’ EQUITY | | | | | | |
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| Stockholders’ equity: | | | | | | |
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| Accumulated deficit | | (290,244) | | | 4,455 | | | (285,789) | |
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| Total stockholders’ equity | | 970,918 | | | 4,455 | | | 975,373 | |
| Total liabilities and stockholders’ equity | | 1,338,986 | | | 4,455 | | | 1,343,441 | |
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| | Year Ended December 31, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Operations | | | | | | |
| Revenue: | | | | | | |
| Royalties | | $ | 80,985 | | | $ | 3,575 | | | $ | 84,560 | |
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| Total revenue | | 242,747 | | | 3,575 | | | 246,322 | |
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| Gross profit | | 181,999 | | | 3,575 | | | 185,574 | |
| Operating expenses: | | | | | | |
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| Sales, general and administrative | | 85,619 | | | 822 | | | 86,441 | |
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| Total operating expenses | | 228,806 | | | 822 | | | 229,628 | |
| Operating income (loss) | | (46,807) | | | 2,753 | | | (44,054) | |
| Interest income and other income (expense), net | | 17,516 | | | 339 | | | 17,855 | |
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| Interest and other income (expense), net | | 7,176 | | | 339 | | | 7,515 | |
| Income (loss) before income taxes | | (39,631) | | | 3,092 | | | (36,539) | |
| Provision for income taxes | | 3,978 | | | (46) | | | 3,932 | |
| Net income (loss) | | (43,609) | | | 3,138 | | | (40,471) | |
| Net income (loss) per share: | | | | | | |
| Basic | | $ | (0.39) | | | $ | 0.03 | | | $ | (0.36) | |
| Diluted | | $ | (0.39) | | | $ | 0.03 | | | $ | (0.36) | |
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| | Year Ended December 31, 2019 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Operations | | | | | | |
| Revenue: | | | | | | |
| Royalties | | $ | 90,785 | | | $ | 3,576 | | | $ | 94,361 | |
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| Total revenue | | 224,027 | | | 3,576 | | | 227,603 | |
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| Gross profit | | 172,652 | | | 3,576 | | | 176,228 | |
| Operating expenses: | | | | | | |
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| Sales, general and administrative | | 101,373 | | | (822) | | | 100,551 | |
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| Total operating expenses | | 277,191 | | | (822) | | | 276,369 | |
| Operating income (loss) | | (104,539) | | | 4,398 | | | (100,141) | |
| Interest income and other income (expense), net | | 27,375 | | | 70 | | | 27,445 | |
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| Interest and other income (expense), net | | 17,523 | | | 70 | | | 17,593 | |
| Income (loss) before income taxes | | (87,016) | | | 4,468 | | | (82,548) | |
| Provision for income taxes | | 3,403 | | | 13 | | | 3,416 | |
| Net income (loss) | | (90,419) | | | 4,455 | | | (85,964) | |
| Net income (loss) per share: | | | | | | |
| Basic | | $ | (0.81) | | | $ | 0.04 | | | $ | (0.77) | |
| Diluted | | $ | (0.81) | | | $ | 0.04 | | | $ | (0.77) | |
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| | Year Ended December 31, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Comprehensive Loss | | | | | | |
| Net income (loss) | | $ | (43,609) | | | $ | 3,138 | | | $ | (40,471) | |
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| Total comprehensive income (loss) | | (43,598) | | | 3,138 | | | (40,460) | |
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| | Year Ended December 31, 2019 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Comprehensive Loss | | | | | | |
| Net income (loss) | | $ | (90,419) | | | $ | 4,455 | | | $ | (85,964) | |
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| Total comprehensive income (loss) | | (80,220) | | | 4,455 | | | (75,765) | |
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| | Year Ended December 31, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Stockholders’ Equity | | | | | | |
| Net loss attributable to: | | | | | | |
| Accumulated deficit | | $ | (365,344) | | | $ | 7,593 | | | $ | (357,751) | |
| Total stockholders’ equity | | 905,113 | | | 7,593 | | | 912,706 | |
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| | Year Ended December 31, 2019 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Stockholders’ Equity | | | | | | |
| Net loss attributable to: | | | | | | |
| Accumulated deficit | | $ | (290,244) | | | $ | 4,455 | | | $ | (285,789) | |
| Total stockholders’ equity | | 970,918 | | | 4,455 | | | 975,373 | |
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| | Year Ended December 31, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Cash Flows | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (43,609) | | | $ | 3,138 | | | $ | (40,471) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | |
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| Depreciation | | 28,951 | | | 822 | | | 29,773 | |
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| Deferred income taxes | | 685 | | | (61) | | | 624 | |
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| Change in operating assets and liabilities, net of effects of acquisitions: | | | | | | |
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| Unbilled receivables | | 160,116 | | | (3,914) | | | 156,202 | |
| Prepaid expenses and other assets | | 2,042 | | | 15 | | | 2,057 | |
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| Net cash provided by operating activities | | 185,459 | | | 0 | | | 185,459 | |
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| | Year Ended December 31, 2019 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Cash Flows | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (90,419) | | | $ | 4,455 | | | $ | (85,964) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | |
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| Depreciation | | 23,507 | | | 137 | | | 23,644 | |
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| Change in operating assets and liabilities, net of effects of acquisitions: | | | | | | |
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| Unbilled receivables | | 151,513 | | | (3,645) | | | 147,868 | |
| Prepaid expenses and other assets | | 4,064 | | | 12 | | | 4,076 | |
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| Accrued salaries and benefits and other liabilities | | 7,135 | | | (959) | | | 6,176 | |
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| Net cash provided by operating activities | | 128,535 | | | 0 | | | 128,535 | |
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| | Year Ended December 31, 2018 |
| | As Originally Reported | | Revisions | | As Revised |
| Consolidated Statement of Cash Flows | | | | | | |
| Cash flows from operating activities: | | | | | | |
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| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | |
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| Change in operating assets and liabilities, net of effects of acquisitions: | | | | | | |
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| Prepaid expenses and other assets | | $ | (4,084) | | | $ | (894) | | | $ | (4,978) | |
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| Net cash provided by operating activities | | 87,117 | | | (894) | | | 86,223 | |
| Cash flows from investing activities: | | | | | | |
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| Proceeds from sale of assets held for sale | | 3,754 | | | 894 | | | 4,648 | |
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| Net cash used in investing activities | | (68,036) | | | 894 | | | (67,142) | |
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1A. Formation and Business of the Company
Rambus was incorporated in California in March 1990 and reincorporated in Delaware in March 1997. In addition to licensing, the Company is creating new business opportunities through offering products and services where its goal is to perpetuate strong company operating performance and long-term stockholder value. The Company generates revenue by licensing its inventions and solutions, selling its semiconductor products and providing services to market-leading companies.
Rambus produces products and innovations that address the fundamental challenges of accelerating data. The Company makes industry-leading chips and IP that enable critical performance improvements for data center and other growing markets. The ongoing shift to the cloud, along with the widespread advancement of artificial intelligence (“AI”) across the data center, 5G, automotive and Internet of Things (“IoT”), has led to an exponential growth in data usage and tremendous demands on data infrastructure. Creating fast and safe connections, both in and across systems, remains one of the most mission-critical design challenges limiting performance in advanced hardware for these markets.
2. Summary of Significant Accounting Policies
Financial Statement Presentation
The accompanying consolidated financial statements include the accounts of Rambus and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in the accompanying consolidated financial statements. Investments in entities with more than 20% ownership by Rambus and in which Rambus has the ability to significantly influence the operations of the investee (but not control) are accounted for using the equity method and are included in other assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior year balances were reclassified to conform to the current year’s presentation. None of these reclassifications had an impact on reported net income or cash flows for any of the periods presented.
Revenue Recognition
The Company adopted the New Revenue Standard on January 1, 2018 and all the related amendments using the modified retrospective method.
The Company recognizes revenue upon transfer of control of promised goods and services in an amount that reflects the consideration it expects to receive in exchange for those goods and services. Substantially all of the goods and services are distinct and are accounted for as separate performance obligations.
Where an arrangement includes multiple performance obligations, the transaction price is allocated to these on a relative standalone selling price basis. The Company has established standalone selling prices for all of its offerings - specifically, the same pricing methodology is consistently applied to all licensing arrangements; all services offerings are priced within tightly controlled bands and all contracts that include support and maintenance state a renewal rate or price that is systematically enforced.
Rambus’ revenue consists of royalty, product and contract and other revenue. Royalty revenue consists of patent and technology license royalties. Products primarily consist of memory interface chips sold directly and indirectly to module manufacturers and OEMs worldwide through multiple channels, including our direct sales force and distributors. Contract and other revenue consists of software license fees, engineering fees associated with integration of Rambus’ technology solutions into its customers’ products and support and maintenance fees.
Royalty Revenue
Rambus’ patent and technology licensing arrangements generally range between one year and ten years in duration and generally grant the licensee the right to use the Company’s entire intellectual property (“IP”) portfolio as it evolves over time. These arrangements do not typically grant the licensee the right to terminate for convenience and where such rights exist, termination is prospective, with no refund of fees already paid by the licensee. There is no interdependency or interrelation between the IP included in the portfolio licensed upon contract inception and any IP subsequently made available to the licensee, and the Company would be able to fulfill its promises by transferring the portfolio and the additional IP use rights independently. However, the numbers of additions to, and removals from the portfolio (for example when a patent expires and renewal is not granted to the Company) in any given period have historically been relatively consistent; as such, the Company does not allocate the transaction price between the rights granted at contract inception and those subsequently granted over time as a function of these additions.
Patent and technology licensing arrangements result in fixed payments received over time, with guaranteed minimum payments on occasion, variable payments calculated based on the licensee’s sale or use of the IP, or a mix of fixed and variable payments.
•For fixed-fee arrangements (including arrangements that include minimum guaranteed amounts), the Company recognizes revenue upon control over the underlying IP use right transferring to the licensee, net of the effect of significant financing components calculated using customer-specific, risk-adjusted lending rates ranging between 3% and 5%, with the related interest income being recognized over time on an effective rate basis. Where a licensee has the contractual right to terminate a fixed-fee arrangement for convenience without any substantive penalty payable upon such termination, the Company applies the guidance in ASU No. 2014-09, Revenue from Contracts with Customers in Accounting Standards Codification (ASC) Topic 606 (“ASC 606”) to the duration of the contract in which the parties have present enforceable rights and obligations and only recognizes revenue for amounts that are due and payable.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
•For variable arrangements, the Company recognizes revenue based on an estimate of the licensee’s sale or usage of the IP during the period of reference, typically quarterly, with a true-up recorded when the Company receives the actual royalty report from the licensee.
Product Revenue
Product revenue is recognized upon shipment of product to customers, net of accruals for estimated sales returns and allowances, and to distributors, net of accruals for price protection and rights of return on products unsold by the distributors. To date, none of these accruals have been significant. The Company transacts with direct customers primarily pursuant to standard purchase orders for delivery of products and generally allows customers to cancel or change purchase orders within limited notice periods prior to the scheduled shipment date.
Contract and Other Revenue
Contract and other revenue consists of software license fees and engineering fees associated with integration of Rambus’ technology solutions into its customers’ related support and maintenance.
An initial software arrangement generally consists of a term-based or perpetual license, significant software customization services and support and maintenance services that include post-implementation customer support and the right to unspecified software updates and enhancements on a when and if available basis. The Company recognizes license and customization services revenue based on an over time model, measured using the input method. License and customization services revenue is reported as part of contract and other revenue which was approximately $19.8 million for the year ended December 31, 2020. Due to the nature of the work performed in these arrangements, the estimation of the over time model is complex and involves significant judgment. The key factor reviewed by management to estimate costs to complete each contract is the estimated man-months necessary to complete the project. The Company recognizes license renewal revenue at the beginning of the renewal period.
Significant Judgments
Historically and with the exception noted below, no significant judgment has generally been required in determining the amount and timing of revenue from the Company’s contracts with customers.
•The Company has adequate tools and controls in place, and substantial experience and expertise in timely and accurately tracking man-months incurred in completing customization and other professional services, and quantifying changes in estimates.
Key estimates used in recognizing revenue predominantly consist of the following:
•For fixed-fee arrangements in which cash is being received over a period exceeding a year, the Company calculates a customer-specific lending rate using a Daily Treasury Yield Curve Rate that changes depending on the date on which the licensing arrangement was entered into and the term (in years) of the arrangement, and takes into consideration a licensee-specific risk profile determined based on a review of the licensee’s “Full Company View” Dun & Bradstreet report obtained on the date the licensing arrangement was signed by the parties, with a risk premium being added to the Daily Treasury Yield Curve Rate considering the overall business risk, financing strength and risk indicators, as listed.
•The Company recognizes revenue on variable fee licensing arrangements on the basis of estimates.
Contract Balances
Timing of revenue recognition may differ from the timing of invoicing to the Company’s customers. The Company records contract assets when revenue is recognized prior to invoicing, and a contract liability when revenue is recognized subsequent to invoicing. The contract assets are transferred to receivables when the billing occurs.
Cost of Revenue
Cost of revenue includes cost of professional services, materials, including cost of wafers processed by third-party foundries, cost associated with packaging and assembly, test and shipping, cost of personnel, including stock-based compensation, and equipment associated with manufacturing support, logistics and quality assurance, warranty cost, amortization of existing technology, write-down of inventories, amortization of production mask costs, overhead and an allocated portion of occupancy costs.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Leases
The Company adopted the New Leasing Standard as of January 1, 2019 using the alternative transition method provided by ASU No. 2018-11 and did not recast comparative periods. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. Additionally, the Company elected the practical expedient related to non-lease components and made the policy election for the short-term leases exemptions. The Company used its incremental borrowing rate to measure the lease liabilities at the adoption date for its existing operating leases that commenced prior to January 1, 2019, which was based on the remaining lease term and remaining lease payments for such leases.
The Company leases office space, domestically and internationally, under operating leases. The Company’s leases have remaining lease terms between one year and ten years. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, and long-term operating lease liabilities in the Company’s consolidated balance sheets. The Company does not have any finance leases. The Company determines if an arrangement is a lease, or contains a lease, at inception. The Company assesses all relevant facts and circumstances in making the determination of the existence of a lease. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments over the term. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments, and uses the implicit rate when readily determinable. Many of the Company’s leases include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the Company does not separate non-lease components from lease components. Operating lease costs are included in research and development and selling, general and administrative costs on the statement of operations.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. Goodwill is not subject to amortization, but is subject to at least an annual assessment for impairment. The Company performs its impairment analysis of goodwill on an annual basis during the fourth quarter of the year unless conditions arise that warrant a more frequent evaluation.
When goodwill is assessed for impairment, the Company has the option to perform an assessment of qualitative factors of impairment (optional assessment) prior to necessitating a quantitative impairment test. Should the optional assessment be used for any given year, qualitative factors to consider for a reporting unit include: cost factors; financial performance; legal, regulatory, contractual, political, business, or other factors; entity specific factors; industry and market considerations; macroeconomic conditions; and other relevant events and factors affecting the reporting unit. If the Company determines in the qualitative assessment that it is more likely than not that the fair value of the reporting unit is less than its carrying value, a quantitative test is then performed. Otherwise, no further testing is required. For a reporting unit tested using a quantitative approach, the Company compares the fair value of the reporting unit with the carrying amount of the reporting unit, including goodwill. The fair value of the reporting unit is estimated using an income approach.
Under the income approach, the Company measures fair value of the reporting unit based on a projected cash flow method using a discount rate determined by its management which is commensurate with the risk inherent in its current business model. The Company’s discounted cash flow projections are based on its annual financial forecasts developed internally by management for use in managing its business. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, then the amount of goodwill impairment will be the amount by which the reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
The Company performed its annual goodwill impairment analysis as of December 31, 2020 and determined that there was no impairment of its goodwill. For the years ended December 31, 2019 and 2018, the Company did not recognize any goodwill impairment charges.
Intangible Assets
Intangible assets are comprised of existing technology, customer contracts and contractual relationships, and other definite-lived and indefinite-lived intangible assets. Identifiable intangible assets resulting from the acquisitions of entities accounted for using the purchase method of accounting are estimated by management based on the fair value of assets received. Identifiable definite-lived intangible assets are being amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from six months to ten years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Acquired indefinite-lived intangible assets related to the Company’s in-process research and development (“IPR&D”) are capitalized and subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each project, the Company makes a separate determination of the useful life of the acquired indefinite-lived intangible assets and the related amortization is recorded as an expense over the estimated useful life of the specific projects. Indefinite-lived intangible assets are subject to at least an annual assessment for impairment, applying a fair-value based test. Under the income approach, the Company measures fair value of the indefinite-lived intangible assets based on a projected cash flow method using a discount rate determined by its management which is commensurate with the risk inherent in its current business model. The Company’s discounted cash flow projections are based on its annual financial forecasts developed internally by management for use in managing its business. If the fair value of the indefinite-lived intangible assets exceeds its carrying value, the indefinite-lived intangible assets are not impaired and no further testing is required. If the implied fair value of the indefinite-lived intangible assets is less than the carrying value, the difference is recorded as an impairment loss.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. Inventories are reduced for write-downs based on periodic reviews for evidence of slow-moving or obsolete parts. The write-down is based on comparison between inventory on hand and estimated future sales for each specific product. Once written down, inventory write-downs are not reversed until the inventory is sold or scrapped. Inventory write-downs are also established when conditions indicate that the net realizable value is less than cost due to physical deterioration, obsolescence, changes in price level or other causes.
Property, Plant and Equipment
Property, plant and equipment include computer equipment, computer software, machinery, leasehold improvements, and furniture and fixtures. Computer equipment, computer software, machinery, and furniture and fixtures are stated at cost and generally depreciated on a straight-line basis over an estimated useful life of three years, three years to five years, two years or seven years, and three years, respectively. Refer to Note 11, Balance Sheet Details,” for additional details. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the initial terms of the leases. Upon disposal, assets and related accumulated depreciation are removed from the accounts and the related gain or loss is included in the results from operations.
Definite-Lived and Indefinite-Lived Asset Impairment
The Company evaluates definite-lived and indefinite-lived assets (including property, plant and equipment and intangible assets) for impairment whenever events or changes in circumstances indicate the carrying value of an asset group may not be recoverable. The carrying value is not recoverable if it exceeds the undiscounted cash flows resulting from the use of the asset group and its eventual disposition. The Company’s estimates of future cash flows attributable to its asset groups require significant judgment based on its historical and anticipated results and are subject to many factors. Factors that the Company considers important which could trigger an impairment review include significant negative industry or economic trends, significant loss of clients, and significant changes in the manner of its use of the acquired assets or the strategy for its overall business.
When the Company determines that the carrying value of the asset groups may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company measures the potential impairment based on a projected discounted cash flow method using a discount rate determined by the Company to be commensurate with the risk inherent in the Company’s current business model. An impairment loss is recognized only if the carrying amount of the asset group is not recoverable and exceeds its fair value. The impairment charge is recorded to reduce the pre-impairment carrying amount of the assets based on the relative carrying amount of those assets, though not to reduce the carrying amount of an asset below its fair value. Different assumptions and judgments could materially affect the calculation of the fair value of the assets. During 2020, 2019 and 2018, the Company did not recognize any impairment of its definite-lived and indefinite-lived assets.
Income Taxes
Income taxes are accounted for using an asset and liability approach, which requires the recognition of deferred tax assets and liabilities for expected future tax events that have been recognized differently in Rambus’ consolidated financial statements and tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized based on available evidence.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations. As a result, the Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in its tax return. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.
Stock-Based Compensation and Equity Incentive Plans
The Company maintained stock plans covering a broad range of equity grants including stock options, nonvested equity stock and equity stock units and performance-based instruments. In addition, the Company sponsors an Employee Stock Purchase Plan (“ESPP”), whereby eligible employees are entitled to purchase Common Stock semi-annually, by means of limited payroll deductions, at a 15% discount from the fair market value of the Common Stock as of specific dates.
The Company determines compensation expense associated with restricted stock units based on the fair value of its common stock on the date of grant. The Company determines compensation expense associated with stock options based on the estimated grant-date fair value method using the Black-Scholes Merton (“BSM”) valuation model. The Company generally recognizes compensation expense using a straight-line amortization method over the respective vesting period for awards that are ultimately expected to vest. Stock-based compensation expense for 2020, 2019 and 2018 has been reduced for estimated forfeitures. When estimating forfeitures, the Company considers voluntary termination behaviors as well as trends of actual option forfeitures.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments with original maturity of three months or less at the date of purchase. The Company maintains its cash balances with high quality financial institutions. Cash equivalents are invested in highly-rated and highly-liquid money market securities and certain U.S. government sponsored obligations.
Marketable Securities
Available-for-sale securities are carried at fair value, based on quoted market prices, with the unrealized gains or losses reported, net of tax, in stockholders’ equity as part of accumulated other comprehensive income (loss). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, both of which are included in interest and other income, net. Realized gains and losses are recorded on the specific identification method and are included in interest and other income, net. The Company reviews its investments in marketable securities for possible other than temporary impairments on a regular basis. If any loss on investment is believed to be a credit loss, a charge will be recognized in operations. In evaluating whether a credit loss on a debt security has occurred, the Company considers the following factors: 1) the Company’s intent to sell the security, 2) if the Company intends to hold the security, whether or not it is more likely than not that the Company will be required to sell the security before recovery of the security’s amortized cost basis and 3) even if the Company intends to hold the security, whether or not the Company expects the security to recover the entire amortized cost basis. Due to the high credit quality and short-term nature of the Company’s investments, there have been no material credit losses recorded to date. The classification of funds between short-term and long-term is based on whether the securities are available for use in operations or other purposes.
Fair Value of Financial Instruments
The carrying value of cash equivalents, accounts receivable and accounts payable approximate their fair values due to their relatively short maturities as of December 31, 2020 and 2019. Marketable securities are comprised of available-for-sale securities that are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of stockholders’ equity, net of tax. Fair value of the marketable securities is determined based on quoted market prices. The fair value of the Company’s convertible notes fluctuates with interest rates and with the market price of the common stock, but does not affect the carrying value of the debt on the balance sheet.
Research and Development
Costs incurred in research and development, which include engineering expenses, such as salaries and related benefits, stock-based compensation, depreciation, professional services and overhead expenses related to the general development of Rambus’ products, are expensed as incurred. Software development costs are capitalized beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. Rambus has not capitalized any software development costs since the period between establishing technological feasibility and general customer release is relatively short and as such, these costs have not been material.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Computation of Earnings (Loss) Per Share
Basic earnings (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing the earnings (loss) by the weighted-average number of common shares and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of incremental common shares issuable upon exercise of stock options, employee stock purchases, restricted stock and restricted stock units, and shares issuable upon the conversion of convertible notes. The dilutive effect of outstanding shares is reflected in diluted earnings per share by application of the treasury stock method. This method includes consideration of the amounts to be paid by the employees, the amount of excess tax benefits that would be recognized in equity if the instrument was exercised and the amount of unrecognized stock-based compensation related to future services. No potential dilutive common shares are included in the computation of any diluted per share amount when a net loss is reported.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, including foreign currency translation adjustments and unrealized gains and losses on marketable securities. Other comprehensive income (loss), net of tax, is presented in the Consolidated Statements of Comprehensive Income (Loss).
Credit Concentration
As of December 31, 2020 and 2019, the Company’s cash, cash equivalents and marketable securities were invested with various financial institutions in the form of corporate notes, bonds and commercial paper, money market funds, U.S. Treasuries, U.S. Government Agencies, and municipal bonds and notes. The Company’s exposure to market risk for changes in interest rates relates primarily to its investment portfolio. The Company places its investments with high credit issuers and, by investment policy, attempts to limit the amount of credit exposure to any one issuer. As stated in the Company’s investment policy, it will ensure the safety and preservation of the Company’s invested funds by limiting default risk and market risk. The Company has no investments denominated in foreign country currencies and therefore is not subject to foreign exchange risk from these assets.
The Company mitigates default risk by investing in high credit quality securities and by positioning its portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The portfolio includes only marketable securities with active secondary or resale markets to enable portfolio liquidity.
The Company’s note hedge transactions, entered into in connection with the 1.375% convertible senior notes due 2023 (the “2023 Notes”), expose the Company to credit risk to the extent that its counterparties may be unable to meet the terms of the transactions. The Company mitigates this risk by limiting its counterparties to major financial institutions. Refer to Note 12, Convertible Notes,” for further details.
The Company’s accounts receivable are derived from revenue earned from customers located in the U.S. and internationally. Refer to Note 7, Segments and Major Customers,” for further details.
The Company’s unbilled receivables are collected from customers located in the U.S. and internationally. Refer to Note 4, Revenue Recognition,” for further details.
Foreign Currency Translation and Re-Measurement
The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Revenue and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized in foreign currency translation included in Accumulated Other Comprehensive Gain (Loss) in the consolidated statements of stockholders’ equity. The Company’s subsidiaries that use the U.S. dollar as their functional currency re-measure monetary assets and liabilities at exchange rates in effect at the end of each period, and inventories, property and non-monetary assets and liabilities at historical rates. Additionally, foreign currency transaction gains and losses are included in interest income and other (income) expense, net, in the consolidated statements of operations and were not material in the periods presented. Subsequent to the divestiture of the Company’s Payments and Ticketing businesses in 2019, the U.S. dollar is primarily the functional currency of the Company’s foreign subsidiaries.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Business Combinations
The Company accounts for acquisitions of businesses using the purchase method of accounting, which requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.
Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date including the Company’s estimates for intangible assets, contractual obligations assumed and pre-acquisition contingencies where applicable. Although, the Company believes the assumptions and estimates made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Significant estimates and assumptions made by management in estimating the fair value of the existing technologies included revenue growth rates, operating expense margins, technology obsolescence rates and discount rates. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
Litigation
Rambus may be involved in certain legal proceedings. Based upon consultation with outside counsel handling its defense in these matters and an analysis of potential results, if Rambus believes that a loss arising from such matters is probable and can be reasonably estimated, Rambus records the estimated liability in its consolidated financial statements. If only a range of estimated losses can be determined, Rambus records an amount within the range that, in its judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, Rambus records the low end of the range. Any such accrual would be charged to expense in the appropriate period. Rambus recognizes litigation expenses in the period in which the litigation services were provided.
3. Recent Accounting Pronouncements
Recent Accounting Pronouncements Adopted
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The amendments in this ASU remove certain exceptions, clarifies and amends existing guidance. This ASU is effective for interim and annual reporting periods beginning after December 15, 2020. Early adoption is permitted. Certain disclosures in ASU No. 2019-12 would need to be applied on a retrospective basis, modified retrospective basis, or prospective basis. The Company elected to early adopt this ASU on January 1, 2020. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments in this ASU remove certain disclosures, modify certain disclosures and add additional disclosures. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019. Certain disclosures in ASU No. 2018-13 would need to be applied on a retrospective basis and others on a prospective basis. The Company adopted this ASU on January 1, 2020. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13. The purpose of this ASU is to require a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (ASU 2019-04),” which provided certain improvements to various ASUs, including ASU 2016-13. In May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments-Credit Losses (Topic 326),” which provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. In November 2019, the FASB issued ASU No. 2019-10, “Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)” which amends certain effective dates. In November 2019, the FASB issued ASU No. 2019-11, “Financial Instruments-Credit Losses (Topic 326),” which provides additional clarifications. In March 2020,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the FASB issued ASU No. 2020-03, “Codification Improvements to Financial Instruments,” which provides additional clarifications and improvements. These ASUs and the related amendments are effective for interim and annual reporting periods beginning after December 15, 2019. The Company adopted this ASU on January 1, 2020. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In August 2020, the FASB issued ASU No. 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40).” The amendments in this ASU amend the guidance on convertible instruments and the derivatives scope exception for contracts in an entity's own equity, including reducing the number of accounting models for convertible debt instruments and convertible preferred stock. This ASU also amends the related earnings (loss) per share guidance for both subtopics, including the diluted earnings (loss) per share calculation for instruments that may be settled in cash or shares and for convertible instruments. This ASU is effective for interim and annual reporting periods beginning after December 15, 2021. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020. The amendments in this ASU may be applied on a modified retrospective basis or a fully retrospective basis. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
In January 2020, the FASB issued ASU No. 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815).” The amendments in this ASU clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. This ASU is effective for interim and annual reporting periods beginning after December 15, 2020. Early adoption is permitted. The amendments in this ASU should be applied on a prospective basis. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
4. Revenue Recognition
Contract Balances
The contract assets are primarily related to the Company’s fixed fee IP licensing arrangements and rights to consideration for performance obligations delivered but not billed as of December 31, 2020.
The Company’s contract balances were as follows:
| | | | | | | | | | | | | | |
| | As of December 31, |
| (In thousands) | | 2020
(As Restated) | | 2019
(As Restated) |
| Unbilled receivables | | $ | 375,512 | | | $ | 531,714 | |
| Deferred revenue | | 10,461 | | | 11,947 | |
During the years ended December 31, 2020 and December 31, 2019, the Company recognized $10.3 million and $18.3 million, respectively, of revenue that was included in the contract balances as of December 31, 2019 and December 31, 2018, respectively.
Remaining Performance Obligations
Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted but unsatisfied performance obligations were approximately $17.4 million as of December 31, 2020, which the Company primarily expects to recognize over the next 2 years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted income (loss) per share (in thousands, except per share amounts): | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2020
(As Restated) | | 2019
(As Restated) | | 2018 |
| Net loss per share: | | | | | |
| Numerator: | | | | | |
| Net loss | $ | (40,471) | | | $ | (85,964) | | | $ | (157,957) | |
| Denominator: | | | | | |
| Weighted-average common shares outstanding - basic | 113,254 | | | 110,948 | | | 108,450 | |
| Effect of potential dilutive common shares | 0 | | | 0 | | | 0 | |
| Weighted-average common shares outstanding - diluted | 113,254 | | | 110,948 | | | 108,450 | |
| Basic net loss per share | $ | (0.36) | | | $ | (0.77) | | | $ | (1.46) | |
| Diluted net loss per share | $ | (0.36) | | | $ | (0.77) | | | $ | (1.46) | |
For the years ended December 31, 2020, 2019 and 2018, options to purchase approximately 0.3 million, 1.0 million and 1.6 million shares, respectively, were excluded from the calculation because they were anti-dilutive after considering proceeds from exercise, taxes and related unrecognized stock-based compensation expense.
For the years ended December 31, 2020, 2019 and 2018, an additional 2.3 million, 2.4 million and 2.4 million shares, respectively, have been excluded from the weighted-average dilutive shares because there was a net loss for the periods. These shares do not include the Company’s 2023 Notes and the 1.125% convertible senior notes due 2018 (the “2018 Notes”). The par amount of convertible notes is payable in cash equal to the principal amount of the notes plus any accrued and unpaid interest and then the “in-the-money” conversion benefit feature at the conversion price above $18.93 and $12.07, respectively, per share is payable in cash, shares of the Company’s common stock or a combination of both. The Company has the option to pay cash, issue shares of common stock or any combination thereof for the aggregate amount due upon conversion of the notes. The Company’s intent is to settle the principal amount of the notes in cash upon conversion. As a result, upon conversion of the notes, only the amounts payable in excess of the principal amounts of the notes are considered in diluted earnings per share under the treasury stock method. Refer to Note 12, Convertible Notes,” for more details.
6. Intangible Assets and Goodwill
Goodwill
The following tables present goodwill information for the years ended December 31, 2020 and December 31, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | December 31,
2019 | | | | Adjustment to Goodwill (1) | | | | December 31,
2020 |
| | | | | | | | | | |
| | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Total goodwill | | $ | 183,465 | | | | | $ | (243) | | | | | $ | 183,222 | |
______________________________________
(1) Working capital adjustments related to the acquisition of Northwest Logic, Inc. (“Northwest Logic”).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2020 |
| (In thousands) | | Gross Carrying Amount | | Accumulated Impairment Losses | | Net Carrying Amount |
| | | | | | |
| | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total goodwill | | $ | 204,992 | | | $ | (21,770) | | | $ | 183,222 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | December 31,
2018 | | Additions to Goodwill (1) | | Divestiture of Goodwill (2) | | Effect of Exchange Rates (3) | | December 31,
2019 |
| | | | | | | | | | |
| | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Total goodwill | | $ | 207,178 | | | $ | 30,322 | | | $ | (54,494) | | | $ | 459 | | | $ | 183,465 | |
______________________________________
(1) In August 2019, the Company acquired Northwest Logic, and in December 2019, the Company acquired the Secure Silicon IP and Protocols business from Verimatrix (the “Secure Silicon IP and Protocols business”), which resulted in the Company recognizing additional goodwill. Refer to Note 21, Acquisitions ,” for additional information.
(2) Refer to Note 17, Divestiture,” for additional information.
(3) Effect of exchange rates relates to foreign currency translation adjustments for the period.
| | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2019 |
| (In thousands) | | Gross Carrying Amount | | Accumulated Impairment Losses | | Net Carrying Amount |
| | | | | | |
| | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total goodwill | | $ | 205,235 | | | $ | (21,770) | | | $ | 183,465 | |
Intangible Assets
The components of the Company’s intangible assets as of December 31, 2020 and December 31, 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2020 |
| (In thousands, except useful life) | Useful Life | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| | | | | | | |
| | | |
| Existing technology | 3 to 10 years | | $ | 263,789 | | | $ | (230,950) | | | $ | 32,839 | |
| Customer contracts and contractual relationships | 0.5 to 10 years | | 36,293 | | | (34,245) | | | 2,048 | |
| Non-compete agreements and trademarks | 3 years | | 300 | | | (300) | | | 0 | |
| IPR&D | Not applicable | | 1,600 | | | — | | | 1,600 | |
| Total intangible assets | | | $ | 301,982 | | | $ | (265,495) | | | $ | 36,487 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2019 |
| (In thousands, except useful life) | Useful Life | | Gross Carrying Amount (1) (2) | | Accumulated Amortization (1) (2) | | Net Carrying Amount |
| | | | | | | |
| | | |
| Existing technology | 3 to 10 years | | $ | 262,789 | | | $ | (213,354) | | | $ | 49,435 | |
| Customer contracts and contractual relationships | 0.5 to 10 years | | 36,293 | | | (33,428) | | | 2,865 | |
| Non-compete agreements and trademarks | 3 years | | 300 | | | (300) | | | 0 | |
| IPR&D | Not applicable | | 2,600 | | | — | | | 2,600 | |
| Total intangible assets | | | $ | 301,982 | | | $ | (247,082) | | | $ | 54,900 | |
_________________________________________
(1) In October 2019, the Company disposed of approximately $20.7 million of net intangible assets in connection with the sale of the legal entities comprising the Company’s Payments and Ticketing businesses. Refer to Note 17, Divestiture,” for additional information.
(2) In August 2019, the Company acquired Northwest Logic, and in December 2019, the Company acquired the Secure Silicon IP and Protocols business, which resulted in the Company recognizing additional intangible assets. Refer to Note 21, Acquisitions,” for additional information.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Amortization expense for intangible assets for the years ended December 31, 2020, 2019, and 2018 was $18.4 million, $17.1 million, and $29.3 million, respectively. The estimated future amortization expense of intangible assets as of December 31, 2020 was as follows (in thousands):
| | | | | |
| Years Ending December 31: | Amount |
| 2021 | $ | 14,611 | |
| 2022 | 7,644 | |
| 2023 | 6,940 | |
| 2024 | 5,492 | |
| 2025 | 200 | |
| Thereafter | 0 | |
| Total amortizable purchased intangible assets | 34,887 | |
| IPR&D | 1,600 | |
| Total intangible assets | $ | 36,487 | |
7. Segments and Major Customers
Operating segments are based upon Rambus’ internal organization structure, the manner in which its operations are managed, the criteria used by its Chief Operating Decision Maker (“CODM”) to evaluate segment performance and availability of separate financial information regularly reviewed for resource allocation and performance assessment.
The Company has determined its CODM to be the Chief Executive Officer (“CEO”). The CEO reviews financial information presented on a consolidated basis for purposes of managing the business, allocating resources, making operating decisions and assessing financial performance. On this basis, the Company is organized and operates as a single segment within the semiconductor space. As of December 31, 2020, the Company has a single operating and reportable segment. Accordingly, no additional disclosure of segment measures of profit or loss or total assets is applicable for all periods presented.
Accounts receivable from the Company’s major customers representing 10% or more of total accounts receivable at December 31, 2020 and 2019, respectively, was as follows:
| | | | | | | | | | | | |
| | As of December 31, |
| | 2020 | | 2019 |
| Customer 1 | | 14 | % | | * |
| Customer 2 | | 13 | % | | 14 | % |
| Customer 3 | | 11 | % | | * |
| Customer 4 | | * | | 19 | % |
| | | | |
| | | | |
_________________________________________
* Customer accounted for less than 10% of total accounts receivable in the period
Revenue from the Company’s major customers representing 10% or more of total revenue for the years ended December 31, 2020, 2019 and 2018 was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2020
(As Restated) | | 2019 | | 2018 |
| Customer A | | 15 | % | | 10 | % | | * |
| Customer B | | 12 | % | | * | | * |
| Customer C | | * | | 14 | % | | 15 | % |
| Customer D | | * | | * | | 11 | % |
| | | | | | |
| | | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenue from customers in the geographic regions based on the location of contracting parties was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In thousands) | | 2020
(As Restated) | | 2019
(As Restated) | | 2018 |
| | |
| USA | | $ | 137,614 | | | $ | 134,526 | | | $ | 129,567 | |
| Taiwan | | 21,803 | | | 24,118 | | | 21,749 | |
| South Korea | | 3,664 | | | 3,583 | | | 13,421 | |
| Japan | | 20,437 | | | 15,453 | | | 23,222 | |
| Europe | | 7,359 | | | 10,262 | | | 15,668 | |
| Canada | | 1,162 | | | 3,554 | | | 4,960 | |
| Singapore | | 28,034 | | | 21,751 | | | 19,140 | |
| Asia-Other | | 26,249 | | | 14,356 | | | 3,474 | |
| Total | | $ | 246,322 | | | $ | 227,603 | | | $ | 231,201 | |
At December 31, 2020, of the $57.7 million of total property, plant and equipment, approximately $53.2 million were located in the United States, $3.3 million were located in India and $1.2 million were located in other foreign locations. At December 31, 2019, of the $45.5 million of total property, plant and equipment, approximately $41.1 million were located in the United States, $3.4 million were located in India and $1.0 million were located in other foreign locations.
8. Marketable Securities
Rambus invests its excess cash and cash equivalents primarily in U.S. government-sponsored obligations, commercial paper, corporate notes and bonds, money market funds and municipal notes and bonds that mature within three years.
All cash equivalents and marketable securities are classified as available-for-sale. Total cash, cash equivalents and marketable securities are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2020 |
| (Dollars in thousands) | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Weighted Rate of Return |
| Money market funds | | $ | 32,815 | | | $ | 32,815 | | | $ | 0 | | | $ | 0 | | | 0.01 | % |
| U.S. Government bonds and notes | | 169,880 | | | 169,920 | | | 3 | | | (43) | | | 0.12 | % |
| Corporate notes, bonds and commercial paper | | 238,491 | | | 238,509 | | | 61 | | | (79) | | | 0.21 | % |
| Total cash equivalents and marketable securities | | 441,186 | | | 441,244 | | | 64 | | | (122) | | | |
| Cash | | 61,463 | | | 61,463 | | | — | | | — | | | |
| Total cash, cash equivalents and marketable securities | | $ | 502,649 | | | $ | 502,707 | | | $ | 64 | | | $ | (122) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2019 |
| (Dollars in thousands) | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Weighted Rate of Return |
| Money market funds | | $ | 10,065 | | | $ | 10,065 | | | $ | 0 | | | $ | 0 | | | 1.48 | % |
| U.S. Government bonds and notes | | 39,086 | | | 39,087 | | | 0 | | | (1) | | | 1.49 | % |
| Corporate notes, bonds and commercial paper | | 314,391 | | | 314,435 | | | 19 | | | (63) | | | 1.81 | % |
| Total cash equivalents and marketable securities | | 363,542 | | 363,587 | | 19 | | | (64) | | | |
| Cash | | 44,122 | | | 44,122 | | | — | | | — | | | |
| Total cash, cash equivalents and marketable securities | | $ | 407,664 | | | $ | 407,709 | | | $ | 19 | | | $ | (64) | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Available-for-sale securities are reported at fair value on the balance sheets and classified as follows: | | | | | | | | | | | | | | |
| | As of December 31, |
| (In thousands) | | 2020 | | 2019 |
| | |
| Cash equivalents | | $ | 74,683 | | | $ | 58,054 | |
| Short-term marketable securities | | 366,503 | | | 305,488 | |
| Total cash equivalents and marketable securities | | 441,186 | | 363,542 |
| Cash | | 61,463 | | | 44,122 | |
| Total cash, cash equivalents and marketable securities | | $ | 502,649 | | | $ | 407,664 | |
The Company continues to invest in highly rated quality, highly liquid debt securities. The Company holds all of its marketable securities as available-for-sale, marks them to market, and regularly reviews its portfolio to ensure adherence to its investment policy and to monitor individual investments for risk analysis, proper valuation, and unrealized losses that may be other than temporary.
The estimated fair value and gross unrealized losses of cash equivalents and marketable securities classified by the length of time that the securities have been in a continuous unrealized loss position at December 31, 2020 and 2019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value | | Gross Unrealized Loss | |
| (In thousands) | | December 31,
2020 | | December 31,
2019 | | December 31,
2020 | | December 31,
2019 | |
| | | | | | | | | |
| | | |
| Less than 12 months | | | | | | | | | |
| U.S. Government bonds and notes | | $ | 72,896 | | | $ | 14,112 | | | $ | (43) | | | $ | (1) | | |
| Corporate notes, bonds and commercial paper | | 181,354 | | | 250,822 | | | (79) | | | (63) | | |
| | | | | | | | | |
| Total cash equivalents and marketable securities in a continuous unrealized loss position | | $ | 254,250 | | | $ | 264,934 | | | $ | (122) | | | $ | (64) | | |
The gross unrealized loss at December 31, 2020 and 2019 was not material in relation to the Company’s total available-for-sale portfolio. The gross unrealized loss can be primarily attributed to a combination of market conditions as well as the demand for and duration of the U.S. government-sponsored obligations and corporate notes and bonds. The Company reasonably believes that there is no need to sell these investments and that it can recover the amortized cost of these investments. The Company has found no evidence of impairment due to credit losses in its portfolio. Therefore, these unrealized losses were recorded in other comprehensive income (loss). However, the Company cannot provide any assurance that its portfolio of cash, cash equivalents and marketable securities will not be impacted by adverse conditions in the financial markets, which may require the Company in the future to record an impairment charge for credit losses which could adversely impact its financial results.
The contractual maturities of cash equivalents (excluding money market funds which have no maturity) and marketable securities are summarized as follows:
| | | | | | | | |
| | |
| (In thousands) | | December 31,
2020 |
| Due less than one year | | $ | 334,332 | |
| Due from one year through three years | | 74,039 | |
| Total | | $ | 408,371 | |
Refer to Note 9, Fair Value of Financial Instruments,” for discussion regarding the fair value of the Company’s cash equivalents and marketable securities.
9. Fair Value of Financial Instruments
The fair value measurement statement defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which the Company would transact, and the Company considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company’s financial instruments are measured and recorded at fair value, except for equity method investments and convertible notes. The Company’s non-financial assets, such as goodwill, intangible assets, and property, plant and equipment, are measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized. The Company’s equity method investments are initially recognized at cost, and the carrying amount is increased or decreased to recognize the Company’s share of the profit or loss of the investee after the date of acquisition. The Company’s share of the investee’s profit or loss is recognized in the Company’s consolidated statements of operations. Distributions received from an investee reduce the carrying amount of the investment.
Fair Value Hierarchy
The fair value measurement statement requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires that fair value measurement be classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
The Company uses unadjusted quotes to determine fair value. The financial assets in Level 1 include money market funds.
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
The Company uses observable pricing inputs including benchmark yields, reported trades, and broker/dealer quotes. The financial assets in Level 2 include U.S. government bonds and notes, corporate notes, commercial paper and municipal bonds and notes.
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The Company does not have any financial assets in Level 3 as of December 31, 2020 and 2019.
The Company reviews the pricing inputs by obtaining prices from a different source for the same security on a sample of its portfolio. The Company has not adjusted the pricing inputs it has obtained. The following table presents the financial instruments that are carried at fair value and summarizes the valuation of its cash equivalents and marketable securities by the above pricing levels as of December 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2020 |
| (In thousands) | | Total | | Quoted Market Prices in Active Markets
(Level 1) | | Significant Other Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
| | | | | | | | |
| | |
| Money market funds | | $ | 32,815 | | | $ | 32,815 | | | $ | 0 | | | $ | 0 | |
| U.S. Government bonds and notes | | 169,880 | | | 0 | | | 169,880 | | | 0 | |
| Corporate notes, bonds and commercial paper | | 238,491 | | | 0 | | | 238,491 | | | 0 | |
| Total available-for-sale securities | | $ | 441,186 | | | $ | 32,815 | | | $ | 408,371 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2019 |
| (In thousands) | | Total | | Quoted Market Prices in Active Markets
(Level 1) | | Significant Other Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
| | | | | | | | |
| | |
| Money market funds | | $ | 10,065 | | | $ | 10,065 | | | $ | 0 | | | $ | 0 | |
| U.S. Government bonds and notes | | 39,086 | | | 0 | | | 39,086 | | | 0 | |
| Corporate notes, bonds commercial paper | | 314,391 | | | 0 | | | 314,391 | | | 0 | |
| Total available-for-sale securities | | $ | 363,542 | | | $ | 10,065 | | | $ | 353,477 | | | $ | 0 | |
The Company monitors its investments for other-than-temporary impairment and records appropriate reductions in carrying value when necessary. The Company monitors its investments for other-than-temporary losses by considering current factors, including the economic environment, market conditions, operational performance and other specific factors relating to the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
business underlying the investment, reductions in carrying values when necessary and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery in the market. Any other-than-temporary loss is reported under “Interest and other income (expense), net” in the consolidated statement of operations. During the years ended December 31, 2020 and 2019, the Company recorded no other-than-temporary impairment charges on its investments.
During the second half of 2018, the Company made an investment in a non-marketable equity security of a private company. This equity investment is accounted for under the equity method of accounting, and the Company accounts for its equity method share of the income (loss) on a quarterly basis. As of December 31, 2020, the Company’s 25.0% ownership percentage amounted to a $2.8 million equity interest in this equity investment. As of December 31, 2019, the Company’s 25.0% ownership percentage amounted to a $3.6 million equity interest in this equity investment. The Company’s equity interest was included in other assets on the accompanying consolidated balance sheets. The Company recorded immaterial amounts in its consolidated statements of operations representing its share of the investee’s loss for the years ended December 31, 2020 and 2019.
During the years ended December 31, 2020 and 2019, there were no transfers of financial instruments between different categories of fair value.
The following table presents the financial instruments that are not carried at fair value but which require fair value disclosure as of December 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2020 | | As of December 31, 2019 |
| (In thousands) | | Face
Value | | Carrying Value | | Fair
Value | | Face
Value | | Carrying Value | | Fair
Value |
| 1.375% Convertible Senior Notes due 2023 (the “2023 Notes”) | | $ | 172,500 | | | $ | 156,031 | | | $ | 194,709 | | | $ | 172,500 | | | $ | 148,788 | | | $ | 174,239 | |
| | | | | | | | | | | | |
The fair value of the convertible notes at each balance sheet date is determined based on recent quoted market prices for these notes which is a level 2 measurement. As discussed in Note 12, Convertible Notes,” as of December 31, 2020, the convertible notes are carried at their face value of $172.5 million, less any unamortized debt discount and unamortized debt issuance costs. The carrying value of other financial instruments, including accounts receivable, accounts payable and other liabilities, approximates fair value due to their short maturities.
Information regarding the Company’s goodwill and long-lived assets balances are disclosed in Note 6, . Intangible Assets and Goodwill.”
10. Leases
On July 8, 2019, the Company entered into a definitive triple net space lease agreement with 237 North First Street Holdings, LLC (the “Landlord”), whereby the Company leases office space located at 4453 North First Street in San Jose, California, (the “Lease”). In April 2020, the lease was amended for certain terms (the “Amended Lease”). The Amended Lease includes approximately 90,000 square feet of office space, which serves as the Company’s corporate headquarters and includes engineering, sales, marketing and administrative functions. The Amended Lease has a term of 128 months from the amended commencement date in April 2020. The starting rent of the Amended Lease is approximately $3.26 per square foot on a triple net basis. The annual base rent increases each year to certain fixed amounts over the course of the term as set forth in the Amended Lease and will be $4.38 per square foot in the final year of the Amended Lease term. In addition to the base rent, the Company will also pay operating expenses, insurance expenses, real estate taxes, and a management fee under the Amended Lease. The Amended Lease also allows for an option to expand, wherein the Company has the right of first refusal to rent additional space in the building. The Company has a one-time option to extend the Amended Lease for a period of 60 months and may elect to terminate the Amended Lease, via written notice to the Landlord, in the event the office space is damaged or destroyed. Total required payments under the Amended Lease are approximately $41 million. Pursuant to the terms of the Amended Lease, the landlord agreed to reimburse the Company up to $9.0 million, related to a tenant improvement allowance. The lease of the Company’s Sunnyvale, California, headquarters expired on June 30, 2020.
Refer to Note 13. Commitments and Contingencies,” for additional information regarding the Company’s leases.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The table below reconciles the undiscounted cash flows for the first five years and total of the remaining years to the operating lease liabilities recorded on the consolidated balance sheet as of December 31, 2020 (in thousands):
| | | | | |
| Years ending December 31, | Amount |
| 2021 | $ | 8,616 | |
| 2022 | 7,382 | |
| 2023 | 4,570 | |
| 2024 | 3,925 | |
| 2025 | 4,043 | |
| Thereafter | 21,325 | |
| Total minimum lease payments | 49,861 | |
| Less: amount of lease payments representing interest | (10,832) | |
| Present value of future minimum lease payments | 39,029 | |
| Less: current obligations under leases | (4,724) | |
| Long-term lease obligations | $ | 34,305 | |
| |
As of December 31, 2020, the weighted-average remaining lease term for the Company’s operating leases was 8.1 years, and the weighted-average discount rate used to determine the present value of the Company’s operating leases was 4.2%.
Operating lease costs included in research and development and selling, general and administrative costs on the statement of operations were $9.5 million and $9.6 million for the years ended December 31, 2020 and 2019, respectively. Rent expense, recorded under accounting guidance in effect prior to January 1, 2019 when the New Leasing Standard became effective for the Company, was approximately $5.2 million for the year ended December 31, 2018.
Cash paid for amounts included in the measurement of operating lease liabilities was $7.2 million for the year ended December 31, 2020.
11. Balance Sheet Details
Inventories
Inventories consisted of the following:
| | | | | | | | | | | | | | | |
| | As of December 31, | |
| (In thousands) | | 2020 | | 2019 | |
| | | |
| Raw materials | | $ | 7,945 | | | $ | 3,997 | | |
| Work in process | | 650 | | | 1,455 | | |
| Finished goods | | 5,871 | | | 4,634 | | |
| Total | | $ | 14,466 | | | $ | 10,086 | | |
| | | | | |
| | | | | |
| | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property, Plant and Equipment, net
Property, plant and equipment, net is comprised of the following:
| | | | | | | | | | | | | | |
| | As of December 31, |
| (In thousands) | | 2020
(As Restated) | | 2019
(As Restated) |
| | |
| | | | |
| Computer software | | $ | 49,862 | | | $ | 50,453 | |
| Computer equipment | | 32,122 | | | 36,761 | |
| Furniture and fixtures | | 11,100 | | | 16,136 | |
| Leasehold improvements | | 9,658 | | | 11,275 | |
| Machinery | | 10,378 | | | 10,446 | |
| Construction in progress | | 27,250 | | | 1,691 | |
| Property, plant and equipment, gross | | 140,370 | | | 126,762 | |
| Less accumulated depreciation and amortization | | (82,677) | | | (81,226) | |
| Property, plant and equipment, net | | $ | 57,693 | | | $ | 45,536 | |
Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was $22.1 million, $15.3 million and $10.7 million, respectively.
Accumulated Other Comprehensive Gain (Loss)
Accumulated other comprehensive gain (loss) is comprised of the following: | | | | | | | | | | | | | | |
| | As of December 31, |
| (In thousands) | | 2020 | | 2019 |
| | |
| Foreign currency translation adjustments | | $ | 129 | | | $ | 105 | |
| Unrealized loss on available-for-sale securities, net of tax | | (210) | | | (197) | |
| Total | | $ | (81) | | | $ | (92) | |
12. Convertible Notes
The Company’s convertible notes are shown in the following table:
| | | | | | | | | | | | | | |
| | As of December 31, |
| (In thousands) | | 2020 | | 2019 |
| 2023 Notes | | $ | 172,500 | | | $ | 172,500 | |
| | | | |
| | | | |
| | | | |
| Unamortized discount - 2023 Notes | | (15,420) | | | (22,163) | |
| | | | |
| Unamortized debt issuance costs - 2023 Notes | | (1,049) | | | (1,549) | |
| | | | |
| | | | |
| Total convertible notes | | 156,031 | | | 148,788 | |
| Less current portion | | 0 | | | 0 | |
| Total long-term convertible notes | | $ | 156,031 | | | $ | 148,788 | |
1.375% Convertible Senior Notes due 2023. On November 17, 2017, the Company issued $172.5 million aggregate principal amount of 1.375% convertible senior notes pursuant to an indenture (the “2023 Indenture”), by and between the Company and U.S. Bank National Association, as trustee (the “Trustee”). In accounting for the 2023 Notes at issuance, the Company separated the 2023 Notes into liability and equity components pursuant to the accounting standards for convertible debt instruments that may be fully or partially settled in cash upon conversion. As of the date of issuance, the Company determined that the liability component of the 2023 Notes was $137.3 million and the equity component of the 2023 Notes was $35.2 million. The fair value of the liability component was estimated using an interest rate for a similar instrument without a conversion feature. The unamortized discount related to the 2023 Notes is being amortized to interest expense using the effective interest method over approximately five years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The 2023 Notes bear interest at a rate of 1.375% per year, payable semi-annually on February 1 and August 1 of each year, beginning on August 1, 2018. The 2023 Notes will mature on February 1, 2023, unless earlier repurchased by the Company or converted pursuant to their terms.
The Company incurred transaction costs of approximately $3.3 million related to the issuance of 2023 Notes. In accounting for these costs, the Company allocated the costs to the liability and equity components in proportion to the allocation of proceeds from the issuance of the 2023 Notes to such components. Transaction costs allocated to the liability component of $2.6 million are netted against the carrying amount of the liability in the consolidated balance sheet and are amortized to interest expense using the effective interest method over the term of the 2023 Notes. The transaction costs allocated to the equity component of $0.7 million were recorded as additional paid-in capital.
The initial conversion rate of the 2023 Notes is 52.8318 shares of the Company’s common stock per $1,000 principal amount of 2023 Notes (which is equivalent to an initial conversion price of approximately $18.93 per share). The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest. In addition, upon the occurrence of a make-whole fundamental change (as defined in the 2023 Indenture), the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its 2023 Notes in connection with such make-whole fundamental change.
Prior to the close of business on the business day immediately preceding November 1, 2022, the 2023 Notes will be convertible only under the following circumstances: (1) during any calendar quarter commencing after March 31, 2018, and only during such calendar quarter, if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of 2023 Notes for such trading day was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading day; (3) upon the occurrence of specified distributions to holders of our common stock; or (4) upon the occurrence of specified corporate transactions. On or after November 1, 2022, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the 2023 Notes may convert all or a portion of their 2023 Notes regardless of the foregoing conditions. Upon conversion, the Company will pay cash up to the aggregate principal amount of the 2023 Notes to be converted and pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of the 2023 Notes being converted.
The Company may not redeem the 2023 Notes prior to the maturity date and no sinking fund is provided for the 2023 Notes. Upon the occurrence of a fundamental change (as defined in the 2023 Indenture) prior to the maturity date, holders may require the Company to repurchase all or a portion of the 2023 Notes for cash at a price equal to 100% of the principal amount of the 2023 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The 2023 Notes are the Company’s senior unsecured obligations and will rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the notes; equal in right of payment with the Company’s existing and future liabilities that are not so subordinated, including its “2018 Notes”; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to any existing and future indebtedness and other liabilities (including trade payables, but excluding intercompany obligations and liabilities) and any preferred stock of subsidiaries of the Company.
The following events are considered “events of default” with respect to the 2023 Notes, which may result in the acceleration of the maturity of the 2023 Notes:
(1) the Company defaults on the payment when due of any principal of any of the 2023 Notes at maturity or upon exercise of a repurchase right or otherwise;
(2) the Company defaults on the payment of any interest, including additional interest, if any, on any of the 2023 Notes, when the interest becomes due and payable, and continuance of such default for a period of 30 days;
(3) failure by the Company to comply with its obligation to convert the 2023 Notes in accordance with the 2023 Indenture upon exercise of a holder’s conversion right;
(4) failure by the Company to give a fundamental change notice or notice of a specified corporate transaction when due with respect to the Notes;
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) failure by the Company to comply with any of its other agreements contained in the 2023 Notes or the 2023 Indenture for a period of 60 days after written notice from the Trustee or the holders of at least 25% in aggregate principal amount of the Notes then outstanding has been received;
(6) failure by the Company to pay when due the principal of, or acceleration of, any indebtedness for money borrowed by the Company or any of its Material Subsidiaries (as defined in the 2023 Indenture) in excess of $40.0 million principal amount, if such indebtedness is not discharged, or such acceleration is not annulled, for a period of 30 days after written notice to the Company by the Trustee or to the Company and the Trustee by holders of 25% or more in aggregate principal amount of the 2023 Notes then outstanding in accordance with the 2023 Indenture; and
(7) certain events of bankruptcy, insolvency or reorganization of the Company or any of its Material Subsidiaries (as defined in the Indenture).
If such an event of default, other than an event of default described in clause (7) above with respect to the Company, occurs and is continuing, the Trustee by written notice to the Company, or the holders of at least 25% in aggregate principal amount of the outstanding Notes by notice to the Company and the Trustee, may, and the Trustee at the request of such holders shall, declare 100% of the principal of and accrued and unpaid interest, if any, on all the Notes then outstanding to be due and payable. If an event of default described in clause (7) above occurs, 100% of the principal of and accrued and unpaid interest on the Notes then outstanding will automatically become due and payable.
Note Hedges and Warrants. On November 14, 2017 and November 16, 2017, in connection with the 2023 Notes, the Company entered into privately negotiated convertible note hedge transactions (the “Convertible Note Hedge Transactions”) with respect to the Company’s common stock, par value $0.001 per share (the “Common Stock”), with certain bank counterparties (the “Counterparties”). The Company paid an aggregate amount of approximately $33.5 million to the Counterparties for the Convertible Note Hedge Transactions. The Convertible Note Hedge Transactions cover, subject to anti-dilution adjustments substantially similar to those in the 2023 Notes, approximately 9.1 million shares of Common Stock, the same number of shares underlying the 2023 Notes, at a strike price that corresponds to the initial conversion price of the 2023 Notes, and are exercisable upon conversion of the 2023 Notes. The Convertible Note Hedge Transactions will expire upon the maturity of the 2023 Notes. The Convertible Note Hedge Transactions are intended to reduce the potential economic dilution upon conversion of the 2023 Notes. The Convertible Note Hedge Transactions are separate transactions and are not part of the terms of the 2023 Notes. Holders of the 2023 Notes will not have any rights with respect to the Convertible Note Hedge Transactions.
In addition, concurrently with entering into the Convertible Note Hedge Transactions, the Company separately entered into privately negotiated warrant transactions, whereby the Company sold to the Counterparties warrants (the “Warrants”) to acquire, collectively, subject to anti-dilution adjustments, approximately 9.1 million shares of the Common Stock at an initial strike price of approximately $23.30 per share, which represents a premium of 60% over the last reported sale price of the Common Stock of $14.56 on November 14, 2017. The Company received aggregate proceeds of approximately $23.2 million from the sale of the Warrants to the Counterparties. The Warrants are separate transactions and are not part of the 2023 Notes or Convertible Note Hedge Transactions. Holders of the 2023 Notes and Convertible Note Hedge Transactions will not have any rights with respect to the Warrants.
The amounts paid and received for the Convertible Note Hedge Transactions and Warrants have been recorded in additional paid-in capital in the consolidated balance sheets. The fair value of the Convertible Note Hedge Transactions and Warrants are not re-measured through earnings each reporting period. The amounts paid for the Convertible Note Hedge Transactions are tax deductible expenses, while the proceeds received from the Warrants are not taxable.
Impact to Earnings per Share. The 2023 Notes will have no impact to diluted earnings per share until the average price of our Common Stock exceeds the conversion price of $18.93 per share because the principal amount of the 2023 Notes is required to be settled in cash upon conversion. Under the treasury stock method, in periods the Company reports net income, the Company is required to include the effect of additional shares that may be issued under the 2023 Notes when the price of the Company’s Common Stock exceeds the conversion price. Under this method, the cumulative dilutive effect of the 2023 Notes would be approximately 9.1 million shares if the average price of the Company’s Common Stock is $18.93. However, upon conversion, there will be no economic dilution from the 2023 Notes, as exercise of the Convertible Note Hedge Transactions eliminates any dilution from the 2023 Notes that would have otherwise occurred when the price of the Company’s Common Stock exceeds the conversion price. The Convertible Note Hedge Transactions are required to be excluded from the calculation of diluted earnings per share, as they would be anti-dilutive under the treasury stock method.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The warrants will have a dilutive effect when the average share price exceeds the warrant’s strike price of $23.30 per share. However, upon conversion, the Convertible Note Hedge Transactions would neutralize the dilution from the 2023 Notes so that there would only be dilution from the warrants.
1.125% Convertible Senior Notes due 2018. On August 16, 2013, the Company issued $138.0 million aggregate principal amount of 1.125% convertible senior notes pursuant to an indenture (the “2018 Indenture”) by and between the Company and U.S. Bank National Association, as the trustee. The 2018 Notes matured on August 15, 2018 (the “Maturity Date”), subject to earlier repurchase or conversion. In accounting for the 2018 Notes at issuance, the Company separated the 2018 Notes into liability and equity components pursuant to the accounting standards for convertible debt instruments that may be fully or partially settled in cash upon conversion. As of the date of issuance, the Company determined that the liability component of the 2018 Notes was $107.7 million and the equity component of the 2018 Notes was $30.3 million. The fair value of the liability component was estimated using an interest rate for a similar instrument without a conversion feature. The unamortized discount related to the 2018 Notes was amortized to interest expense using the effective interest method over five years through August 2018.
The Company paid cash interest at an annual rate of 1.125% of the principal amount at issuance, semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 2014. The Company incurred transaction costs of approximately $3.6 million related to the issuance of 2018 Notes. In accounting for these costs, the Company allocated the costs to the liability and equity components in proportion to the allocation of proceeds from the issuance of the 2018 Notes to such components. Transaction costs allocated to the liability component of $2.8 million were recorded as deferred offering costs and were amortized to interest expense using the effective interest method over five years (the expected term of the debt). The transaction costs allocated to the equity component of $0.8 million were recorded as additional paid-in capital. The 2018 Notes were the Company’s general unsecured obligations, ranking equally in right of payment to all of Rambus’ existing and future senior unsecured indebtedness, including the 2023 Notes, and senior in right of payment to any of the Company’s future indebtedness that is expressly subordinated to the 2018 Notes.
The 2018 Notes were convertible into shares of the Company’s common stock at an initial conversion rate of 82.8329 shares of common stock per $1,000 principal amount of 2018 Notes, subject to adjustment in certain events. This is equivalent to an initial conversion price of approximately $12.07 per share of common stock. Holders may have surrendered their 2018 Notes for conversion prior to the close of business day immediately preceding May 15, 2018 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2013 (and only during such calendar quarter), if the closing sale price of the common stock for 20 or more trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 130% of the conversion price per share of common stock on the last trading day of the preceding calendar quarter; (2) during the five business day period after any five consecutive trading day period (the ‘‘measurement period’’) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the closing sale price of the Company’s common stock and the conversion rate on each such trading day; (3) upon the occurrence of specified distributions to holders of the Company’s common stock; or (4) upon the occurrence of specified corporate events. On or after May 15, 2018 until the close of business on the second scheduled trading day immediately preceding the Maturity Date, holders may have converted their notes at any time, regardless of the foregoing circumstances. If a holder elected to convert its 2018 Notes in connection with certain fundamental changes, as that term is defined in the 2018 Indenture, that occurred prior to the Maturity Date, the Company would have, in certain circumstances, increased the conversion rate for 2018 Notes converted in connection with such fundamental changes by a specified number of shares of common stock.
Upon conversion of the 2018 Notes, the Company would have paid cash up to the aggregate principal amount of the notes to have been converted and paid or delivered, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, in respect of the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the notes converted, as specified in the Indenture.
During the third quarter of 2018, the Company paid upon maturity the remaining $81.2 million in aggregate principal amount of the 2018 Notes. Additionally, the Company delivered 423,873 shares of the Company’s common stock as settlement related to the in-the-money conversion feature of the 2018 Notes at maturity. The value of the shares delivered was approximately $5.0 million.
As of December 31, 2020, none of the conversion conditions were met related to the 2023 Notes. Therefore, the classification of the entire equity component for the 2023 Notes in permanent equity is appropriate as of December 31, 2020.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Interest expense related to the notes for the years ended December 31, 2020, 2019 and 2018 was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In thousands) | | 2020 | | 2019 | | 2018 |
| | |
| 2023 Notes coupon interest at a rate of 1.375% | | $ | 2,372 | | | $ | 2,372 | | | $ | 2,372 | |
| 2023 Notes amortization of discount and debt issuance cost at an additional effective interest rate of 4.9% | | 7,243 | | | 6,854 | | | 6,486 | |
| 2018 Notes coupon interest at a rate of 1.125% | | 0 | | | 0 | | | 377 | |
| 2018 Notes amortization of discount and debt issuance cost at an additional effective interest rate of 5.5% | | 0 | | | 0 | | | 2,756 | |
| | | | | | |
| | | | | | |
| Total interest expense on convertible notes | | $ | 9,615 | | | $ | 9,226 | | | $ | 11,991 | |
13. Commitments and Contingencies
On December 15, 2009, the Company entered into a lease agreement for approximately 125,000 square feet of office space located at 1050 Enterprise Way in Sunnyvale, California, which commenced on July 1, 2010 and expired on June 30, 2020. The office space was used for the Company’s corporate headquarters, as well as engineering, sales, marketing and administrative operations and activities. Refer to Note 10, Leases,” for information regarding the Company’s lease agreement for a new corporate headquarters in San Jose, California.
On November 17, 2017, the Company entered into an Indenture with U.S. Bank National Association, as trustee, relating to the issuance by the Company of $172.5 million aggregate principal amount of the 2023 Notes. Refer to Note 12, Convertible Notes,” for additional details.
As of December 31, 2020, the Company’s material contractual obligations were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | |
Contractual obligations (1) (2) (3) | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Software licenses (4) | $ | 18,970 | | | $ | 12,541 | | | $ | 6,429 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | |
Acquisition retention bonuses (5) | 6,370 | | | 3,370 | | | 3,000 | | | 0 | | | 0 | | | 0 | | | |
| Convertible notes | 172,500 | | | 0 | | | 0 | | | 172,500 | | | 0 | | | 0 | | | |
| Interest payments related to convertible notes | 5,936 | | | 2,372 | | | 2,372 | | | 1,192 | | | 0 | | | 0 | | | |
| Total | $ | 203,776 | | | $ | 18,283 | | | $ | 11,801 | | | $ | 173,692 | | | $ | 0 | | | $ | 0 | | | |
______________________________________
(1) The above table does not reflect possible payments in connection with unrecognized tax benefits of approximately $25.5 million including $23.6 million recorded as a reduction of long-term deferred tax assets and $1.9 million in long-term income taxes payable, as of December 31, 2020. As noted below in Note 19, Income Taxes,” although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the outcome at this time.
(2) For the Company’s lease commitments as of December 31, 2020, refer to Note 10, Leases.”
(3) The Company’s other contractual obligations as of December 31, 2020 were not material.
(4) The Company has commitments with various software vendors for agreements generally having terms longer than one year.
(5) In connection with the acquisitions of Northwest Logic in August 2019 and the Secure Silicon IP and Protocols business in December 2019, the Company is obligated to pay retention bonuses to certain employees subject to certain eligibility and acceleration provisions including the condition of employment.
Indemnifications
From time to time, the Company indemnifies certain customers as a necessary means of doing business. Indemnification covers customers for losses suffered or incurred by them as a result of any patent, copyright, or other IP infringement or any other claim by any third party arising as result of the applicable agreement with the Company. The Company generally attempts to limit the maximum amount of indemnification that the Company could be required to make under these agreements to the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
amount of fees received by the Company, however, this is not always possible. The fair value of the liability as of December 31, 2020 and 2019 was not material.
14. Equity Incentive Plans and Stock-Based Compensation
Equity Incentive Plans
The Company has three equity incentive plans under which grants are currently outstanding: the 2006 Equity Incentive Plan (the “2006 Plan”), the 2015 Equity Incentive Plan (the “2015 Plan”) and the 2019 Inducement Equity Incentive Plan (the “2019 Inducement Plan”). On April 23, 2015, the Company’s stockholders approved the 2015 Plan, which replaced the 2006 Plan. Additionally, in the third quarter of 2019, the Company adopted the 2019 Inducement Plan and, subject to the adjustment provisions of the 2019 Inducement Plan, reserved 400,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the 2019 Inducement Plan. The 2015 Plan and 2019 Inducement Plan were the Company’s only plans for providing stock-based incentive awards to eligible employees, executive officers, non-employee directors and consultants as of December 31, 2020. Grants under all plans typically have a requisite service period of 60 months or 48 months, have straight-line vesting schedules and expire not more than 10 years from date of grant. No further awards will be made under the 2006 Plan, but the 2006 Plan will continue to govern awards previously granted under it. In addition, any shares subject to stock options or other awards granted under the 2006 Plan that on or after the effective date of the 2015 Plan are forfeited, cancelled, exchanged or surrendered or terminate under the 2006 Plan will become available for grant under the 2015 Plan. The Board will periodically review actual share consumption under the 2015 Plan and may make a request for additional shares as needed.
The 2019 Inducement Plan provides for the grant of equity-based awards, including nonstatutory stock options, restricted stock units, restricted stock, stock appreciation rights, performance shares and performance units, and its terms are substantially similar to the Company’s 2015 Plan. However, awards under the 2019 Inducement Plan may only be granted to individuals who previously have not been employees or non-employee directors of the Company (or who will become employed following a bona fide period of non-employment or service with the Company), as an inducement material to the individuals’ entry into employment with the Company, or, to the extent permitted by Rule 5635(c)(3) of the Nasdaq Listing Rules, in connection with a merger or acquisition.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of shares available for grant under the Company’s plans is as follows:
| | | | | |
| Shares Available for Grant |
| |
| |
| |
| |
| |
| |
| |
| Total shares available for grant as of December 31, 2017 | 5,051,147 |
| Increase in shares approved for issuance | 5,500,000 |
| Stock options granted | (711,479) |
| Stock options forfeited | 877,803 |
| |
Nonvested equity stock and stock units granted (1) (2) | (4,993,802) |
Nonvested equity stock and stock units forfeited (1) | 4,350,377 |
| Total shares available for grant as of December 31, 2018 | 10,074,046 |
Increase in shares approved for issuance (3) | 400,000 |
| Stock options granted | (80,000) |
| Stock options forfeited | 426,960 |
| |
Nonvested equity stock and stock units granted (1) (4) | (7,261,845) |
Nonvested equity stock and stock units forfeited (1) | 3,267,702 |
| Total shares available for grant as of December 31, 2019 | 6,826,863 |
Increase in shares approved for issuance (5) | 7,800,000 |
| Stock options granted | (40,000) |
| Stock options forfeited | 101,816 |
| |
Nonvested equity stock and stock units granted (1) (6) | (3,528,401) |
Nonvested equity stock and stock units forfeited (1) | 1,252,042 |
| Total shares available for grant as of December 31, 2020 | 12,412,320 |
______________________________________
(1) For purposes of determining the number of shares available for grant under the 2015 Plan against the maximum number of shares authorized, each restricted stock granted reduces the number of shares available for grant by 1.5 shares and each restricted stock forfeited increases shares available for grant by 1.5 shares.
(2) Amount includes 0.5 million shares that had been reserved for potential future issuance related to certain performance unit awards discussed under the section titled “Nonvested Equity Stock and Stock Units” below.
(3) Shares were reserved under the 2019 Inducement Plan adopted in the third quarter of 2019.
(4) Amount includes 1.0 million shares that have been reserved for potential future issuance related to certain performance unit awards discussed under the section titled “Nonvested Equity Stock and Stock Units” below.
(5) On April 30, 2020, the Company’s stockholders approved an additional 7,800,000 shares for issuance under the 2015 Plan.
(6) Amount includes 0.5 million shares that have been reserved for potential future issuance related to certain performance unit awards discussed under the section titled “Nonvested Equity Stock and Stock Units” below.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
General Stock Option Information
The following table summarizes stock option activity under the Company’s equity incentive plans for the years ended December 31, 2020, 2019 and 2018 and information regarding stock options outstanding, exercisable, and vested and expected to vest as of December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | Weighted-Average Remaining Contractual Term | | |
| (In thousands, except per share amounts and years) | | Number of Shares | | Weighted-Average Exercise Price per Share | | | Aggregate Intrinsic Value |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Outstanding as of December 31, 2017 | | 4,310,361 | | $ | 9.78 | | | | | |
| Options granted | | 711,479 | | $ | 12.84 | | | | | |
| Options exercised | | (908,146) | | $ | 6.70 | | | | | |
| Options forfeited | | (877,803) | | $ | 13.73 | | | | | |
| | | | | | | | |
| Outstanding as of December 31, 2018 | | 3,235,891 | | $ | 10.25 | | | | | |
| Options granted | | 80,000 | | $ | 13.25 | | | | | |
| Options exercised | | (1,249,785) | | $ | 7.79 | | | | | |
| Options forfeited | | (426,960) | | $ | 13.71 | | | | | |
| Outstanding as of December 31, 2019 | | 1,639,146 | | $ | 11.37 | | | | | |
| Options granted | | 40,000 | | $ | 15.59 | | | | | |
| Options exercised | | (613,119) | | $ | 10.74 | | | | | |
| Options forfeited | | (101,816) | | $ | 19.41 | | | | | |
| Outstanding as of December 31, 2020 | | 964,211 | | $ | 11.08 | | | 5.04 | | $ | 6,151 | |
| Vested or expected to vest at December 31, 2020 | | 961,925 | | $ | 11.08 | | | 5.03 | | $ | 6,143 | |
| Options exercisable at December 31, 2020 | | 781,102 | | $ | 10.51 | | | 4.31 | | $ | 5,432 | |
Employee Stock Purchase Plan
During the years ended December 31, 2020, 2019, and 2018, the Company had one employee stock purchase plan, the 2015 Employee Stock Purchase Plan (“2015 ESPP”). Employees generally will be eligible to participate in the plan if they are employed by Rambus for more than 20 hours per week and more than five months in a fiscal year. The 2015 ESPP provides for six-month offering periods, with a new offering period commencing on the first trading day on or after May 1 and November 1 of each year. Under the plans, employees may purchase stock at the lower of 85% of the beginning of the offering period (the enrollment date), or the end of each offering period (the purchase date). Employees generally may not purchase more than the number of shares having a value greater than $25,000 in any calendar year, as measured at the purchase date.
The Company issued 467,065 shares at a weighted-average price of $10.51 per share during the year ended December 31, 2020. The Company issued 629,438 shares at a weighted-average price of $8.53 per share during the year ended December 31, 2019. The Company issued 541,395 shares at a weighted-average price of $9.99 per share during the year ended December 31, 2018. On April 30, 2020, the Company's stockholders approved an additional 2,000,000 shares to be reserved for issuance under the 2015 ESPP. As of December 31, 2020, 3,198,375 shares under the ESPP remained available for issuance.
Stock-Based Compensation
Stock Options
During the years ended December 31, 2020 and 2019, the number of stock options granted were not material. During the year ended December 31, 2018, Rambus granted 711,479 stock options with an estimated total grant-date fair value of $3.0 million. During the years ended December 31, 2020, 2019 and 2018, Rambus recorded stock-based compensation related to stock options of $0.6 million, $1.0 million and $1.7 million, respectively.
As of December 31, 2020, there was $1.1 million of total unrecognized compensation cost, net of expected forfeitures, related to unvested stock-based compensation arrangements granted under the stock option plans. This cost is expected to be recognized over a weighted-average period of 2.2 years. The total fair value of options vested for the years ended December 31, 2020, 2019 and 2018 was $3.3 million, $6.7 million and $12.9 million, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Employee Stock Purchase Plans
During the years ended December 31, 2020, 2019 and 2018, Rambus recorded stock-based compensation related to the ESPP of $1.5 million, $1.5 million and $1.4 million, respectively. As of December 31, 2020, there was $0.7 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under the ESPP. That cost is expected to be recognized over four months.
Valuation Assumptions
Rambus estimates the fair value of stock awards using the BSM model. The BSM model determines the fair value of stock-based compensation and is affected by Rambus’ stock price on the date of the grant as well as assumptions regarding a number of highly complex and subjective variables. These variables include expected volatility, expected life of the award, expected dividend rate, and expected risk-free rate of return. The assumptions for expected volatility and expected life are the two assumptions that significantly affect the grant-date fair value. If actual results differ significantly from these estimates, stock-based compensation expense and Rambus’ results of operations could be materially impacted.
The fair value of stock awards is estimated as of the grant date using the BSM option-pricing model assuming a dividend yield of 0% and the additional weighted-average assumptions as listed in the table below.
The following table presents the weighted-average assumptions used to estimate the fair value of stock options granted that contain only service conditions in the periods presented:
| | | | | | | | | | | | | | | | | |
| Stock Option Plan for Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Stock Option Plan | | | | | |
| Expected stock price volatility | 38% | | 33%-36% | | 24%-32% |
| Risk free interest rate | 0.2% | | 1.4%-1.6% | | 2.6%-2.8% |
| Expected term (in years) | 5.5 | | 5.1-5.2 | | 5.8 |
| Weighted-average fair value of stock options granted | $5.46 | | $4.36 | | $4.23 |
| | | | | | | | | | | | | | | | | |
| Employee Stock Purchase Plan for Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Employee Stock Purchase Plan | | | | | |
| Expected stock price volatility | 37%-46% | | 32% | | 27%-34% |
| Risk free interest rate | 0.1% | | 1.6%-2.4% | | 2.05%-2.5% |
| Expected term (in years) | 0.5 | | 0.5 | | 0.5 |
| Weighted-average fair value of purchase rights granted under the purchase plan | $3.46 | | $3.13 | | $2.59 |
Expected Stock Price Volatility: Given the volume of market activity in its market traded options, Rambus determined that it would use the implied volatility of its nearest-to-the-money traded options. The Company believes that the use of implied volatility is more reflective of market conditions and a better indicator of expected volatility than historical volatility. If there is not sufficient volume in its market traded options, the Company will use an equally weighted blend of historical and implied volatility.
Risk-free Interest Rate: Rambus bases the risk-free interest rate used in the BSM valuation method on implied yield currently available on the U.S. Treasury zero-coupon issues with an equivalent term. Where the expected terms of Rambus’ stock-based awards do not correspond with the terms for which interest rates are quoted, Rambus uses an approximation based on rates on the closest term currently available.
Expected Term: The expected term of options granted represents the period of time that options granted are expected to be outstanding. The expected term was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The expected term of ESPP grants is based upon the length of each respective purchase period.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Nonvested Equity Stock and Stock Units
The Company grants nonvested equity stock units to officers, directors and employees. For the years ended December 31, 2020, 2019 and 2018, the Company granted nonvested equity stock units totaling 2.0 million, 4.2 million and 3.0 million shares, respectively. These awards have a service condition, generally a service period of four years, except in the case of grants to directors, for which the service period is one year. For the years ended December 31, 2020, 2019 and 2018, the fair value of nonvested equity stock units at the date of grant was approximately $31.0 million, $43.0 million and $38.1 million, respectively. During the years ended December 31, 2020, 2019 and 2018, the Company granted performance unit awards to certain Company executive officers with vesting subject to the achievement of certain performance and/or market conditions. The ultimate number of performance units that can be earned can range from 0% to 200% of target depending on performance relative to target over the applicable period. The shares earned will vest on the third anniversary of the date of grant. The Company’s shares available for grant has been reduced to reflect the shares that could be earned at the maximum target.
For the years ended December 31, 2020, 2019 and 2018, the Company recorded stock-based compensation expense of approximately $23.7 million, $23.9 million and $18.6 million, respectively, related to all outstanding nonvested equity stock grants. Unrecognized stock-based compensation related to all nonvested equity stock grants, net of an estimate of forfeitures, was approximately $34.5 million at December 31, 2020. This cost is expected to be recognized over a weighted-average period of 2.1 years.
The following table reflects the activity related to nonvested equity stock and stock units for the three years ended December 31, 2020:
| | | | | | | | | | | |
| Nonvested Equity Stock and Stock Units | Shares | | Weighted-Average
Grant-Date Fair Value |
| | | |
| | | |
| | | |
| | | |
| Nonvested at December 31, 2017 | 5,861,349 | | $ | 12.68 | |
| Granted | 2,978,558 | | $ | 12.77 | |
| Vested | (1,713,930) | | $ | 12.39 | |
| Forfeited | (2,266,842) | | $ | 12.97 | |
| Nonvested at December 31, 2018 | 4,859,135 | | $ | 12.71 | |
| Granted | 4,233,701 | | $ | 10.17 | |
| Vested | (1,896,283) | | $ | 12.40 | |
| Forfeited | (1,907,070) | | $ | 11.33 | |
| Nonvested at December 31, 2019 | 5,289,483 | | $ | 11.27 | |
| Granted | 1,986,117 | | $ | 15.60 | |
| Vested | (1,693,659) | | $ | 11.70 | |
| Forfeited | (730,676) | | $ | 11.83 | |
| Nonvested at December 31, 2020 | 4,851,265 | | $ | 12.82 | |
15. Stockholders’ Equity
On January 21, 2015, the Company’s Board approved a share repurchase program authorizing the repurchase of up to an aggregate of 20.0 million shares (the “2015 Repurchase Program”). Share repurchases under the 2015 Repurchase Program were made through the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules, and regulations. During the years ended December 31, 2020 and 2019, the Company did not repurchase any shares of its common stock under the 2015 Repurchase Program.
On October 29, 2020, the Company’s Board approved a new share repurchase program authorizing the repurchase of up to an aggregate of 20.0 million shares (the “2020 Repurchase Program”). Share repurchases under the 2020 Repurchase Program may be made through the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules, and regulations. There is no expiration date applicable to the 2020 Repurchase Program. The 2020 Repurchase Program replaced the previous program approved by the Board in January 2015 and canceled the remaining shares outstanding as part of the previous authorization.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On November 11, 2020, the Company entered into an accelerated share repurchase program with Deutsche Bank AG, London Branch as counterparty, through its agent Deutsche Bank Securities Inc. (“Deutsche Bank”) (the “2020 ASR Program”). The 2020 ASR Program was part of the broader share repurchase program previously authorized by the Company’s Board on October 29, 2020. Under the 2020 ASR Program, the Company pre-paid to Deutsche Bank the $50.0 million purchase price for its common stock and, in turn, the Company received an initial delivery of approximately 2.6 million shares of its common stock from Deutsche Bank in the fourth quarter of 2020, which were retired and recorded as a $40.0 million reduction to stockholders’ equity. The remaining $10.0 million of the initial payment was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to the Company’s stock. The number of shares to be ultimately purchased by the Company will be determined based on the volume-weighted-average price of the common stock during the terms of the transaction, minus an agreed upon discount between the parties. The 2020 ASR Program is expected to be completed within six months from the beginning of the program. There were no other repurchases of the Company’s common stock during 2020.
As of December 31, 2020, there remained an outstanding authorization to repurchase approximately 17.4 million shares of the Company’s outstanding common stock under the current share repurchase program.
The Company records share repurchases as a reduction to stockholders’ equity. The Company records a portion of the purchase price of the repurchased shares as an increase to accumulated deficit when the price of the shares repurchased exceeds the average original proceeds per share received from the issuance of common stock. During the year ended December 31, 2020, the cumulative price of $31.5 million was recorded as an increase to accumulated deficit.
Convertible Note Hedge Transactions
On November 14, 2017 and November 16, 2017, in connection with the 2023 Notes, the Company entered into the Convertible Note Hedge Transactions with respect to the Common Stock, with the Counterparties. The Company paid an aggregate amount of approximately $33.5 million to the Counterparties for the Convertible Note Hedge Transactions. The Convertible Note Hedge Transactions cover, subject to anti-dilution adjustments substantially similar to those in the 2023 Notes, approximately 9.1 million shares of Common Stock, the same number of shares underlying the 2023 Notes, at a strike price that corresponds to the initial conversion price of the 2023 Notes, and are exercisable upon conversion of the 2023 Notes. The Convertible Note Hedge Transactions will expire upon the maturity of the 2023 Notes.
The Convertible Note Hedge Transactions are expected generally to reduce the potential dilution to the Common Stock upon conversion of the 2023 Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 2023 Notes, as the case may be, in the event that the market price per share of the Common Stock, as measured under the terms of the Convertible Note Hedge Transactions, is greater than the strike price of the Convertible Note Hedge Transactions.
The Convertible Note Hedge Transactions are separate transactions, entered into by the Company with the Counterparties, and are not part of the terms of the 2023 Notes. Holders of the 2023 Notes will not have any rights with respect to the Convertible Note Hedge Transactions. Refer to Note 12, Convertible Notes,” for additional details.
Warrant Transactions
On November 14, 2017 and November 16, 2017, in connection with the 2023 Notes, the Company sold the Warrants to the Counterparties to acquire, collectively, subject to anti-dilution adjustments, approximately 9.1 million shares of the Common Stock at an initial strike price of approximately $23.30 per share, which represents a premium of 60% over the last reported sale price of the Common Stock of $14.56 on November 14, 2017. The Company received aggregate proceeds of approximately $23.2 million from the sale of the Warrants to the Counterparties. The Warrants were sold in private placements to the Counterparties pursuant to an exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act.
If the market price per share of the Common Stock, as measured under the terms of the Warrants, exceeds the strike price of the Warrants, the Warrants could have a dilutive effect, unless the Company elects, subject to certain conditions, to settle the Warrants in cash.
The Warrants are separate transactions, entered into by the Company with the Counterparties, and are not part of the terms of the 2023 Notes. Holders of the 2023 Notes will not have any rights with respect to the Warrants. Refer to Note 12, Convertible Notes,” for additional details.
16. Benefit Plans
Rambus has a 401(k) Plan (the “401(k) Plan”) qualified under Section 401(k) of the Internal Revenue Code of 1986. Each eligible employee may elect to contribute up to 60% of the employee’s annual compensation to the 401(k) Plan, up to the Internal Revenue Service limit. Rambus, at the discretion of its Board of Directors, may match employee contributions to the 401(k) Plan. The Company matches 50% of eligible employee’s contribution, up to the first 6% of an eligible employee’s qualified earnings. For the years ended December 31, 2020, 2019 and 2018, Rambus made matching contributions totaling approximately $1.8 million, $2.0 million and $2.1 million, respectively.
17. Divestiture
During the second quarter of 2019, the Company entered into a share purchase agreement with Visa International Service Association (the “Purchaser”), pursuant to which the Purchaser agreed to acquire all of the outstanding shares of the Company’s subsidiary, Smart Card Software Limited, which comprises the Company’s Payments and Ticketing businesses, which was part of the Company’s former Rambus Security Division (RSD) segment. The decision to sell these businesses reflected the Company’s ongoing review of its business to focus on products and offerings that are core to its semiconductor business.
The sale of the legal entities comprising the Company’s Payments and Ticketing businesses was completed in October 2019. The final gross proceeds from the sale amounted to $82.5 million, which included the selling price of $75.0 million and approximately $7.5 million in net working capital adjustments finalized in October 2019. The $7.5 million in net working capital adjustments is net of a final working capital adjustment due to the buyer of approximately $1.1 million, which the Company paid in cash to the buyer during the first quarter of 2020. The final gross proceeds were offset by approximately $3.8 million in transaction costs for the year ended December 31, 2019.
The Company measured these businesses at the lower of their carrying value or fair value less any costs to sell, and recognized a cumulative impairment of approximately $7.4 million during the year ended December 31, 2019. In the second quarter of 2019, in order to determine the impairment loss, the Company performed a relative fair value measurement to allocate goodwill to the business units between the disposed Payments and Ticketing businesses and the retained business, which includes Cryptography Research Inc., which was part of the former RSD segment. The fair value of the retained business was estimated by management using a discounted cash flow model. The Company’s cash flow projections for the retained business included significant judgments and assumptions relating to revenue growth rates, projected operating income and the discount rate.
The operating results of these businesses did not qualify for reporting as discontinued operations. The reported results and financial position of the businesses did not necessarily reflect the total value of the businesses that the Company realized upon their sale.
18. Restructuring and Other Charges
2020 Restructuring Plan
In November 2020, the Company initiated a restructuring program to reduce overall expenses which is expected to improve future profitability by reducing spending on research and development efforts and sales, general and administrative programs (the “2020 Restructuring Plan”). In connection with this restructuring program, the Company initiated a plan of termination resulting in a reduction of approximately 70 employees. During the year ended December 31, 2020, the Company recorded charges of approximately $3.3 million related primarily to the reduction in workforce. During the year ended December 31, 2020, the Company paid approximately $0.9 million of the total charges. As of December 31, 2020, the Company’s accrued restructuring balance was approximately $2.4 million. The 2020 Restructuring Plan is expected to be substantially completed in the first half of 2021.
2019 Restructuring Plan
In June 2019, the Company initiated a restructuring program to reduce overall expenses which is expected to improve future profitability by reducing spending on research and development efforts and sales, general and administrative programs (the “2019 Restructuring Plan”). In connection with this restructuring program, the Company initiated a plan of termination resulting in a reduction of approximately 80 employees. During the years ended December 31, 2020 and 2019, the Company recorded charges of approximately $0.8 million and $8.8 million, respectively, related to the reduction in workforce. The 2019 Restructuring Plan was substantially completed in the second quarter of 2020.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2018 Restructuring Plan
On January 30, 2018, the Company announced its plans to close its lighting division and manufacturing operations in Brecksville, Ohio, (“the 2018 Restructuring Plan”). The Company believed that such business was not core to its strategy and growth objectives. In connection therewith, the Company terminated approximately 50 employees, and began the process to exit the facilities in Ohio and sell the related equipment. The Company expected to record restructuring charges of approximately $2.0 million to $5.0 million related to employee terminations and severance costs and facility related costs. During the year ended December 31, 2018, the Company recorded a net charge of $2.2 million, primarily related to the reduction in workforce, of which $2.0 million was related to the lighting division and $0.2 million was related to corporate support functions. The 2018 Restructuring Plan was completed as of December 31, 2019.
The Company concluded that the closure of its lighting division did not meet the criteria for reporting as discontinued operations. Consequently, the lighting division’s long-lived assets were reclassified as held for sale. As of December 31, 2018, the Company sold all property, plant and equipment from its lighting division reclassified as held for sale on the consolidated balance sheets of approximately $3.5 million and recognized a gain on the disposal of the held for sale assets of approximately $1.2 million included in restructuring charges on the consolidated statements of operations.
19. Income Taxes
Income (loss) before taxes consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In thousands) | | 2020
(As Restated) | | 2019
(As Restated) | | 2018 |
| Domestic | | $ | (39,937) | | | $ | (76,848) | | | $ | (63,829) | |
| Foreign | | 3,398 | | | (5,700) | | | (6,799) | |
| | $ | (36,539) | | | $ | (82,548) | | | $ | (70,628) | |
The provision for (benefit from) income taxes was comprised of:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In thousands) | | 2020
(As Restated) | | 2019
(As Restated) | | 2018 |
| Federal: | | | | | | |
| Current | | $ | (446) | | | $ | 2,932 | | | $ | 5,451 | |
| Deferred | | 2,018 | | | 2,016 | | | 82,726 | |
| State: | | | | | | |
| Current | | 657 | | | 670 | | | 333 | |
| Deferred | | (1,589) | | | (1,198) | | | 522 | |
| Foreign: | | | | | | |
| Current | | 3,097 | | | 1,708 | | | 1,592 | |
| Deferred | | 195 | | | (2,712) | | | (3,295) | |
| | $ | 3,932 | | | $ | 3,416 | | | $ | 87,329 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The differences between Rambus’ effective tax rate and the U.S. federal statutory regular tax rate were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2020
(As Restated) | | 2019
(As Restated) | | 2018 |
| U.S. federal statutory rate | | 21.0 | % | | 21.0 | % | | 21.0 | % |
| State income tax (expense)/benefit | | (2.5) | | | 1.0 | | | (1.2) | |
| Withholding tax | | (4.1) | | | (3.7) | | | (7.7) | |
| Foreign rate differential | | (4.8) | | | (1.1) | | | (0.2) | |
| Research and development credit | | (4.8) | | | 1.2 | | | 2.2 | |
| Executive compensation | | (1.8) | | | (1.2) | | | (0.1) | |
| Stock-based compensation | | 0.6 | | | (2.4) | | | (2.8) | |
| Foreign tax credit | | (89.5) | | | 3.6 | | | 7.7 | |
| Foreign derived intangible income deduction | | 13.7 | | | 5.0 | | | 14.8 | |
| | | | | | |
| Divestiture | | (20.4) | | | 5.1 | | | 0 | |
| Other | | 0.8 | | | (0.4) | | | 0.7 | |
| Valuation allowance | | 81.0 | | | (32.2) | | | (158.0) | |
| | (10.8) | % | | (4.1) | % | | (123.6) | % |
The components of the net deferred tax assets (liabilities) were as follows:
| | | | | | | | | | | | | | |
| | As of December 31, |
| (In thousands) | | 2020
(As Restated) | | 2019
(As Restated) |
| Deferred tax assets: | | | | |
| Depreciation and amortization | | $ | 13,199 | | | $ | 13,805 | |
| Lease liabilities | | 8,716 | | 10,734 | |
| Other timing differences, accruals and reserves | | 5,347 | | 9,522 |
| Deferred equity compensation | | 4,631 | | 4,456 |
| Net operating loss carryovers | | 15,692 | | 20,836 |
| Tax credits | | 168,978 | | 232,787 |
| Total gross deferred tax assets | | 216,563 | | | 292,140 | |
| Deferred tax liabilities: | | | | |
| Lease right-of-use assets | | (6,392) | | (10,400) | |
| Convertible debt | | (130) | | (151) |
| Deferred revenue | | (45,845) | | (94,763) | |
| Total gross deferred tax liabilities | | (52,367) | | (105,314) | |
| Total net deferred tax assets | | 164,196 | | | 186,826 | |
| Valuation allowance | | (174,119) | | | (196,098) | |
| Net deferred tax liabilities | | $ | (9,923) | | | $ | (9,272) | |
| | | | | | | | | | | | | | |
| | As of December 31, |
| (In thousands) | | 2020
(As Restated) | | 2019
(As Restated) |
| Reported as: | | | | |
| | | | |
| | | | |
| Non-current deferred tax assets | | $ | 4,353 | | | $ | 4,574 | |
| Non-current deferred tax liabilities | | (14,276) | | | (13,846) | |
| Net deferred tax liabilities | | $ | (9,923) | | | $ | (9,272) | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company periodically evaluates the realizability of its net deferred tax assets based on all available evidence, both positive and negative. During the third quarter of 2018, the Company assessed the changes in its underlying facts and circumstances and evaluated the realizability of its existing deferred tax assets based on all available evidence, both positive and negative, and the weight accorded to each, and concluded a full valuation allowance associated with U.S. federal and California deferred tax assets was appropriate. During 2020, as a result of the enactment of California A.B. 85 and the temporary suspension of California net operating loss utilization for tax years 2020 through 2022, the Company released $0.7 million of the valuation allowance on its deferred tax asset for California research and development tax credits. The Company continues to maintain a full valuation allowance on the remainder of its California and U.S. federal deferred tax assets as it does not expect to be able to fully utilize them.
The following table presents the tax valuation allowance information for the years ended December 31, 2020, 2019 and 2018:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Balance at Beginning of Period | | Charged (Credited) to Operations | | Charged to Other Account* | | Valuation Allowance Release | | Valuation Allowance Set up | | Balance at End of Period |
| Tax Valuation Allowance | | | | | | | | | | | | |
| Year ended December 31, 2018 | | $ | 50,911 | | | 0 | | | 9,238 | | | 0 | | | 113,729 | | | $ | 173,878 | |
| Year ended December 31, 2019 (As Restated) | | $ | 173,878 | | | 22,220 | | | 0 | | | 0 | | | 0 | | | $ | 196,098 | |
| Year ended December 31, 2020 (As Restated) | | $ | 196,098 | | | (21,294) | | | 3 | | | (688) | | | 0 | | | $ | 174,119 | |
______________________________________
* Amounts not charged to operations are charged to other comprehensive income or retained earnings.
As of December 31, 2020, Rambus had California and other state net operating loss carryforwards of $201.3 million and $35.8 million, respectively. As of December 31, 2020, Rambus had federal research and development tax credit carryforwards of $38.8 million and foreign tax credits of $123.5 million. As of December 31, 2020, Rambus had California research and development tax credit carryforwards of $30.3 million and California alternative minimum tax credit carryforwards of $0.2 million. The federal foreign tax credits and research and development credits begin to expire in 2021. Approximately $9.9 million of federal foreign tax credits will expire in 2021. The California net operating losses begin to expire in 2027. The California research and development credits carry forward indefinitely.
In the event of a change in ownership, as defined under federal and state tax laws, Rambus’ net operating loss and tax credit carryforwards could be subject to annual limitations. The annual limitations could result in the expiration of the net operating loss and tax credit carryforwards prior to utilization.
As of December 31, 2020, the Company had $134.0 million of unrecognized tax benefits including $23.6 million recorded as a reduction of long-term deferred tax assets, $109 million recorded as a reduction of other assets associated with refundable withholding taxes previously withheld from licensees in South Korea (Korea), and $1.9 million recorded in long-term income taxes payable. As a result of recent court rulings in Korea, the Company has determined that they may be entitled to refund claims for foreign taxes previously withheld from licensees in Korea. The Company recognizes that there are numerous risks and uncertainties associated with the ultimate collection of this refund, and has therefore established an offsetting reserve for the entire amount of potentially refundable withholding taxes previously withheld in Korea. If recognized, $110.9 million would be recorded as an income tax benefit in the consolidated statement of operations. As of December 31, 2019, the Company had $115.7 million of unrecognized tax benefits including $22.8 million recorded as a reduction of long-term deferred tax assets, $91 million recorded as a reduction of other assets associated with refundable withholding taxes previously withheld from licensees in South Korea (Korea), and $1.8 million recorded in long term income taxes payable.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation of the beginning and ending amounts of unrecognized income tax benefits for the years ended December 31, 2020, 2019 and 2018 was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In thousands) | | 2020 | | 2019 | | 2018 |
| Balance at January 1 | | $ | 115,653 | | | $ | 23,482 | | | $ | 22,652 | |
| Tax positions related to current year: | | | | | | |
| Additions | | 18,600 | | | 16,485 | | | 1,032 | |
| Tax positions related to prior years: | | | | | | |
| Additions | | 0 | | | 76,158 | | | 115 | |
| Reductions | | (209) | | | (472) | | | (317) | |
| Settlements | | 0 | | | 0 | | | 0 | |
| Balance at December 31 | | $ | 134,044 | | | $ | 115,653 | | | $ | 23,482 | |
Rambus recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision (benefit). At December 31, 2020 and 2019, an immaterial amount of interest and penalties are included in long-term income taxes payable.
Rambus files income tax returns for the U.S., California, India, and various other state and foreign jurisdictions. The U.S. federal returns are subject to examination from 2016 and forward. The California returns are subject to examination from 2010 and forward. In addition, any research and development credit carryforward or net operating loss carryforward generated in prior years and utilized in these or future years may also be subject to examination. The India returns are subject to examination from fiscal year ending March 2012 and forward. The Company is currently under examination by California for the 2010, 2011 and 2018 tax years. The Company’s India subsidiary is under examination by the Indian tax administration for tax years beginning with 2011, except for 2014, which was assessed in the Company’s favor. These examinations may result in proposed adjustments to the income taxes as filed during these periods. Management regularly assesses the likelihood of outcomes resulting from income tax examinations to determine the adequacy of their provision for income taxes and believes their provision for unrecognized tax benefits is adequate. The estimated potential reduction in the Company’s unrecognized tax benefits in the next 12 months would not be material.
At December 31, 2020, no other income taxes (state or foreign) have been provided on undistributed earnings of approximately $16.4 million from the Company’s international subsidiaries since these earnings have been, and under current plans will continue to be, indefinitely reinvested outside the United States. However, if such earnings were distributed, the Company would incur approximately $1.8 million of foreign withholding taxes and an immaterial amount of U.S. taxes.
20. Litigation and Asserted Claims
Rambus is not currently a party to any material pending legal proceeding; however, from time to time, Rambus may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on our business, operating results, financial position or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management attention and resources and other factors.
The Company records a contingent liability when it is probable that a loss has been incurred and the amount is reasonably estimable in accordance with accounting for contingencies.
21. Acquisitions
Northwest Logic, Inc.
On July 26, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Northwest Logic, a leading supplier of memory, PCIe, and MIPI digital controllers. On August 23, 2019 (the “Closing Date”), the Company completed its acquisition of Northwest Logic by acquiring all issued and outstanding shares of Northwest Logic through the merger of a wholly-owned Rambus subsidiary with Northwest Logic. Under the terms of the Merger Agreement, the Company paid approximately $21.9 million in cash, including certain bonus payments and adjustments for working capital. Of the purchase price, $3.0 million of the consideration was deposited into an escrow account to fund indemnification
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
obligations and other contractual provisions, to be released 24 months after the Closing Date. This acquisition allows the Company to further scale, bringing together high-speed design expertise with the physical and digital IP families from renowned market leaders to offer comprehensive memory and SerDes IP solutions for chip designers. The Company integrated Northwest Logic’s offerings and design team into its IP cores technology solutions.
As part of the acquisition, the Company agreed to pay $9.0 million to certain Northwest Logic employees in cash over three years following August 23, 2019 (the “Retention Bonus”), to be paid in three installments of $3.0 million on each of the dates that are 12 months, 24 months and 36 months following the Closing Date. The Retention Bonus payouts are subject to the condition of continued employment, and therefore treated as compensation and expensed as incurred.
As of December 31, 2019, the Company had incurred approximately $0.7 million in external acquisition costs in connection with the transaction, which were expensed as incurred.
The fair value of the assets acquired was determined by management primarily by using the multi-period excess earnings method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the existing technologies less charges representing the contribution of other assets to those cash flows. The Company performed a valuation of the net assets acquired as of the Closing Date.
The total consideration from the business combination was allocated as of the Closing Date, and reflects adjustments made through the measurement period to finalize the purchase price accounting, as follows:
| | | | | | | | |
| (In thousands) | | Total |
| Cash and cash equivalents | | $ | 159 | |
| Accounts receivable | | 1,679 | |
| Prepaid expenses and other current assets | | 65 | |
| Identified intangible assets | | 8,800 | |
| Goodwill | | 13,477 | |
| Operating lease right-of-use asset | | 178 | |
| Other asset | | 9 | |
| Accounts payable | | (9) | |
| Operating lease liability | | (178) | |
| Other current liabilities | | (108) | |
| Deferred tax liability, net | | (2,133) | |
| Total | | $ | 21,939 | |
The goodwill arising from the acquisition is primarily attributed to synergies related to the combination of new and complementary technologies of the Company and the assembled workforce of Northwest Logic. This goodwill is not deductible for tax purposes.
The identified intangible assets assumed in the acquisition of Northwest Logic were recognized as follows based upon their estimated fair values as of the acquisition date:
| | | | | | | | | | | |
| Total | | Estimated Weighted-Average Useful Life |
| (in thousands) | | (in years) |
| Existing technology | $ | 8,100 | | | 5 |
| Customer contracts and contractual relationships | 400 | | | 2 |
| Customer backlog | 300 | | | 0.5 |
| | | |
| Total | $ | 8,800 | | | |
| | | |
Secure Silicon IP and Protocols Business from Verimatrix
On September 11, 2019, the Company announced it had signed an asset purchase agreement to acquire the Secure Silicon IP and Protocols business from Verimatrix, formerly Inside Secure, for $65.0 million in cash. On December 8, 2019 (the “Closing Date”), the Company completed its acquisition of the Secure Silicon IP and Protocols business. Under the terms of the Asset
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Purchase Agreement, as amended, the Company paid approximately $45.0 million in cash at the Closing Date, and may have been required to pay up to an additional $20.0 million, at that time valued at $1.8 million (the “fair value of the earn-out liability”), subject to certain revenue targets of the transferred business for the calendar year 2020. Since the specified targets were not met for calendar year 2020, the Company recorded a full reduction in the fair value of the earn-out liability, which resulted in a gain in the consolidated statements of operations. The addition of the embedded security teams, products and expertise from the Secure Silicon IP and Protocols business augments the Company’s portfolio of mission-critical embedded security products and expands its offerings for data center, AI, networking and automotive.
The total adjusted purchase consideration for the acquisition of the Secure Silicon IP and Protocols business was $46.8 million, which consisted of the following:
| | | | | | | | |
| (In thousands) | | Total |
| Cash consideration transferred at the Closing Date | | $ | 45,000 | |
| Fair value of earn-out liability | | 1,800 | |
| Total adjusted purchase price | | $ | 46,800 | |
As part of the acquisition, the Company agreed to pay $1.0 million to certain employees in cash over two years effective January 1, 2020 (the “Retention Bonus”), to be paid in arrears in the fourth quarter of 2020 and 2021, respectively. The Retention Bonus payouts are subject to the condition of continued employment, and therefore treated as compensation and expensed as incurred.
As of December 31, 2019, the Company had incurred approximately $3.1 million in external acquisition costs in connection with the transaction, which were expensed as incurred.
The fair value of the assets acquired was determined by management primarily by using the multi-period excess earnings method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the existing technologies less charges representing the contribution of other assets to those cash flows. The Company performed a valuation of the net assets acquired as of the Closing Date.
The Company performed a valuation of the net assets acquired as of the Closing Date. The total consideration from the acquisition was allocated as follows:
| | | | | | | | |
| (In thousands) | | Total |
| | |
| | |
| Prepaid expenses and other current assets | | $ | 267 | |
| Unbilled receivables | | 6,765 | |
| Operating lease right-of-use assets | | 852 | |
| Identified intangible assets | | 23,500 | |
| Goodwill | | 16,845 | |
| Deferred revenue | | (310) | |
| Operating lease liabilities | | (852) | |
| Other current liabilities | | (267) | |
| Total | | $ | 46,800 | |
The goodwill arising from the acquisition is primarily attributed to synergies related to the combination of new and complementary technologies of the Company and the assembled workforce of the Secure Silicon IP and Protocols business. Approximately $15.0 million of the goodwill is deductible for tax purposes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The identified intangible assets assumed in the acquisition of the Secure Silicon IP and Protocols business were recognized as follows based upon their estimated fair values as of the acquisition date:
| | | | | | | | | | | |
| Total | | Estimated Weighted-Average Useful Life |
| (in thousands) | | (in years) |
| Existing technology | $ | 21,600 | | | 3 to 5 years |
| Customer contracts and contractual relationships | 900 | | | 5 years |
| | | |
| IPR&D | 1,000 | | | Not applicable |
| Total | $ | 23,500 | | | |
| | | |
IPR&D consisted of one project, primarily relating to the development of Media Access Control Security frame engines, which was part of the Silicon IP solutions. During the year ended December 31, 2020, the project was completed and the asset is being amortized over its useful life of five years. During the year ended December 31, 2020, the amortization for the completed project was not material.
Unaudited Pro Forma Combined Consolidated Financial Information
The following unaudited pro forma financial information presents the combined results of operations for the Company and Northwest Logic as if the acquisition had occurred on January 1, 2018. The unaudited pro forma financial information has been prepared for comparative purposes only and does not purport to be indicative of the actual operating results that would have been recorded had the acquisition actually taken place on January 1, 2018, and should not be taken as indicative of future consolidated operating results. Additionally, the unaudited pro forma financial results do not include any anticipated synergies or other expected benefits from the acquisition (unaudited, in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | |
| | | | | Years Ended December 31, |
| | | | | | | | | 2019
(As Restated) | | 2018 |
| Revenue | | | | | | | | | $ | 235,068 | | | $ | 241,049 | |
| Net loss | | | | | | | | | $ | (86,233) | | | $ | (160,742) | |
| Net loss per share - diluted | | | | | | | | | $ | (0.78) | | | $ | (1.48) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Pro forma loss for 2019 was adjusted to exclude $0.7 million of acquisition-related costs incurred in 2019. Consequently, pro forma loss for 2018 was adjusted to include these costs.
Pro forma financial information on the combined results of operations for the Company and the Secure Silicon IP and Protocols business as if the acquisition had occurred on January 1, 2018 has not been presented as it was impracticable to prepare full financial statements for the Secure Silicon IP and Protocols business, given that the Secure Silicon IP and Protocols business had not been managed as a stand-alone business and thus stand-alone financial statements were not readily available.
Additionally, the revenue recognized from the Northwest Logic and Secure Silicon IP and Protocols business acquisitions was not material to the Company’s consolidated financial statements during the year ended December 31, 2019, either individually or in the aggregate. Furthermore, the Company does not track operating results from these businesses separately.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
22. Restatement and Revision of Quarterly Condensed Consolidated Financial Statements (Unaudited)
In lieu of filing amended quarterly reports on Form 10-Q, the following tables represent the Company’s restated condensed consolidated financial statements (unaudited) for each of the restated quarters for the periods ended September 30, 2019 through September 30, 2020, and revised condensed consolidated financial statements for the nine months ended September 30, 2018. Refer to Note 1, “Restatement and Revision of Consolidated Financial Statements,” for additional information.
Following the restated and revised condensed consolidated financial statements (unaudited), reconciliations of the amended quarterly periods as originally reported to the restated and revised amounts are presented. The amounts originally reported were derived from the Company’s Quarterly Reports on Form 10-Q for the interim periods ended September 30, 2019, March 31, 2020, June 30, 2020, and September 30, 2020, as well as the Original Form 10-K filed with the SEC on February 26, 2021 (in thousands, except shares and per share amounts). Certain line items in the quarterly financial data below were excluded because they were not impacted by the restatement or revision. The restatements for the three months ended March 31, 2020, the three and six months ended June 30, 2020, and the three and nine months ended September 30, 2020 will be effected through the filing of the condensed consolidated financial statements for these periods in the Company’s 2021 Quarterly Reports on Form 10-Q.
| | | | | | | | | | | | | | | | | | | | | | | |
| As Restated |
| September 30,
2020 | | June 30,
2020 | | March 31,
2020 | | September 30,
2019 |
| | | | | | | |
| |
| | | | | | | |
| Consolidated Balance Sheets | | | | | | | |
| ASSETS | | | | | | | |
| Current assets: | | | | | | | |
| Cash and cash equivalents | $ | 89,475 | | | $ | 103,275 | | | $ | 175,446 | | | $ | 91,838 | |
| Marketable securities | 430,746 | | | 382,802 | | | 259,999 | | | 246,186 | |
| Accounts receivable | 33,025 | | | 35,198 | | | 44,364 | | | 38,610 | |
| Unbilled receivables | 143,514 | | | 156,887 | | | 172,757 | | | 182,934 | |
| Inventories | 14,218 | | | 11,554 | | | 9,848 | | | 9,854 | |
| Assets held for sale | 0 | | | 0 | | | 0 | | | 77,203 | |
| Prepaids and other current assets | 16,292 | | | 18,080 | | | 17,042 | | | 9,812 | |
| Total current assets | 727,270 | | | 707,796 | | | 679,456 | | | 656,437 | |
| Intangible assets, net | 41,052 | | | 45,624 | | | 50,208 | | | 35,362 | |
| Goodwill | 183,222 | | | 183,222 | | | 183,465 | | | 164,488 | |
| Property, plant and equipment, net | 59,425 | | | 50,858 | | | 48,154 | | | 38,571 | |
| Operating lease right-of-use assets | 29,961 | | | 31,407 | | | 34,493 | | | 15,503 | |
| Deferred tax assets | 5,249 | | | 5,350 | | | 4,541 | | | 6,454 | |
| Unbilled receivables, long-term | 265,701 | | | 294,986 | | | 319,494 | | | 378,430 | |
| Other assets | 4,671 | | | 4,895 | | | 5,579 | | | 6,381 | |
| Total assets | $ | 1,316,551 | | | $ | 1,324,138 | | | $ | 1,325,390 | | | $ | 1,301,626 | |
| LIABILITIES & STOCKHOLDERS’ EQUITY | | | | | | | |
| Current liabilities: | | | | | | | |
| Accounts payable | $ | 13,323 | | | $ | 14,016 | | | $ | 15,730 | | | $ | 9,429 | |
| Accrued salaries and benefits | 15,719 | | | 16,170 | | | 12,411 | | | 13,294 | |
| Deferred revenue | 14,950 | | | 10,841 | | | 10,121 | | | 9,516 | |
| Income taxes payable | 20,008 | | | 20,044 | | | 19,892 | | | 18,198 | |
| Operating lease liabilities | 4,576 | | | 4,463 | | | 5,194 | | | 7,382 | |
| Liabilities held for sale | 0 | | | 0 | | | 0 | | | 14,620 | |
| Other current liabilities | 22,306 | | | 17,924 | | | 16,715 | | | 15,854 | |
| Total current liabilities | 90,882 | | | 83,458 | | | 80,063 | | | 88,293 | |
| Convertible notes | 154,182 | | | 152,359 | | | 150,561 | | | 147,039 | |
| Long-term operating lease liabilities | 35,973 | | | 37,626 | | | 38,074 | | | 9,415 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| Long-term income taxes payable | 45,882 | | | 50,472 | | | 55,163 | | | 64,765 | |
| Deferred tax liabilities | 15,090 | | | 14,675 | | | 14,140 | | | 13,724 | |
| Other long-term liabilities | 8,714 | | | 12,818 | | | 15,792 | | | 15,308 | |
| Total liabilities | 350,723 | | | 351,408 | | | 353,793 | | | 338,544 | |
| Commitments and contingencies | 0 | | 0 | | 0 | | 0 |
| Stockholders’ equity: | | | | | | | |
| Convertible preferred stock, $.001 par value: | | | | | | | |
| Authorized: 5,000,000 shares; Issued and outstanding: no shares at September 30, 2020, June 30, 2020, March 31, 2020 and September 30, 2019 | 0 | | | 0 | | | 0 | | | 0 | |
| Common Stock, $.001 par value: | | | | | | | |
| Authorized: 500,000,000 shares; Issued and outstanding: 113,922,520 shares at September 30, 2020, 113,743,652 shares at June 30, 2020, 113,275,229 shares at March 31, 2020 and 111,493,448 shares at September 30, 2019 | 114 | | | 114 | | | 113 | | | 111 | |
| Additional paid in capital | 1,280,051 | | | 1,274,136 | | | 1,264,000 | | | 1,254,344 | |
| Accumulated deficit | (314,205) | | | (301,468) | | | (292,328) | | | (278,913) | |
| Accumulated other comprehensive loss | (132) | | | (52) | | | (188) | | | (12,460) | |
| Total stockholders’ equity | 965,828 | | | 972,730 | | | 971,597 | | | 963,082 | |
| Total liabilities and stockholders’ equity | $ | 1,316,551 | | | $ | 1,324,138 | | | $ | 1,325,390 | | | $ | 1,301,626 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As Restated |
| | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | September 30, 2019 |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Three Months Ended | | Nine Months Ended |
| | | | | | | | | | | | | | |
| | |
| Consolidated Statements of Operations | | | | | | | | | | | | | | |
| Revenue: | | | | | | | | | | | | | | |
| Royalties | | $ | 16,602 | | | $ | 56,828 | | | $ | 18,744 | | | $ | 40,226 | | | $ | 21,482 | | | $ | 21,236 | | | $ | 73,139 | |
| Product revenue | | 29,769 | | | 92,222 | | | 31,725 | | | 62,453 | | | 30,728 | | | 21,377 | | | 46,372 | |
| Contract and other revenue | | 10,544 | | | 35,359 | | | 11,248 | | | 24,815 | | | 13,567 | | | 16,574 | | | 46,357 | |
| Total revenue | | 56,915 | | | 184,409 | | | 61,717 | | | 127,494 | | | 65,777 | | | 59,187 | | | 165,868 | |
| Cost of revenue: | | | | | | | | | | | | | | |
| Cost of product revenue | | 9,661 | | | 30,281 | | | 10,277 | | | 20,620 | | | 10,343 | | | 7,108 | | | 17,845 | |
| Cost of contract and other revenue | | 1,267 | | | 4,000 | | | 1,535 | | | 2,733 | | | 1,198 | | | 2,450 | | | 8,268 | |
| Amortization of acquired intangible assets | | 4,336 | | | 13,016 | | | 4,336 | | | 8,680 | | | 4,344 | | | 3,016 | | | 10,686 | |
| Total cost of revenue | | 15,264 | | | 47,297 | | | 16,148 | | | 32,033 | | | 15,885 | | | 12,574 | | | 36,799 | |
| Gross profit | | 41,651 | | | 137,112 | | | 45,569 | | | 95,461 | | | 49,892 | | | 46,613 | | | 129,069 | |
| Operating expenses: | | | | | | | | | | | | | | |
| Research and development | | 33,733 | | | 105,085 | | | 34,688 | | | 71,352 | | | 36,664 | | | 41,486 | | | 119,995 | |
| Sales, general and administrative | | 20,182 | | | 65,209 | | | 21,721 | | | 45,027 | | | 23,306 | | | 26,521 | | | 76,835 | |
| Amortization of acquired intangible assets | | 236 | | | 832 | | | 248 | | | 596 | | | 348 | | | 170 | | | 2,409 | |
| Restructuring and other charges | | 0 | | | 836 | | | 0 | | | 836 | | | 836 | | | 1,374 | | | 4,233 | |
| Impairment (recovery) of assets held for sale | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (1,853) | | | 15,137 | |
| | | | | | | | | | | | | | |
| Change in fair value of earn-out liability | | 0 | | | (1,800) | | | 0 | | | (1,800) | | | (1,800) | | | 0 | | | 0 | |
| Total operating expenses | | 54,151 | | | 170,162 | | | 56,657 | | | 116,011 | | | 59,354 | | | 67,698 | | | 218,609 | |
| Operating loss | | (12,500) | | | (33,050) | | | (11,088) | | | (20,550) | | | (9,462) | | | (21,085) | | | (89,540) | |
| Interest income and other income (expense), net | | 3,554 | | | 14,685 | | | 4,688 | | | 11,131 | | | 6,443 | | | 6,751 | | | 21,136 | |
| Interest expense | | (2,586) | | | (7,721) | | | (2,580) | | | (5,135) | | | (2,555) | | | (2,497) | | | (7,302) | |
| Interest and other income (expense), net | | 968 | | | 6,964 | | | 2,108 | | | 5,996 | | | 3,888 | | | 4,254 | | | 13,834 | |
| Loss before income taxes | | (11,532) | | | (26,086) | | | (8,980) | | | (14,554) | | | (5,574) | | | (16,831) | | | (75,706) | |
| Provision for (benefit from) income taxes | | 1,205 | | | 2,330 | | | 160 | | | 1,125 | | | 965 | | | (1,299) | | | 3,382 | |
| Net loss | | $ | (12,737) | | | $ | (28,416) | | | $ | (9,140) | | | $ | (15,679) | | | $ | (6,539) | | | $ | (15,532) | | | $ | (79,088) | |
| Net loss per share: | | | | | | | | | | | | | | |
| Basic | | $ | (0.11) | | | $ | (0.25) | | | $ | (0.08) | | | $ | (0.14) | | | $ | (0.06) | | | $ | (0.14) | | | $ | (0.71) | |
| Diluted | | $ | (0.11) | | | $ | (0.25) | | | $ | (0.08) | | | $ | (0.14) | | | $ | (0.06) | | | $ | (0.14) | | | $ | (0.71) | |
| Weighted-average shares used in per share calculations: | | | | | | | | | | | | | | |
| Basic | | 113,828 | | | 113,437 | | | 113,572 | | | 113,240 | | | 112,907 | | | 111,315 | | | 110,633 | |
| Diluted | | 113,828 | | | 113,437 | | | 113,572 | | | 113,240 | | | 112,907 | | | 111,315 | | | 110,633 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Restated |
| September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | September 30, 2019 |
| Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Three Months Ended | | Nine Months Ended |
| | | | | | | | | | | | | |
| |
| Consolidated Statements of Comprehensive Loss | | | | | | | | | | | | | |
| Net loss | $ | (12,737) | | | $ | (28,416) | | | $ | (9,140) | | | $ | (15,679) | | | $ | (6,539) | | | $ | (15,532) | | | $ | (79,088) | |
| Other comprehensive income (loss): | | | | | | | | | | | | | |
| Foreign currency translation adjustment | 6 | | | 8 | | | 2 | | | 2 | | | 0 | | | (2,096) | | | (2,270) | |
| Unrealized gain (loss) on marketable securities, net of tax | (86) | | | (48) | | | 134 | | | 38 | | | (96) | | | 17 | | | 101 | |
| Total comprehensive loss | $ | (12,817) | | | $ | (28,456) | | | $ | (9,004) | | | $ | (15,639) | | | $ | (6,635) | | | $ | (17,611) | | | $ | (81,257) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, 2020 |
| | | | | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Gain (Loss) | | |
| | Common Stock | | | | | |
| | Shares | | Amount | | | | | Total |
| | | | | | | | | | | | |
| | |
| Consolidated Statement of Stockholders’ Equity | | | | | | | | | | | | |
| Balances at June 30, 2020 (As Restated) | | 113,744 | | | $ | 114 | | | $ | 1,274,136 | | | $ | (301,468) | | | $ | (52) | | | $ | 972,730 | |
| Net loss (As Restated) | | — | | | — | | | — | | | (12,737) | | | — | | | (12,737) | |
| Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | 6 | | | 6 | |
| Unrealized gain (loss) on marketable securities, net of tax | | — | | | — | | | — | | | — | | | (86) | | | (86) | |
| Issuance of common stock upon exercise of options, equity stock and employee stock purchase plan | | 179 | | | 0 | | | (919) | | | — | | | — | | | (919) | |
| Stock-based compensation | | — | | | — | | | 6,834 | | | — | | | — | | | 6,834 | |
| Balances at September 30, 2020 (As Restated) | | 113,923 | | | $ | 114 | | | $ | 1,280,051 | | | $ | (314,205) | | | $ | (132) | | | $ | 965,828 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, 2020 |
| | | | | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Gain (Loss) | | |
| | Common Stock | | | | | |
| | Shares | | Amount | | | | | Total |
| | | | | | | | | | | | |
| | |
| Consolidated Statement of Stockholders’ Equity | | | | | | | | | | | | |
| Balances at December 31, 2019 (As Restated) | | 112,131 | | | $ | 112 | | | $ | 1,261,142 | | | $ | (285,789) | | | $ | (92) | | | $ | 975,373 | |
| Net loss (As Restated) | | — | | | — | | | — | | | (28,416) | | | — | | | (28,416) | |
| Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | 8 | | | 8 | |
| Unrealized gain (loss) on marketable securities, net of tax | | — | | | — | | | — | | | — | | | (48) | | | (48) | |
| Issuance of common stock upon exercise of options, equity stock and employee stock purchase plan | | 1,792 | | | 2 | | | (704) | | | — | | | — | | | (702) | |
| Stock-based compensation | | — | | | — | | | 19,613 | | | — | | | — | | | 19,613 | |
| Balances at September 30, 2020 (As Restated) | | 113,923 | | | $ | 114 | | | $ | 1,280,051 | | | $ | (314,205) | | | $ | (132) | | | $ | 965,828 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, 2020 |
| | | | | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Gain (Loss) | | |
| | Common Stock | | | | | |
| | Shares | | Amount | | | | | Total |
| | | | | | | | | | | | |
| | |
| Consolidated Statement of Stockholders’ Equity | | | | | | | | | | | | |
| Balances at March 31, 2020 (As Restated) | | 113,275 | | | $ | 113 | | | $ | 1,264,000 | | | $ | (292,328) | | | $ | (188) | | | $ | 971,597 | |
| Net loss (As Restated) | | — | | | — | | | — | | | (9,140) | | | — | | | (9,140) | |
| Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | 2 | | | 2 | |
| Unrealized gain (loss) on marketable securities, net of tax | | — | | | — | | | — | | | — | | | 134 | | | 134 | |
| Issuance of common stock upon exercise of options, equity stock and employee stock purchase plan | | 469 | | | 1 | | | 3,429 | | | — | | | — | | | 3,430 | |
| Stock-based compensation | | — | | | — | | | 6,707 | | | — | | | — | | | 6,707 | |
| Balances at June 30, 2020 (As Restated) | | 113,744 | | | $ | 114 | | | $ | 1,274,136 | | | $ | (301,468) | | | $ | (52) | | | $ | 972,730 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended June 30, 2020 |
| | | | | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Gain (Loss) | | |
| | Common Stock | | | | | |
| | Shares | | Amount | | | | | Total |
| | | | | | | | | | | | |
| | |
| Consolidated Statement of Stockholders’ Equity | | | | | | | | | | | | |
| Balances at December 31, 2019 (As Restated) | | 112,131 | | | $ | 112 | | | $ | 1,261,142 | | | $ | (285,789) | | | $ | (92) | | | $ | 975,373 | |
| Net loss (As Restated) | | — | | | — | | | — | | | (15,679) | | | — | | | (15,679) | |
| Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | 2 | | | 2 | |
| Unrealized gain (loss) on marketable securities, net of tax | | — | | | — | | | — | | | — | | | 38 | | | 38 | |
| Issuance of common stock upon exercise of options, equity stock and employee stock purchase plan | | 1,613 | | | 2 | | | 215 | | | — | | | — | | | 217 | |
| Stock-based compensation | | — | | | — | | | 12,779 | | | — | | | — | | | 12,779 | |
| Balances at June 30, 2020 (As Restated) | | 113,744 | | | $ | 114 | | | $ | 1,274,136 | | | $ | (301,468) | | | $ | (52) | | | $ | 972,730 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, 2020 |
| | | | | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Gain (Loss) | | |
| | Common Stock | | | | | |
| | Shares | | Amount | | | | | Total |
| | | | | | | | | | | | |
| | |
| Consolidated Statement of Stockholders’ Equity | | | | | | | | | | | | |
| Balances at December 31, 2019 (As Restated) | | 112,131 | | | $ | 112 | | | $ | 1,261,142 | | | $ | (285,789) | | | $ | (92) | | | $ | 975,373 | |
| Net loss (As Restated) | | — | | | — | | | — | | | (6,539) | | | — | | | (6,539) | |
| | | | | | | | | | | | |
| Unrealized gain (loss) on marketable securities, net of tax | | — | | | — | | | — | | | — | | | (96) | | | (96) | |
| Issuance of common stock upon exercise of options, equity stock and employee stock purchase plan | | 1,144 | | | 1 | | | (3,214) | | | — | | | — | | | (3,213) | |
| Stock-based compensation | | — | | | — | | | 6,072 | | | — | | | — | | | 6,072 | |
| Balances at March 31, 2020 (As Restated) | | 113,275 | | | $ | 113 | | | $ | 1,264,000 | | | $ | (292,328) | | | $ | (188) | | | $ | 971,597 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, 2019 |
| | | | | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Gain (Loss) | | |
| | Common Stock | | | | | |
| | Shares | | Amount | | | | | Total |
| | | | | | | | | | | | |
| | |
| Consolidated Statement of Stockholders’ Equity | | | | | | | | | | | | |
| Balances at June 30, 2019 | | 111,127 | | | $ | 111 | | | $ | 1,246,877 | | | $ | (263,381) | | | $ | (10,381) | | | $ | 973,226 | |
| Net loss (As Restated) | | — | | | — | | | — | | | (15,532) | | | — | | | (15,532) | |
| Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | (2,096) | | | (2,096) | |
| Unrealized gain (loss) on marketable securities, net of tax | | — | | | — | | | — | | | — | | | 17 | | | 17 | |
| Issuance of common stock upon exercise of options, equity stock and employee stock purchase plan | | 366 | | | 0 | | | 79 | | | — | | | — | | | 79 | |
| Stock-based compensation | | — | | | — | | | 7,388 | | | — | | | — | | | 7,388 | |
| Balances at September 30, 2019 (As Restated) | | 111,493 | | | $ | 111 | | | $ | 1,254,344 | | | $ | (278,913) | | | $ | (12,460) | | | $ | 963,082 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, 2019 |
| | | | | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Gain (Loss) | | |
| | Common Stock | | | | | |
| | Shares | | Amount | | | | | Total |
| | | | | | | | | | | | |
| | |
| Consolidated Statement of Stockholders’ Equity | | | | | | | | | | | | |
| Balances at December 31, 2018 | | 109,018 | | | $ | 109 | | | $ | 1,226,588 | | | $ | (204,294) | | | $ | (10,291) | | | $ | 1,012,112 | |
| Net loss (As Restated) | | — | | | — | | | — | | | (79,088) | | | — | | | (79,088) | |
| Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | (2,270) | | | (2,270) | |
| Unrealized gain (loss) on marketable securities, net of tax | | — | | | — | | | — | | | — | | | 101 | | | 101 | |
| Issuance of common stock upon exercise of options, equity stock and employee stock purchase plan | | 2,475 | | | 2 | | | 6,099 | | | — | | | — | | | 6,101 | |
| Stock-based compensation | | — | | | — | | | 21,657 | | | — | | | — | | | 21,657 | |
| Cumulative effect adjustment from the adoption of ASC 842 | | — | | | — | | | — | | | 4,469 | | | — | | | 4,469 | |
| Balances at September 30, 2019 (As Restated) | | 111,493 | | | $ | 111 | | | $ | 1,254,344 | | | $ | (278,913) | | | $ | (12,460) | | | $ | 963,082 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As Restated | | As Revised |
| | Nine Months Ended | | Six Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | September 30, 2019 | | September 30, 2018 |
| | | | | | | | | | |
| | |
| Consolidated Statements of Cash Flows | | | | | | | | | | |
| Cash flows from operating activities: | | | | | | | | | | |
| Net loss | | $ | (28,416) | | | $ | (15,679) | | | $ | (6,539) | | | $ | (79,088) | | | $ | (155,939) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | | | |
| Stock-based compensation | | 19,613 | | | 12,779 | | | 6,072 | | | 21,657 | | | 15,591 | |
| Depreciation | | 21,675 | | | 15,447 | | | 7,711 | | | 16,226 | | | 8,107 | |
| Amortization of intangible assets | | 13,848 | | | 9,276 | | | 4,692 | | | 13,096 | | | 24,352 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-cash interest expense and amortization of convertible debt issuance costs | | 5,394 | | | 3,571 | | | 1,773 | | | 5,104 | | | 7,587 | |
| Deferred income taxes | | 569 | | | 53 | | | 327 | | | (2,118) | | | 78,660 | |
| Non-cash restructuring | | 0 | | | 0 | | | 0 | | | 0 | | | 670 | |
| | | | | | | | | | |
| Loss on equity investment | | 521 | | | 318 | | | 212 | | | 424 | | | 0 | |
| Gain from sale of marketable equity security | | 0 | | | 0 | | | 0 | | | 0 | | | (291) | |
| Impairment of assets held for sale | | 0 | | | 0 | | | 0 | | | 15,137 | | | 0 | |
| Gain from sale of assets held for sale | | 0 | | | 0 | | | 0 | | | 0 | | | (1,266) | |
| (Gain) loss from disposal of property, plant and equipment | | (83) | | | 2 | | | 0 | | | 141 | | | 518 | |
| Change in fair value of earn-out liability | | (1,800) | | | (1,800) | | | (1,800) | | | 0 | | | 0 | |
| Change in operating assets and liabilities, net of effects of acquisitions: | | | | | | | | | | |
| Accounts receivable | | 11,014 | | | 8,841 | | | (325) | | | 10,423 | | | (16,862) | |
| Unbilled receivables | | 122,498 | | | 79,842 | | | 39,465 | | | 111,453 | | | 118,872 | |
| Prepaid expenses and other assets | | 2,114 | | | 1,726 | | | 1,855 | | | 4,544 | | | (4,623) | |
| Inventories | | (4,132) | | | (1,468) | | | 238 | | | (3,121) | | | (1,271) | |
| Accounts payable | | 1,063 | | | 1,709 | | | 416 | | | 4,798 | | | 153 | |
| Accrued salaries and benefits and other liabilities | | (5,067) | | | (2,030) | | | (7,966) | | | (2,179) | | | (6,823) | |
| Income taxes payable | | (13,317) | | | (8,643) | | | (4,069) | | | (10,824) | | | (9,618) | |
| Deferred revenue | | 3,003 | | | (1,106) | | | (1,826) | | | (5,618) | | | (6,647) | |
| Operating lease liabilities | | (5,105) | | | (3,565) | | | (2,978) | | | (6,931) | | | 0 | |
| Net cash provided by operating activities | | 143,392 | | | 99,273 | | | 37,258 | | | 93,124 | | | 51,170 | |
| Cash flows from investing activities: | | | | | | | | | | |
| Purchases of property, plant and equipment | | (20,799) | | | (12,780) | | | (1,950) | | | (4,161) | | | (7,849) | |
| | | | | | | | | | |
| Purchases of marketable securities | | (655,063) | | | (487,521) | | | (169,866) | | | (463,850) | | | (192,824) | |
| Maturities of marketable securities | | 527,971 | | | 407,556 | | | 215,164 | | | 377,852 | | | 181,704 | |
| Proceeds from sale of marketable securities | | 2,948 | | | 2,496 | | | 0 | | | 2,000 | | | 0 | |
| | | | | | | | | | |
| Proceeds from sale of assets held for sale | | 0 | | | 0 | | | 0 | | | 0 | | | 4,648 | |
| Proceeds from sale of property and property, plant and equipment | | 0 | | | 0 | | | 0 | | | 29 | | | 10 | |
| Settlement of working capital adjustment from disposal of business | | (1,131) | | | (1,131) | | | (1,131) | | | 0 | | | 0 | |
| Proceeds from sale of equity security | | 0 | | | 0 | | | 0 | | | 0 | | | 1,350 | |
| Investment in privately-held companies | | 0 | | | 0 | | | 0 | | | (1,000) | | | 0 | |
| Acquisition of businesses, net of cash acquired | | 0 | | | 0 | | | 0 | | | (21,779) | | | 0 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) investing activities | | (146,074) | | | (91,380) | | | 42,217 | | | (110,909) | | | (12,961) | |
| Cash flows from financing activities: | | | | | | | | | | |
| Repayment of 1.125% convertible notes due 2018 | | 0 | | | 0 | | | 0 | | | 0 | | | (81,207) | |
| Proceeds received from issuance of common stock under employee stock plans | | 8,083 | | | 7,880 | | | 4,005 | | | 11,748 | | | 9,266 | |
| Payments under installment payment arrangement | | (9,152) | | | (6,600) | | | (2,551) | | | (4,330) | | | 0 | |
| Principal payments against financing lease obligation | | 0 | | | 0 | | | 0 | | | 0 | | | (786) | |
| Repurchase and retirement of common stock, including prepayment under accelerated share repurchase program | | 0 | | | 0 | | | 0 | | | 0 | | | (50,031) | |
| Payments of taxes on restricted stock units | | (8,785) | | | (7,663) | | | (7,218) | | | (5,665) | | | (5,964) | |
| Net cash provided by (used in) financing activities | | (9,854) | | | (6,383) | | | (5,764) | | | 1,753 | | | (128,722) | |
| Effect of exchange rate changes on cash and cash equivalents | | (157) | | | (419) | | | (452) | | | (497) | | | (797) | |
| Less: net decrease in cash classified within assets held for sale | | 0 | | | 0 | | | 0 | | | (7,545) | | | 0 | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | | (12,693) | | | 1,091 | | | 73,259 | | | (24,074) | | | (91,310) | |
| Cash, cash equivalents and restricted cash at beginning of year | | 102,518 | | | 102,518 | | | 102,518 | | | 116,252 | | | 225,844 | |
| Cash, cash equivalents and restricted cash at end of year | | $ | 89,825 | | | $ | 103,609 | | | $ | 175,777 | | | $ | 92,178 | | | $ | 134,534 | |
| | | | | | | | | | |
| | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
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| | | | | | | | | | |
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| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Balance Sheet | | | | | | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Unbilled receivables | | $ | 141,341 | | | $ | 2,173 | | | $ | 143,514 | |
| | | | | | |
| Prepaids and other current assets | | 16,229 | | | 63 | | | 16,292 | |
| Total current assets | | 725,034 | | | 2,236 | | | 727,270 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Unbilled receivables, long-term | | 260,404 | | | 5,297 | | | 265,701 | |
| | | | | | |
| Total assets | | 1,309,018 | | | 7,533 | | | 1,316,551 | |
| LIABILITIES & STOCKHOLDERS’ EQUITY | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Deferred tax liabilities | | 15,139 | | | (49) | | | 15,090 | |
| | | | | | |
| Total liabilities | | 350,772 | | | (49) | | | 350,723 | |
| | | | | | |
| Stockholders’ equity: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Accumulated deficit | | (321,787) | | | 7,582 | | | (314,205) | |
| | | | | | |
| Total stockholders’ equity | | 958,246 | | | 7,582 | | | 965,828 | |
| Total liabilities and stockholders’ equity | | 1,309,018 | | | 7,533 | | | 1,316,551 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Balance Sheet | | | | | | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Unbilled receivables | | $ | 155,448 | | | $ | 1,439 | | | $ | 156,887 | |
| | | | | | |
| Prepaids and other current assets | | 17,970 | | | 110 | | | 18,080 | |
| Total current assets | | 706,247 | | | 1,549 | | | 707,796 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Unbilled receivables, long-term | | 289,044 | | | 5,942 | | | 294,986 | |
| | | | | | |
| Total assets | | 1,316,647 | | | 7,491 | | | 1,324,138 | |
| LIABILITIES & STOCKHOLDERS’ EQUITY | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Deferred tax liabilities | | 14,724 | | | (49) | | | 14,675 | |
| | | | | | |
| Total liabilities | | 351,457 | | | (49) | | | 351,408 | |
| | | | | | |
| Stockholders’ equity: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Accumulated deficit | | (309,008) | | | 7,540 | | | (301,468) | |
| | | | | | |
| Total stockholders’ equity | | 965,190 | | | 7,540 | | | 972,730 | |
| Total liabilities and stockholders’ equity | | 1,316,647 | | | 7,491 | | | 1,324,138 | |
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Balance Sheet | | | | | | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Unbilled receivables | | $ | 172,042 | | | $ | 715 | | | $ | 172,757 | |
| | | | | | |
| Prepaids and other current assets | | 17,057 | | | (15) | | | 17,042 | |
| Total current assets | | 678,756 | | | 700 | | | 679,456 | |
| | | | | | |
| | | | | | |
| Property, plant and equipment, net | | 47,743 | | | 411 | | | 48,154 | |
| | | | | | |
| | | | | | |
| Unbilled receivables, long-term | | 314,706 | | | 4,788 | | | 319,494 | |
| | | | | | |
| Total assets | | 1,319,491 | | | 5,899 | | | 1,325,390 | |
| LIABILITIES & STOCKHOLDERS’ EQUITY | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Stockholders’ equity: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Accumulated deficit | | (298,227) | | | 5,899 | | | (292,328) | |
| | | | | | |
| Total stockholders’ equity | | 965,698 | | | 5,899 | | | 971,597 | |
| Total liabilities and stockholders’ equity | | 1,319,491 | | | 5,899 | | | 1,325,390 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2019 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Balance Sheet | | | | | | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Prepaids and other current assets | | $ | 9,824 | | | $ | (12) | | | $ | 9,812 | |
| Total current assets | | 656,449 | | | (12) | | | 656,437 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Unbilled receivables, long-term | | 376,619 | | | 1,811 | | | 378,430 | |
| | | | | | |
| Total assets | | 1,299,827 | | | 1,799 | | | 1,301,626 | |
| LIABILITIES & STOCKHOLDERS’ EQUITY | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Stockholders’ equity: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Accumulated deficit | | (280,712) | | | 1,799 | | | (278,913) | |
| | | | | | |
| Total stockholders’ equity | | 961,283 | | | 1,799 | | | 963,082 | |
| Total liabilities and stockholders’ equity | | 1,299,827 | | | 1,799 | | | 1,301,626 | |
| | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended
September 30, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Operations | | | | | | |
| | | | | | |
| | | | | | |
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| | | | | | |
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| | | | | | |
| | | | | | |
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| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Interest income and other income (expense), net | | $ | 3,464 | | | $ | 90 | | | $ | 3,554 | |
| | | | | | |
| Interest and other income (expense), net | | 878 | | | 90 | | | 968 | |
| Income (loss) before income taxes | | (11,622) | | | 90 | | | (11,532) | |
| Provision for income taxes | | 1,157 | | | 48 | | | 1,205 | |
| Net income (loss) | | (12,779) | | | 42 | | | (12,737) | |
| Net income (loss) per share: | | | | | | |
| Basic | | $ | (0.11) | | | $ | 0 | | | $ | (0.11) | |
| Diluted | | $ | (0.11) | | | $ | 0 | | | $ | (0.11) | |
| | | | | | |
| | | | | | |
| | | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended
September 30, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Operations | | | | | | |
| Revenue: | | | | | | |
| Royalties | | $ | 53,253 | | | $ | 3,575 | | | $ | 56,828 | |
| | | | | | |
| | | | | | |
| Total revenue | | 180,834 | | | 3,575 | | | 184,409 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Gross profit | | 133,537 | | | 3,575 | | | 137,112 | |
| Operating expenses: | | | | | | |
| | | | | | |
| Sales, general and administrative | | 64,387 | | | 822 | | | 65,209 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total operating expenses | | 169,340 | | | 822 | | | 170,162 | |
| Operating income (loss) | | (35,803) | | | 2,753 | | | (33,050) | |
| Interest income and other income (expense), net | | 14,435 | | | 250 | | | 14,685 | |
| | | | | | |
| Interest and other income (expense), net | | 6,714 | | | 250 | | | 6,964 | |
| Income (loss) before income taxes | | (29,089) | | | 3,003 | | | (26,086) | |
| Provision for income taxes | | 2,454 | | | (124) | | | 2,330 | |
| Net income (loss) | | (31,543) | | | 3,127 | | | (28,416) | |
| Net income (loss) per share: | | | | | | |
| Basic | | $ | (0.28) | | | $ | 0.03 | | | $ | (0.25) | |
| Diluted | | $ | (0.28) | | | $ | 0.03 | | | $ | (0.25) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended
June 30, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Operations | | | | | | |
| Revenue: | | | | | | |
| Royalties | | $ | 16,957 | | | $ | 1,787 | | | $ | 18,744 | |
| | | | | | |
| | | | | | |
| Total revenue | | 59,930 | | | 1,787 | | | 61,717 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Gross profit | | 43,782 | | | 1,787 | | | 45,569 | |
| Operating expenses: | | | | | | |
| | | | | | |
| Sales, general and administrative | | 21,310 | | | 411 | | | 21,721 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total operating expenses | | 56,246 | | | 411 | | | 56,657 | |
| Operating income (loss) | | (12,464) | | | 1,376 | | | (11,088) | |
| Interest income and other income (expense), net | | 4,597 | | | 91 | | | 4,688 | |
| | | | | | |
| Interest and other income (expense), net | | 2,017 | | | 91 | | | 2,108 | |
| Income (loss) before income taxes | | (10,447) | | | 1,467 | | | (8,980) | |
| Provision for income taxes | | 334 | | | (174) | | | 160 | |
| Net income (loss) | | (10,781) | | | 1,641 | | | (9,140) | |
| Net income (loss) per share: | | | | | | |
| Basic | | $ | (0.09) | | | $ | 0.01 | | | $ | (0.08) | |
| Diluted | | $ | (0.09) | | | $ | 0.01 | | | $ | (0.08) | |
| | | | | | |
| | | | | | |
| | | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended
June 30, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Operations | | | | | | |
| Revenue: | | | | | | |
| Royalties | | $ | 36,651 | | | $ | 3,575 | | | $ | 40,226 | |
| | | | | | |
| | | | | | |
| Total revenue | | 123,919 | | | 3,575 | | | 127,494 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Gross profit | | 91,886 | | | 3,575 | | | 95,461 | |
| Operating expenses: | | | | | | |
| | | | | | |
| Sales, general and administrative | | 44,205 | | | 822 | | | 45,027 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total operating expenses | | 115,189 | | | 822 | | | 116,011 | |
| Operating income (loss) | | (23,303) | | | 2,753 | | | (20,550) | |
| Interest income and other income (expense), net | | 10,971 | | | 160 | | | 11,131 | |
| | | | | | |
| Interest and other income (expense), net | | 5,836 | | | 160 | | | 5,996 | |
| Income (loss) before income taxes | | (17,467) | | | 2,913 | | | (14,554) | |
| Provision for income taxes | | 1,297 | | | (172) | | | 1,125 | |
| Net income (loss) | | (18,764) | | | 3,085 | | | (15,679) | |
| Net income (loss) per share: | | | | | | |
| Basic | | $ | (0.17) | | | $ | 0.03 | | | $ | (0.14) | |
| Diluted | | $ | (0.17) | | | $ | 0.03 | | | $ | (0.14) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended
March 31, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Operations | | | | | | |
| Revenue: | | | | | | |
| Royalties | | $ | 19,694 | | | $ | 1,788 | | | $ | 21,482 | |
| | | | | | |
| | | | | | |
| Total revenue | | 63,989 | | | 1,788 | | | 65,777 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Gross profit | | 48,104 | | | 1,788 | | | 49,892 | |
| Operating expenses: | | | | | | |
| | | | | | |
| Sales, general and administrative | | 22,895 | | | 411 | | | 23,306 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total operating expenses | | 58,943 | | | 411 | | | 59,354 | |
| Operating income (loss) | | (10,839) | | | 1,377 | | | (9,462) | |
| Interest income and other income (expense), net | | 6,374 | | | 69 | | | 6,443 | |
| | | | | | |
| Interest and other income (expense), net | | 3,819 | | | 69 | | | 3,888 | |
| Income (loss) before income taxes | | (7,020) | | | 1,446 | | | (5,574) | |
| Provision for income taxes | | 963 | | | 2 | | | 965 | |
| Net income (loss) | | (7,983) | | | 1,444 | | | (6,539) | |
| Net income (loss) per share: | | | | | | |
| Basic | | $ | (0.07) | | | $ | 0.01 | | | $ | (0.06) | |
| Diluted | | $ | (0.07) | | | $ | 0.01 | | | $ | (0.06) | |
| | | | | | |
| | | | | | |
| | | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended
September 30, 2019 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Operations | | | | | | |
| Revenue: | | | | | | |
| Royalties | | $ | 19,448 | | | $ | 1,788 | | | $ | 21,236 | |
| | | | | | |
| | | | | | |
| Total revenue | | 57,399 | | | 1,788 | | | 59,187 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Gross profit | | 44,825 | | | 1,788 | | | 46,613 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Operating income (loss) | | (22,873) | | | 1,788 | | | (21,085) | |
| Interest income and other income (expense), net | | 6,727 | | | 24 | | | 6,751 | |
| | | | | | |
| Interest and other income (expense), net | | 4,230 | | | 24 | | | 4,254 | |
| Income (loss) before income taxes | | (18,643) | | | 1,812 | | | (16,831) | |
| Provision for income taxes | | (1,312) | | | 13 | | | (1,299) | |
| Net income (loss) | | (17,331) | | | 1,799 | | | (15,532) | |
| Net income (loss) per share: | | | | | | |
| Basic | | $ | (0.16) | | | $ | 0.02 | | | $ | (0.14) | |
| Diluted | | $ | (0.16) | | | $ | 0.02 | | | $ | (0.14) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended
September 30, 2019 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Operations | | | | | | |
| Revenue: | | | | | | |
| Royalties | | $ | 71,351 | | | $ | 1,788 | | | $ | 73,139 | |
| | | | | | |
| | | | | | |
| Total revenue | | 164,080 | | | 1,788 | | | 165,868 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Gross profit | | 127,281 | | | 1,788 | | | 129,069 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Operating income (loss) | | (91,328) | | | 1,788 | | | (89,540) | |
| Interest income and other income (expense), net | | 21,112 | | | 24 | | | 21,136 | |
| | | | | | |
| Interest and other income (expense), net | | 13,810 | | | 24 | | | 13,834 | |
| Income (loss) before income taxes | | (77,518) | | | 1,812 | | | (75,706) | |
| Provision for income taxes | | 3,369 | | | 13 | | | 3,382 | |
| Net income (loss) | | (80,887) | | | 1,799 | | | (79,088) | |
| Net income (loss) per share: | | | | | | |
| Basic | | $ | (0.73) | | | $ | 0.02 | | | $ | (0.71) | |
| Diluted | | $ | (0.73) | | | $ | 0.02 | | | $ | (0.71) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended
September 30, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Comprehensive Loss | | | | | | |
| Net income (loss) | | $ | (12,779) | | | $ | 42 | | | $ | (12,737) | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total comprehensive income (loss) | | (12,859) | | | 42 | | | (12,817) | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended
September 30, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Comprehensive Loss | | | | | | |
| Net income (loss) | | $ | (31,543) | | | $ | 3,127 | | | $ | (28,416) | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total comprehensive income (loss) | | (31,583) | | | 3,127 | | | (28,456) | |
| | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended
June 30, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Comprehensive Loss | | | | | | |
| Net income (loss) | | $ | (10,781) | | | $ | 1,641 | | | $ | (9,140) | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total comprehensive income (loss) | | (10,645) | | | 1,641 | | | (9,004) | |
| | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended
June 30, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Comprehensive Loss | | | | | | |
| Net income (loss) | | $ | (18,764) | | | $ | 3,085 | | | $ | (15,679) | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total comprehensive income (loss) | | (18,724) | | | 3,085 | | | (15,639) | |
| | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended
March 31, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Comprehensive Loss | | | | | | |
| Net income (loss) | | $ | (7,983) | | | $ | 1,444 | | | $ | (6,539) | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total comprehensive income (loss) | | (8,079) | | | 1,444 | | | (6,635) | |
| | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended
September 30, 2019 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Comprehensive Loss | | | | | | |
| Net income (loss) | | $ | (17,331) | | | $ | 1,799 | | | $ | (15,532) | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total comprehensive income (loss) | | (19,410) | | | 1,799 | | | (17,611) | |
| | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended
September 30, 2019 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Comprehensive Loss | | | | | | |
| Net income (loss) | | $ | (80,887) | | | $ | 1,799 | | | $ | (79,088) | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total comprehensive income (loss) | | (83,056) | | | 1,799 | | | (81,257) | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended
September 30, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Cash Flows | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (31,543) | | | $ | 3,127 | | | $ | (28,416) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | |
| | | | | | |
| Depreciation | | 20,853 | | | 822 | | | 21,675 | |
| | | | | | |
| | | | | | |
| Deferred income taxes | | 618 | | | (49) | | | 569 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Change in operating assets and liabilities, net of effects of acquisitions: | | | | | | |
| | | | | | |
| Unbilled receivables | | 126,324 | | | (3,826) | | | 122,498 | |
| Prepaid expenses and other assets | | 2,188 | | | (74) | | | 2,114 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Net cash provided by operating activities | | 143,392 | | | 0 | | | 143,392 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended
June 30, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Cash Flows | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (18,764) | | | $ | 3,085 | | | $ | (15,679) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | |
| | | | | | |
| Depreciation | | 14,625 | | | 822 | | | 15,447 | |
| | | | | | |
| | | | | | |
| Deferred income taxes | | 102 | | | (49) | | | 53 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Change in operating assets and liabilities, net of effects of acquisitions: | | | | | | |
| | | | | | |
| Unbilled receivables | | 83,577 | | | (3,735) | | | 79,842 | |
| Prepaid expenses and other assets | | 1,849 | | | (123) | | | 1,726 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Net cash provided by operating activities | | 99,273 | | | 0 | | | 99,273 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended
March 31, 2020 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Cash Flows | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (7,983) | | | $ | 1,444 | | | $ | (6,539) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | |
| | | | | | |
| Depreciation | | 7,300 | | | 411 | | | 7,711 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Change in operating assets and liabilities, net of effects of acquisitions: | | | | | | |
| | | | | | |
| Unbilled receivables | | 41,321 | | | (1,856) | | | 39,465 | |
| Prepaid expenses and other assets | | 1,854 | | | 1 | | | 1,855 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Net cash provided by operating activities | | 37,258 | | | 0 | | | 37,258 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended
September 30, 2019 |
| | As Originally Reported | | Adjustments | | As Restated |
| Consolidated Statement of Cash Flows | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (80,887) | | | $ | 1,799 | | | $ | (79,088) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Change in operating assets and liabilities, net of effects of acquisitions: | | | | | | |
| | | | | | |
| Unbilled receivables | | 113,264 | | | (1,811) | | | 111,453 | |
| Prepaid expenses and other assets | | 4,532 | | | 12 | | | 4,544 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Net cash provided by operating activities | | 93,124 | | | 0 | | | 93,124 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended
September 30, 2018 |
| | As Originally Reported | | Revisions | | As Revised |
| Consolidated Statement of Cash Flows | | | | | | |
| Cash flows from operating activities: | | | | | | |
| | | | | | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Prepaid expenses and other assets | | $ | (3,729) | | | $ | (894) | | | $ | (4,623) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Net cash provided by operating activities | | 52,064 | | | (894) | | | 51,170 | |
| Cash flows from investing activities: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Proceeds from sale of assets held for sale | | 3,754 | | | 894 | | | 4,648 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Net cash used in investing activities | | (13,855) | | | 894 | | | (12,961) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Supplementary Financial Data
RAMBUS INC.
CONSOLIDATED SUPPLEMENTARY FINANCIAL DATA
Quarterly Statements of Operations
(Unaudited)
The following table sets forth selected unaudited quarterly consolidated statements of operations data for each of the eight quarters in the period ended December 31, 2020. Amounts contained herein have been updated, where applicable, to reflect the effects of the restatement described in Note 1, Restatement and Revision of Consolidated Financial Statements, and further described above.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As Restated | | | | |
| (In thousands, except for per share amounts) | | Dec. 31, 2020 | | Sept. 30, 2020 | | June 30, 2020 | | March 31, 2020 | | Dec. 31, 2019 | | Sept. 30, 2019 | | June 30, 2019 | | March 31, 2019 |
| Total revenue | | $ | 61,913 | | | $ | 56,915 | | | $ | 61,717 | | | $ | 65,777 | | | $ | 61,735 | | | $ | 59,187 | | | $ | 58,297 | | | $ | 48,384 | |
| Total cost of revenue | | $ | 13,451 | | | $ | 15,264 | | | $ | 16,148 | | | $ | 15,885 | | | $ | 14,576 | | | $ | 12,574 | | | $ | 13,027 | | | $ | 11,198 | |
| Gross profit | | $ | 48,462 | | | $ | 41,651 | | | $ | 45,569 | | | $ | 49,892 | | | $ | 47,159 | | | $ | 46,613 | | | $ | 45,270 | | | $ | 37,186 | |
| Total operating expenses | | $ | 59,466 | | | $ | 54,151 | | | $ | 56,657 | | | $ | 59,354 | | | $ | 57,760 | | | $ | 67,698 | | | $ | 82,316 | | | $ | 68,595 | |
| Operating loss | | $ | (11,004) | | | $ | (12,500) | | | $ | (11,088) | | | $ | (9,462) | | | $ | (10,601) | | | $ | (21,085) | | | $ | (37,046) | | | $ | (31,409) | |
| Net loss | | $ | (12,055) | | | $ | (12,737) | | | $ | (9,140) | | | $ | (6,539) | | | $ | (6,876) | | | $ | (15,532) | | | $ | (36,980) | | | $ | (26,576) | |
| Net loss per share — basic | | $ | (0.11) | | | $ | (0.11) | | | $ | (0.08) | | | $ | (0.06) | | | $ | (0.06) | | | $ | (0.14) | | | (0.33) | | | $ | (0.24) | |
| Net loss per share — diluted | | $ | (0.11) | | | $ | (0.11) | | | $ | (0.08) | | | $ | (0.06) | | | $ | (0.06) | | | $ | (0.14) | | | (0.33) | | | $ | (0.24) | |
| Shares used in per share calculations — basic | | 112,706 | | | 113,828 | | | 113,572 | | | 112,907 | | | 111,883 | | | 111,315 | | | 110,875 | | | 109,692 | |
| Shares used in per share calculations — diluted | | 112,706 | | | 113,828 | | | 113,572 | | | 112,907 | | | 111,883 | | | 111,315 | | | 110,875 | | | 109,692 | |
INDEX TO EXHIBITS
| | | | | | | | |
| Exhibit Number | | Description of Document |
| 3.1(1) | | |
| 3.2(2) | | |
| 3.3(3) | | |
| 4.1(4) | | |
| 4.2(5) | | |
| 4.3(12) | | |
| 10.1(6) | | |
| 10.2(7)* | | |
| 10.3(8)* | | |
| 10.4(8)* | | |
| 10.5(8)* | | |
| 10.6(9)* | | |
| 10.7(10)* | | |
| 10.8(10)* | | |
| 10.9(9)* | | |
| 10.10(11) | | |
| 10.11+ | | Settlement Agreement, dated January 19, 2010, among Registrant, Samsung Electronics Co., Ltd, Samsung Electronics America, Inc., Samsung Semiconductor, Inc. and Samsung Austin Semiconductor, L.P. |
| 10.12+ | | |
| 10.13(13) | | |
| 10.14(14) | | |
| 10.15(14) | | |
| 10.16+ | | |
| 10.17+ | | |
10.18+
| | |
| 10.19+ | | |
| 10.20(15)** | | |
| 10.21(16)** | | |
| 10.22(17) | | |
| 10.23(18) | | |
| 10.24(5) | | |
| 10.25(5) | | |
| 10.26(19) | | |
| 10.27(19) | | |
| 10.28(20) | | |
| 10.29(20) | | |
| 10.30(20) | | |
| 10.31(20) | | |
| | | | | | | | |
| Exhibit Number | | Description of Document |
| 10.32(21) | | |
| 10.33(22)+ | | |
| 10.34(23) | | |
| 10.35+ | | |
| 21.1 | | |
| 23.1 | | |
| 24.1^ | | |
| 31.1 | | |
| 31.2 | | |
| 32.1† | | |
| 32.2† | | |
| 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH | | XBRL Taxonomy Extension Schema Document |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| 104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
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| ^ | | Previously submitted. |
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| * | | Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate. |
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| ** | | Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. |
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| + | | Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10). |
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| † | | The certifications furnished in Exhibit 32.1 and 32.2 hereto are deemed to accompany this Annual Report on Form 10-K/A and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference. |
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| (1) | | Incorporated by reference to the Form 10-K filed on December 15, 1997. |
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| (2) | | Incorporated by reference to the Form 10-Q filed on May 4, 2001. |
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| (3) | | Incorporated by reference to the Form 8-K filed on April 30, 2013. |
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| (4) | | Incorporated by reference to the Form S-1/A (file no. 333-22885) filed on April 24, 1997. |
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| (5) | | Incorporated by reference to the Form 8-K filed on November 17, 2017. |
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| (6) | | Incorporated by reference to the Form S-1 (file no. 333-22885) filed on March 6, 1997. |
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| (7) | | Incorporated by reference to the Form 8-K filed on March 9, 2015. |
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| (8) | | Incorporated by reference to the Form 8-K filed on April 30, 2014. |
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| (9) | | Incorporated by reference to the Form 8-K filed on May 6, 2020. |
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| (10) | | Incorporated by reference to the Form 10-Q filed on July 23, 2015. |
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| (11) | | Incorporated by reference to the Form 10-K filed on February 26, 2010. |
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| (12) | | Incorporated by reference to the Form 10-K filed on February 26, 2020. |
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| (13) | | Incorporated by reference to the Form 10-K filed on February 24, 2012. |
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| (14) | | Incorporated by reference to the Form 8-K filed on October 29, 2018. |
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| (15) | | Incorporated by reference to the Form 10-K filed on February 21, 2014. |
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| (16) | | Incorporated by reference to the Form 10-Q filed on July 23, 2015. |
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| (17) | | Incorporated by reference to the Form 10-Q filed on July 22, 2016. |
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| (18) | | Incorporated by reference to the Form 8-K filed on September 21, 2016. |
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| (19) | | Incorporated by reference to the Form 10-Q filed on August 2, 2019. |
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| (20) | | Incorporated by reference to the Form 8-K filed on August 28, 2019. |
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| (21) | | Incorporated by reference to the Form 10-Q filed on August 7, 2020. |
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| (22) | | Incorporated by reference to the Form 10-Q filed on November 6, 2020. |
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| (23) | | Incorporated by reference to the Form 8-K dated November 12, 2020. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| RAMBUS INC. |
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| By: | /s/ Luc Seraphin |
| Luc Seraphin |
| Chief Executive Officer and President |
| (Principal Executive Officer) |
Date: March 29, 2021
