TIVO CORPORATION The following commentary should be read in conjunction with the Consolidated Financial Statements and related notes thereto contained in Part IV of this Annual Report on Form 10-K. This discussion contains forward-looking statements based on current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Item IA.,"Risk Factors," included in Part I of this Annual Report on Form 10-K. This section of the Annual Report on Form 10-K generally discusses the years endedDecember 31, 2019 and 2018 and the respective year-to-year comparisons. Discussions of the year endedDecember 31, 2017 , and year-to-year comparisons between the years endedDecember 31, 2018 and 2017 that are not included in this Annual Report on Form 10-K can be found in under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Part II of the our Annual Report on Form 10-K for the year endedDecember 31, 2018 .
Executive Overview of Results
TiVo Corporation ("TiVo") is a global leader in bringing entertainment together, making entertainment content easy to find, watch and enjoy. TiVo provides a broad set of cloud-based services, embedded software solutions and intellectual property that bring entertainment together for the watchers, creators and advertisers. For the creators and advertisers, TiVo's products deliver a passionate group of watchers to increase viewership and engagement across online video, TV and other entertainment viewing platforms. Our products and innovations are protected by broad portfolios of licensable technology patents. These portfolios cover many aspects of content discovery, digital video recorder ("DVR"), VOD and OTT experiences, multi-screen viewing, mobile device video experiences, entertainment personalization, voice interaction, social and interactive applications, data analytics solutions and advertising. Our operations are organized into two reportable segments for financial reporting purposes: Product andIntellectual Property Licensing . The Product segment consists primarily of licensing Company-developed user experience ("UX") products and services to multi-channel video service providers and consumer electronics ("CE") manufacturers, licensing the TiVo service and selling TiVo-enabled devices, licensing metadata and advanced search and recommendation and viewership data, as well as sponsored discovery and in-guide advertising.The Intellectual Property Licensing segment consists primarily of licensing our patent portfolio toU.S. and international pay television ("TV") providers (directly and through their suppliers), mobile device manufacturers, CE manufacturers and over-the-top ("OTT") video providers. Our broad portfolio of licensable technology patents covers many aspects of content discovery, digital video recorders, video-on-demand, OTT experiences, multi-screen functionality and personalization, as well as interactive applications and advertising. Total Revenues, net for the year endedDecember 31, 2019 decreased by 4% compared to the prior year primarily due to a$49.7 million decrease in Product revenues. The decrease in Product revenues was attributable to$34.5 million in revenue from an international cable operator that exercised a contractual option during the three months endedMarch 31, 2018 to purchase a fully paid license to its then-current version of the TiVo software and purchasing additional engineering services, as well as a$14.3 million decrease in consumer revenue, which was driven by subscriber erosion, an increase in the amortization period for product lifetime subscriptions and lower hardware sales. Product revenue also declined due to a$6.0 million perpetual license executed in the fourth quarter of 2018 with an international customer. These revenue declines were partially offset by a$10.7 million increase in revenue from an international cable operator exceeding its cumulative contractual minimums in 2019.Intellectual Property Licensing revenues increased$22.0 million due to a$20.5 million increase in catch-up payments intended to make us whole for the pre-license period of use and new licenses and contract amendments executed since the year ago period. These increases were partially offset by a$20.1 million decrease in revenue fromTiVo Solutions "Time Warp" agreements that were entered into with AT&T Inc. ("AT&T"), DirecTV, EchoStar Corporation ("EchoStar") and Verizon Communications, Inc. ("Verizon") prior to the TiVo Acquisition Date as a result of contract expirations. Our Loss from continuing operations, net of tax was$405.3 million , or$3.23 per diluted share, compared to$353.1 million , or$2.87 per diluted share, in the prior year. For the year endedDecember 31, 2019 , we reduced Research and development and Selling, general and administrative compensation costs by$29.6 million , primarily as a result of benefits from our transformation and restructuring activities. We also realized a$34.6 million decrease in Amortization of intangible assets due to certainTiVo Solutions intangible assets reaching the end of their economic life. In addition, our results benefited from an$8.2 million decrease in patent litigation costs, which was primarily related to the timing of costs incurred in the ongoing Comcast litigation, and other benefits from our transformation and restructuring activities. Offsetting these improvements, our Loss from continuing operations, net of tax for the year endedDecember 31, 2019 reflects a$354.6 million Goodwill impairment charge compared to a$269.0 million Goodwill impairment charge for the year endedDecember 31, 2018 . In 46
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addition, our revenue declined by
Our intellectual property license with Comcast Corporation ("Comcast") expired
on March 31, 2016 . Our Product relationship with Comcast, primarily a metadata
license, expired on September 30, 2017 . The expiration of our intellectual
property license with Comcast, as well as litigation initiated against Comcast,
reduced revenues and increased litigation costs. While we anticipate Comcast
will eventually execute a new intellectual property license, the length of time
that Comcast is out of license prior to executing a new license is uncertain.
On May 9, 2019 , we announced that our Board of Directors unanimously approved a
plan to separate the Product and Intellectual Property Licensing businesses into
separately traded public companies (the "Separation"), which was targeted for
completion by April 2020 . On December 18, 2019 , the Company and Xperi
Corporation ("Xperi") entered into an Agreement and Plan of Merger and
Reorganization (the "Xperi Merger Agreement"), pursuant to which TiVo and Xperi
agreed to effect an all-stock, merger of equals strategic combination of their
respective businesses (the "Xperi Combination"). The board of directors of each
of TiVo and Xperi have approved the Xperi Merger Agreement and the transactions
contemplated thereby. The Xperi Combination is subject to certain customary
approvals, including the approval of shareholders of TiVo and Xperi, and is
expected to be completed by June 30, 2020 .
The Separation process has been and the Xperi Combination process has been and
is expected to continue to be time-consuming and involve significant costs and
expenses. During the year ended December 31, 2019 , we incurred $26.2 million of
Merger, separation and transformation costs. The Merger, separation and
transformation costs are primarily Selling, general and administrative costs,
consisting of employee-related costs, costs to improve information technology
systems and other one-time transaction-related costs, including investment
banking and consulting fees and other incremental costs directly associated with
the Separation and Xperi Combination. In addition, in connection with the May
2019 announcement of our plan to separate the Product and Intellectual Property
Licensing businesses, we implemented a cost efficiency program to transform our
business operations and to execute the Separation (the "2019 Transformation
Plan"). As a result of the 2019 Transformation Plan, we expect to reduce
headcount, move certain positions to lower cost locations, rationalize
facilities and legal entities and terminate certain leases and other contracts.
The 2019 Transformation Plan will continue to be implemented prior to completion
of the Xperi Combination. The 2019 Transformation Plan resulted in restructuring
charges of $2.3 million during the year ended December 31, 2019 , substantially
all of which related to severance costs. We expect to spend up to an additional
$20.0 million to complete the 2019 Transformation Plan and prepare for the Xperi
Combination, excluding spend contingent on completion of the Xperi Combination.
On November 22, 2019 , the Company, as borrower, and certain of the Company's
subsidiaries, as guarantors (together with the Company, collectively, the "Loan
Parties"), entered into (i) a $715.0 million Credit and Guaranty Agreement (the
"2019 Term Loan Facility"), with the lenders party thereto and HPS Investment
Partners, LLC , as administrative agent and collateral agent and (ii) a $60.0
million ABL Credit and Guaranty Agreement (the "Revolving Loan Credit Agreement"
and, together with the 2019 Term Loan Facility, the "2019 Credit Agreements"),
with the lenders party thereto, Morgan Stanley Senior Funding, Inc. , as
administrative agent and collateral agent and Wells Fargo Bank, National
Association , as co-collateral agent. In connection with the completion of the
2019 Term Loan Facility, the Company repaid the remaining outstanding principal
balance of $621.9 million under the Senior Secured Credit Facility entered into
on July 2, 2014 .
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Comparison of Years Ended
The consolidated results of operations for the year ended
Year Ended December 31,
2019 2018 Change $ Change %
Revenues, net:
Licensing, services and software $ 659,261 $ 681,130 $ (21,869 ) (3 )%
Hardware 8,868 14,735 (5,867 ) (40 )%
Total Revenues, net 668,129 695,865 (27,736 ) (4 )%
Costs and expenses:
Cost of licensing, services and software
revenues, excluding depreciation and
amortization of intangible assets 156,533 169,149 (12,616 ) (7 )%
Cost of hardware revenues, excluding
depreciation and amortization of
intangible assets 18,117 19,491 (1,374 ) (7 )%
Research and development 148,422 177,285 (28,863 ) (16 )%
Selling, general and administrative 191,417 181,047 10,370 6 %
Depreciation 21,247 21,464 (217 ) (1 )%
Amortization of intangible assets 112,727 147,336 (34,609 ) (23 )%
Restructuring and asset impairment
charges 7,741 10,061 (2,320 ) (23 )%
Goodwill impairment 354,561 269,000 85,561 32 %
Total costs and expenses 1,010,765 994,833 15,932 2 %
Operating loss (342,636 ) (298,968 ) (43,668 ) 15 %
Interest expense (49,902 ) (49,150 ) (752 ) 2 %
Interest income and other, net 8,526 5,682 2,844 50 %
(Loss) gain on interest rate swaps (4,966 ) 3,425 (8,391 ) (245 )%
Loss on debt extinguishment (2,152 ) - (2,152 ) N/a
Loss from continuing operations before
income taxes (391,130 ) (339,011 ) (52,119 ) 15 %
Income tax expense 14,144 14,052 92 1 %
Loss from continuing operations, net of
tax (405,274 ) (353,063 ) (52,211 ) 15 %
(Loss) Income from discontinued
operations, net of tax (4,793 ) 3,715 (8,508 ) (229 )%
Net loss $ (410,067 ) $ (349,348 ) $ (60,719 ) 17 %
Total Revenues, net
For the year ended December 31, 2019 , Total Revenues, net decreased 4% compared
to the prior year as Product revenues decreased $49.7 million and Intellectual
Property Licensing revenues increased $22.0 million . Product generated 53% and
58% of Total Revenues, net for the years ended December 31, 2019 and 2018,
respectively.
For details on the changes in Total Revenues, net, see the discussion of our segment results below.
Cost of licensing, services and software revenues, excluding depreciation and amortization of intangible assets
Cost of licensing, services and software revenues, excluding depreciation and amortization of intangible assets, consists primarily of employee-related costs, patent prosecution, maintenance and litigation costs and an allocation of overhead and facilities costs, as well as service center and other expenses related to providing the TiVo service and our metadata offering. For the year endedDecember 31, 2019 , Cost of licensing, services and software revenues, excluding depreciation and amortization of intangible assets decreased 7% primarily as a result of an$8.2 million decrease in patent litigation costs, which was primarily related to the timing of costs incurred in the ongoing Comcast litigation, and benefits from our transformation and restructuring activities, including a$2.5 million decrease in compensation costs, a$1.7 million decrease in non-recurring 48
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engineering costs, a$1.4 million reduction in royalty fees and a$1.2 million decrease in costs to acquire data from third parties to support our metadata operations. We expect to continue to incur material expenses related to the Comcast litigation in the future. The decrease in costs was partially offset by$4.3 million of impairment charges recognized in 2019 associated with a prepaid license that is not expected to be recoverable from the net direct revenue resulting from patent license agreements executed with new customers.
Cost of hardware revenues, excluding depreciation and amortization of intangible assets
Cost of hardware revenues, excluding depreciation and amortization of intangible assets includes all product-related costs associated with TiVo-enabled devices, including manufacturing costs, employee-related costs, warranty costs and order fulfillment costs, as well as certain licensing costs and an allocation of overhead and facilities costs. Hardware is sold by the Company primarily as a means to generate revenue from the TiVo service. As a result, generating positive gross margins from hardware sales is not the primary goal of our hardware operations. For the year endedDecember 31, 2019 , Cost of hardware revenues, excluding depreciation and amortization of intangible assets reflects benefits from our transformation and restructuring activities which were partially offset by a$2.4 million inventory impairment charge during the year endedDecember 31, 2019 due to a reduced forecast for sales of refurbished units.
Research and development
Research and development expenses are comprised primarily of employee-related costs, consulting costs and an allocation of overhead and facilities costs.
For the year endedDecember 31, 2019 , Research and development expenses decreased 16% compared to the prior year, primarily due to a$21.0 million decrease in compensation costs and a$6.0 million decrease in consulting costs as a result of benefits from our transformation and restructuring activities, as well as a$1.0 million decrease in Transition and integration costs associated with the TiVo Acquisition.
Selling, general and administrative
Selling expenses are comprised primarily of employee-related costs, including travel costs, advertising costs and an allocation of overhead and facilities costs. General and administrative expenses are comprised primarily of employee-related costs, including travel costs, corporate accounting, consulting, legal and tax fees and an allocation of overhead and facilities costs. Selling, general and administrative expenses increased 6% during the year endedDecember 31, 2019 as$26.2 million of Merger, separation and transformation costs incurred during the year endedDecember 31, 2019 were partially offset by an$8.6 million decrease in compensation costs, a$7.5 million decrease in Transition and integration costs associated with the TiVo Acquisition, which was primarily due to a$4.5 million loss associated with a legacyTiVo Solutions legal matter recorded in the second quarter of 2018, and other benefits from our transformation and restructuring activities.
Amortization of intangible assets
The decrease in Amortization of intangible assets during the year endedDecember 31, 2019 was primarily due to certain intangible assets acquired as part of the TiVo Acquisition reaching the end of their economic life.
Restructuring and asset impairment charges
In connection with theMay 2019 announcement of our plan to separate the Product andIntellectual Property Licensing businesses, we initiated certain activities to transform our business operations in order to execute the separation (the "2019 Transformation Plan"). As a result of the 2019 Transformation Plan, we expect to reduce headcount, move certain positions to lower cost locations, rationalize facilities and legal entities and terminate certain leases and other contracts. In connection with the 2019 Transformation Plan, we took actions in the second half of 2019 that are expected to generate in excess of$20 million in annualized cost savings and we expect to incur material restructuring charges through 2020. The 2019 Transformation Plan resulted in Restructuring charges of$2.3 million during the year endedDecember 31, 2019 , substantially all of which related to severance costs. 49
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InFebruary 2018 , we announced our intention to explore strategic alternatives. In connection with exploring strategic alternatives, we initiated certain cost saving actions (the "Profit Improvement Plan"). As a result of the Profit Improvement Plan, we moved certain positions to lower cost locations, eliminated layers of management and rationalized facilities, which resulted in severance costs and the termination of certain leases and other contracts, generating over$40 million in annualized cost savings. As a result of actions associated with the Profit Improvement Plan, Restructuring and asset impairment charges of$5.4 million and$9.7 million , primarily for severance-related benefits, were recognized in the years endedDecember 31, 2019 and 2018, respectively.
Following the Company's announcement of the Xperi Combination inDecember 2019 , management concluded sufficient indicators of potential impairment were identified and that it was more-likely-than-not that goodwill was impaired and that quantitative interim goodwill impairment tests should be performed as ofDecember 31, 2019 for the Product andIntellectual Property Licensing reporting units. Although the long-range forecasts for the Product andIntellectual Property Licensing reporting units did not materially change from those used in performing the quantitative interim goodwill impairment test as ofSeptember 30, 2019 , the fair value decreased. The decrease in fair value was primarily due to the elimination of an assumed control premium from the fair value estimate following execution of the Xperi Merger Agreement. Based on this decline in fair value, aGoodwill impairment charge of$217.1 million was recognized during the three months endedDecember 31, 2019 , of which$20.5 million related to the Product reporting unit and$196.6 million related to theIntellectual Property Licensing reporting unit. DuringSeptember 2019 , sufficient indicators of potential impairment were identified that management concluded it was more-likely-than-not that goodwill was impaired and quantitative interim goodwill impairment tests should be performed as ofSeptember 30, 2019 for the Product andIntellectual Property Licensing reporting units. Indicators of potential impairment included a significant and sustained decline in the trading price of TiVo's common stock, as well as lower-than-previously forecast revenue and profitability levels for the Product reporting unit and downward revisions to this reporting unit's short- and long-term forecasts. As a result of the quantitative interim goodwill impairment tests performed as ofSeptember 30, 2019 , aGoodwill impairment charge of$137.5 million was recognized during the three months endedSeptember 30, 2019 , of which$79.3 million related to the Product reporting unit and$58.2 million related to theIntellectual Property Licensing reporting unit. DuringDecember 2018 , sufficient indicators of potential impairment were identified that management concluded it was more-likely-than-not that goodwill was impaired and a quantitative interim goodwill impairment test should be performed as ofDecember 31, 2018 for the Product andIntellectual Property Licensing reporting units. Indicators of potential impairment included a significant decline in the trading price of TiVo's common stock during the second half of the fourth quarter of 2018 and current market conditions, as well as lower-than-previously forecast revenue and profitability levels over a sustained period of time and downward revisions to management's short- and long-term forecasts. The forecast revisions were identified as part of TiVo's overall long-term forecasting process, which was substantially completed inDecember 2018 . The revised forecast reflected lower expectations for the Company's Platform Solutions products, including changes in both the market and business models internationally, as well as the decision to eliminate certain analytics products. The changes in expectations related to revenue growth rates, current market trends, business mix, cost structure and other expectations about anticipated short- and long-term operating results. As a result of the quantitative interim goodwill impairment test performed as ofDecember 31, 2018 , aGoodwill impairment charge of$269.0 million was recognized related to the Product reporting unit. As a result of the quantitative interim goodwill impairment test performed as ofDecember 31, 2018 , noGoodwill impairment charge was recognized related to theIntellectual Property Licensing reporting unit. For further details about theGoodwill impairment charges, refer to Note 6 of the Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K, which is incorporated by reference herein.
Interest expense
Interest expense increased by$0.8 million during the year endedDecember 31, 2019 primarily due to changes in the interest rate associated with Term Loan Facility B and changes in the composition of our outstanding debt during 2019, including a$46.6 million Excess Cash Flow principal payment on Term Loan Facility B made inFebruary 2019 ,$50.0 million of 2020 Convertible Notes repurchased inJune 2019 and the refinancing of Term Loan Facility B inNovember 2019 .
Interest income and other, net
The increase in Interest income and other, net for the year ended
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million gain on sale of a strategic investment, a$0.7 million increase in interest income due to an increase in interest rates and a$0.6 million increase in income from an equity method investment, which was partially offset by$0.6 million of adverse movements in foreign currency exchange rates.
(Loss) gain on interest rate swaps
We have not designated any of our interest rate swaps as hedges for accounting purposes. Therefore, changes in the fair value of our interest rate swaps are not offset by changes in the fair value of the related hedged item in our Consolidated Statements of Operations (see Note 8 to the Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K, which is incorporated by reference herein). We generally utilize interest rate swaps to convert the interest rate on a portion of our loans with a floating interest rate to a fixed interest rate. Under the terms of our interest rate swaps, we receive a floating rate of interest and pay a fixed rate of interest. When there is an increase in expected future LIBOR, we generally have gains when adjusting our interest rate swaps to fair value. When there is a decrease in expected future LIBOR, we generally have losses when adjusting our interest rate swaps to fair value. Loss on debt extinguishment InNovember 2019 , the Company repaid the remaining outstanding principal balance of Term Loan Facility B, which was accounted for as a debt extinguishment. In addition, inFebruary 2019 , the Company made an Excess Cash Flow payment of$46.6 million on Term Loan Facility B, which was accounted for as a partial debt extinguishment. During the year endedDecember 31, 2019 , the Company recognized a Loss on debt extinguishment of$2.1 million from writing off unamortized debt discount and issuance costs related to the Excess Cash Flow payment and the final extinguishment of Term Loan Facility B. In addition, inJune 2019 , the Company repurchased$50.0 million of outstanding principal on its 2020 Convertible Notes, which was accounted for as a partial debt extinguishment. The repurchase of the 2020 Convertible Notes resulted in a Loss on debt extinguishment of$0.1 million in the year endedDecember 31, 2019 .
Income tax expense
Due to our significant net operating loss carryforwards and a valuation allowance applied against a significant portion of our deferred tax assets, foreign withholding taxes are the primary driver of our Income tax expense.
We recorded Income tax expense for the year endedDecember 31, 2019 of$14.1 million , which primarily consists of$18.2 million of Foreign withholding tax,$4.3 million ofU.S. federal Base Erosion and Anti-Abuse Tax ("BEAT") and$2.9 million of Foreign income tax, which was partially offset by a$9.4 million benefit from theGoodwill impairment charge recognized during the year endedDecember 31, 2019 . We recorded Income tax expense for the year endedDecember 31, 2018 of$14.1 million , which primarily consists of$14.5 million of Foreign withholding tax,$3.6 million of State income tax,$2.1 million ofU.S. federal BEAT and$1.3 million of Foreign income tax, partially offset by the benefit of$7.2 million due to theGoodwill impairment charge recognized inDecember 2018 . The Tax Act of 2017 was signed into law onDecember 22, 2017 and enacted comprehensive tax reform that made broad and complex changes to theU.S. federal tax code as described in Note 13 of the Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K, which is incorporated by reference herein.
The year-over-year increase in Foreign withholding tax was due to a larger
portion of license fees received in the year ended
(Loss) Income from discontinued operations, net of tax
In the year endedDecember 31, 2019 , we recognized a Loss from discontinued operations, net of tax, of$4.8 million , as a result of executing a settlement agreement during the period associated with a previous business disposal and associated legal defense costs. In the year endedDecember 31, 2018 , we recognized Income from discontinued operations, net of tax, of$3.7 million , as a result of the expiration of certain indemnification obligations and the execution of settlement agreements during the period associated with previous business disposals, partially offset by an increase in legal defense costs. 51
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Table of Contents Segment Results We report segment information in the same way management internally organizes the business for assessing performance and making decisions regarding the allocation of resources to the business units. The terms Adjusted Operating Expenses and Adjusted EBITDA in the following discussion use the definitions provided in Note 14 of the Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K, which is incorporated by reference herein.
Product
We group our Product segment into three verticals based on the products
delivered to our customer: Platform Solutions; Software and Services; and Other.
Platform Solutions includes licensing Company-developed UX products, the TiVo
service and selling TiVo-enabled devices. Software and Services includes
licensing our metadata and advanced media and advertising solutions, including
viewership data, sponsored discovery and in-guide advertising. Other includes
legacy Analog Content Protection ("ACP"), VCR Plus+ and media recognition
products.
The Product segment's results of operations for the year ended
Year Ended December 31,
2019 2018 Change $ Change %
Platform Solutions $ 267,441 $ 315,814 $ (48,373 ) (15 )%
Software and Services 80,443 76,249 4,194 6 %
Other 3,097 8,667 (5,570 ) (64 )%
Product Revenues 350,981 400,730 (49,749 ) (12 )%
Adjusted Operating Expenses 302,491 333,720 (31,229 ) (9 )%
Adjusted EBITDA $ 48,490 $ 67,010 $ (18,520 ) (28 )%
Adjusted EBITDA Margin 13.8 % 16.7 %
For the year ended
For the year endedDecember 31, 2019 , the$48.4 million decrease in Platform Solutions revenue was primarily attributable to a decrease of$34.5 million in revenue from an international cable operator that exercised a contractual option during the three months endedMarch 31, 2018 to purchase a fully paid license to its then-current version of the TiVo software and purchasing additional engineering services. In addition, revenue for the year endedDecember 31, 2019 decreased$14.3 million due to consumer subscriber erosion, an increase in the amortization period for product lifetime subscriptions and lower hardware sales. Revenue also declined$6.0 million due to a perpetual license executed the fourth quarter of 2018 with an international customer. These revenue declines were partially offset by a$10.7 million revenue increase for the year endedDecember 31, 2019 from an international software customer exceeding its cumulative contractual minimums in 2019.
For the year ended
For the year ended
The 9% decrease in Product Adjusted Operating Expenses for the year endedDecember 31, 2019 was primarily due to reduced Research and development compensation and consulting costs. Product Adjusted Operating Expenses also reflect benefits from our transformation and restructuring activities, including a$1.7 million decrease in non-recurring engineering costs, a$1.4 million reduction in royalty fees and a$1.2 million decrease in costs to acquire data from third parties to support our metadata operations. A$2.4 million inventory impairment charge during the year endedDecember 31, 2019 due to a reduced forecast for sales of refurbished units partially offset these benefits.
The decrease in Adjusted EBITDA Margin for the year ended
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compensation and consulting costs, benefits from our transformation and restructuring activities and a shift in business mix toward higher margin products due to the planned transition of our customers to deploying the TiVo service on third-party hardware.
We group ourIntellectual Property Licensing segment into three verticals based primarily on the business of our customer: US Pay TV Providers; CE Manufacturers; and New Media, International Pay TV Providers and Other. US Pay TV Providers includes direct and indirect licensing of traditional US Pay TV Providers regardless of the particular distribution technology (e.g., cable, satellite or the internet). CE Manufacturers includes the licensing of our patents to traditional CE manufacturers. New Media, International Pay TV Providers and Other includes licensing to international pay TV providers, virtual service providers, mobile device manufacturers and content and new media companies.The Intellectual Property Licensing segment's results of operations for the year endedDecember 31, 2019 compared to the prior year were as follows (dollars in thousands): Year Ended December 31, 2019 2018 Change $ Change % US Pay TV Providers$ 173,217 $ 185,954 $ (12,737 ) (7 )% CE Manufacturers 42,503 35,644 6,859 19 % New Media, International Pay TV Providers and Other 101,428 73,537 27,891 38 %Intellectual Property Licensing Revenues 317,148 295,135 22,013 7 % Adjusted Operating Expenses 95,962 99,532 (3,570 ) (4 )% Adjusted EBITDA$ 221,186 $ 195,603 $ 25,583 13 % Adjusted EBITDA Margin 69.7 % 66.3 %
For the year ended
For the year endedDecember 31, 2019 , the decrease in revenue from US Pay TV Providers was primarily due to a decrease of$20.1 million in revenue from TiVo Solutions Time Warp agreements that were entered into with AT&T, DirecTV, EchoStar and Verizon prior to the TiVo Acquisition Date due to the expiration of these contracts by the end ofJuly 2018 . In addition, revenue from catch-up payments from US Pay TV Providers intended to make us whole for the pre-license period of use for the year endedDecember 31, 2019 decreased by$0.7 million . These revenue declines were partially offset by increases in revenue from our existing customers, including$4.0 million in revenue due to a large multiple system operator ("MSO") customer updating its subscription reporting in the three months endedDecember 31, 2019 . For the year endedDecember 31, 2019 , the increase in revenue from CE Manufacturers was primarily the result of an increase of$7.5 million from catch-up payments from CE Manufacturers intended to make us whole for the pre-license period of use. This increase in revenue was partially offset by a decrease in our licensees' market share, combined with continuing pressures on our licensees' business models. Such declines could continue unless we are able to successfully license new entrants to this market. For the year endedDecember 31, 2019 , New Media, International Pay TV Providers and Other reflects an increase in revenue compared to the prior period due to an increase of$13.7 million in revenue from catch-up payments intended to make us whole for the pre-license period of use, primarily related to expanding our license with Shaw Communications to include theTiVo Solutions patent portfolio as well as licensing our first social media customers. For the year endedDecember 31, 2019 , New Media, International Pay TV Providers and Other also reflects new licenses and contract amendments executed since the year ago period. The 4% decrease in Intellectual Property Licensing Adjusted Operating Expenses during the year endedDecember 31, 2019 reflects an$8.2 million decrease in patent litigation costs, which was primarily related to the timing of costs incurred in ongoing litigation. The decrease in costs was partially offset by$4.3 million of impairment charges recognized in 2019 associated with a prepaid license that is not expected to be recoverable from the net direct revenue resulting from patent license agreements executed with new customers. 53
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The increase in Adjusted EBITDA Margin for the year endedDecember 31, 2019 is primarily the result of the increase inIntellectual Property Licensing revenue combined with the decrease in patent litigation costs, partially offset by impairment charges associated with the prepaid license described above.
Corporate
Corporate costs primarily include general and administrative costs such as corporate management, finance, legal and human resources.
Corporate costs for the year ended
Year Ended December 31,
2019 2018 Change $ Change %
Adjusted Operating Expenses $ 58,383 $ 62,521 $ (4,138 ) (7 )%
For the year ended
Liquidity and Capital Resources
We finance our business primarily from operating cash flow. We believe our cash position remains strong and our cash, cash equivalents and marketable securities and anticipated operating cash flow, supplemented with access to capital markets as necessary, are generally sufficient to support our operating businesses, capital expenditures, restructuring activities, maturing debt, interest payments and income tax payments, in addition to investments in future growth opportunities and activities related to the Xperi Combination for at least the next twelve months. Our access to capital markets may be constrained and our cost of borrowing may increase under certain business, market and economic conditions; however, our use of a variety of funding sources to meet our liquidity needs is designed to facilitate continued access to sufficient capital resources under such conditions. As ofDecember 31, 2019 , we had$373.7 million in Cash and cash equivalents and$51.3 million in Short-term marketable securities. Our cash, cash equivalents and marketable securities are held in numerous locations around the world, with$44.1 million held by our foreign subsidiaries as ofDecember 31, 2019 . Due to our net operating loss carryforwards and the effects of the Tax Act of 2017, we could repatriate amounts to theU.S. with minimal income tax effects.
Sources and Uses of Cash
Cash flows for the year endedDecember 31, 2019 compared to the prior year were as follows (in thousands): Year Ended December 31, 2019 2018 Change $ Change % Net cash provided by operating activities - Continuing operations$ 118,333 $ 159,072 $ (40,739 ) (26 )% Net cash provided by (used in) investing activities 161,544 (32,598 ) 194,142 (596 )% Net cash used in financing activities (63,282 ) (92,380 ) 29,098 (31 )% Net cash used in operating activities - Discontinued operations (4,912 ) (524 ) (4,388 ) 837 % Effect of exchange rate changes on cash and cash equivalents 81 (580 ) 661 (114 )% Net increase in cash and cash equivalents$ 211,764 $ 32,990 $ 178,774 542 % For the year endedDecember 31, 2019 , operating cash flow decreased$40.7 million . The decrease was primarily due to the timing of collections on Accounts receivable, net and payments for Merger, separation and transformation costs. We expect to make material cash payments for Merger, separation and transformation costs through 2020. The availability of cash generated by our operations in the future could be adversely affected by business risks including, but not limited to, the Risk Factors described in Part I, Item 1A. of this Annual Report on Form 10-K, which are incorporated by reference herein. 54
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For the year endedDecember 31, 2019 , investing cash flow increased$194.1 million . Net proceeds from marketable security investment transactions increased by$192.9 million compared to the prior year. The proceeds from the investment transactions were primarily used to repay debt during the year endedDecember 31, 2019 and are expected to be used to repay the 2020 Convertible Notes at their maturity. The decrease in capital expenditures for the year endedDecember 31, 2019 was primarily associated with infrastructure projects designed to integrateTiVo Solutions in 2018. We expect 2020 full year capital expenditures of approximately$20 million to$25 million for infrastructure projects designed to support anticipated growth in our business, to strengthen our operations infrastructure and to complete the 2019 Transformation Plan. Partially offsetting these cash flow benefits was$6.9 million of cash paid to acquire patent portfolios during the year endedDecember 31, 2019 . Financing cash flow for the year endedDecember 31, 2019 reflects the repurchase of$50.0 million of outstanding principal of the Company's 2020 Convertible Notes for$49.4 million and$668.5 million of principal payments on Term Loan Facility B compared to$7.0 million of principal payments in the year endedDecember 31, 2018 . Financing cash flow for the year endedDecember 31, 2019 also reflects the net proceeds of the$715.0 million 2019 Term Loan Facility. Net cash used in financing activities for the year endedDecember 31, 2019 reflects dividend payments of$0.34 per share, resulting in aggregate cash payments of$42.5 million compared to dividend payments of$0.72 per share, resulting in aggregate cash payments of$89.0 million for the year endedDecember 31, 2018 . OnFebruary 14, 2017 ,TiVo Corporation's Board of Directors approved an increase to the stock repurchase program authorization to$150.0 million , which remains available as ofDecember 31, 2019 . TheFebruary 2017 authorization includes amounts which were outstanding under previously authorized share repurchase programs. TheFebruary 2017 authorization is subject to restrictions included in the Xperi Merger Agreement, and we do not intend to make purchases under theFebruary 2017 authorization during the pendency thereof.
Capital Resources
The outstanding principal and carrying amount of debt we issued or assumed was
as follows (in thousands):
December 31, 2019 December 31, 2018
Outstanding Outstanding
Principal Carrying Amount Principal Carrying Amount
2020 Convertible Notes $ 295,000 $ 292,699 $ 345,000 $ 326,640
2021 Convertible Notes 48 48 48 48
2019 Term Loan Facility 715,000 692,792 - -
Term Loan Facility B - - 668,500 665,449 Total$ 1,010,048 $ 985,539$ 1,013,548 $ 992,137 For more information on our borrowings, see Note 8 to the Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K, which is incorporated by reference herein. Our ability to make payments on and to refinance our indebtedness depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions. If our cash flows and capital resources are insufficient to service our debt obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. For additional information about liquidity risk, see the Risk Factors described in Part I, Item 1A. of this Annual Report on Form 10-K, which are incorporated by reference herein.
2020 Convertible Notes
Rovi issued$345.0 million in aggregate principal of 0.500% Convertible Notes that mature onMarch 1, 2020 at par pursuant to an Indenture datedMarch 4, 2015 (the "2015 Indenture"). InJune 2019 , the Company repurchased$50.0 million of outstanding principal of the 2020 Convertible Notes. The 2020 Convertible Notes were convertible at an initial conversion rate of 34.5968 shares ofTiVo Corporation common stock per$1,000 of principal of notes, which was equivalent to an initial conversion price of$28.9044 per share ofTiVo Corporation common stock. The conversion rate and conversion price are subject to adjustment pursuant to the 2015 Indenture, including as a result of dividends paid byTiVo Corporation . As ofDecember 31, 2019 , the 2020 Convertible Notes are convertible at a conversion rate of 39.7348 shares ofTiVo Corporation common stock per$1,000 principal of notes, which is equivalent to a conversion price of$25.1668 per share ofTiVo Corporation common stock. 55
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On or afterDecember 1, 2019 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert the 2020 Convertible Notes, in multiples of$1,000 of principal, at any time. In addition, during the 35-day trading period following a Merger Event, as defined in the 2015 Indenture, holders may convert the 2020 Convertible Notes, in multiples of$1,000 of principal. On conversion, a holder will receive the conversion value of the 2020 Convertible Notes converted based on the conversion rate multiplied by the volume-weighted average price of our common stock over a specified observation period. On conversion, Rovi will pay cash up to the aggregate principal of the 2020 Convertible Notes converted and deliver shares of our common stock in respect of the remainder, if any, of the conversion obligation in excess of the aggregate principal of the 2020 Convertible Notes being converted. The conversion rate is subject to adjustment in certain events, including certain events that constitute a "Make-Whole Fundamental Change" (as defined in the 2015 Indenture). In addition, if we undergo a "Fundamental Change" (as defined in the 2015 Indenture) prior toMarch 1, 2020 , holders may require Rovi to repurchase for cash all or a portion of the 2020 Convertible Notes at a repurchase price equal to 100% of the principal of the repurchased 2020 Convertible Notes, plus accrued and unpaid interest. The conversion rate is also subject to customary anti-dilution adjustments. The 2020 Convertible Notes are not redeemable prior to maturity by Rovi and no sinking fund is provided. The 2020 Convertible Notes are unsecured and do not contain financial covenants or restrictions on the payment of dividends, the incurrence of indebtedness or the repurchase of other securities by Rovi. The 2015 Indenture includes customary terms and covenants, including certain events of default after which the 2020 Convertible Notes may be due and payable immediately.
2021 Convertible Notes
TiVo Solutions issued$230.0 million in aggregate principal of 2.0% Convertible Senior Notes that matureOctober 1, 2021 (the "2021 Convertible Notes") at par pursuant to an Indenture datedSeptember 22, 2014 ("the 2014 Indenture"). OnOctober 12, 2016 ,TiVo Solutions repaid$229.95 million of the par value of the 2021 Convertible Notes. The 2021 Convertible Notes were convertible at an initial conversion rate of 56.1073 shares ofTiVo Solutions common stock per$1,000 principal of notes, which was equivalent to an initial conversion price of$17.8230 per share ofTiVo Solutions common stock. The conversion rate and conversion price are subject to adjustment pursuant to the 2014 Indenture, including as a result of dividends paid byTiVo Corporation . As ofDecember 31, 2019 , the 2021 Convertible Notes are convertible at a conversion rate of 24.8196 shares ofTiVo Corporation common stock per$1,000 principal of notes and$154.30 per$1,000 principal of notes, which is equivalent to a conversion price of$34.0738 per share ofTiVo Corporation common stock.TiVo Solutions can settle the 2021 Convertible Notes in cash, shares of common stock, or any combination thereof pursuant to the 2014 Indenture. Subject to certain exceptions, holders may requireTiVo Solutions to repurchase, for cash, all or part of their 2021 Convertible Notes upon a "Fundamental Change" (as defined in the 2014 Indenture) at a price equal to 100% of the principal amount of the 2021 Convertible Notes being repurchased plus any accrued and unpaid interest up to, but excluding, the "Fundamental Change Repurchase Date" (as defined in the 2014 Indenture). In addition, on a "Make-Whole Fundamental Change" (as defined in the 2014 Indenture) prior to the maturity date of the 2021 Convertible Notes,TiVo Solutions will, in some cases, increase the conversion rate for a holder that elects to convert its 2021 Convertible Notes in connection with such Make-Whole Fundamental Change.
2019 Term Loan Facility and Revolving Loan Credit Agreement
OnNovember 22, 2019 , the Company, as borrower, and certain of the Company's subsidiaries, as guarantors (together with the Company, collectively, the "Loan Parties"), entered into (i) a Credit and Guaranty Agreement (the "2019 Term Loan Facility"), with the lenders party thereto andHPS Investment Partners, LLC , as administrative agent and collateral agent and (ii) an ABL Credit and Guaranty Agreement (the "Revolving Loan Credit Agreement" and, together with the 2019 Term Loan Facility, the "2019 Credit Agreements"), with the lenders party thereto,Morgan Stanley Senior Funding, Inc. , as administrative agent and collateral agent andWells Fargo Bank, National Association , as co-collateral agent. Under the 2019 Term Loan Facility, the Company borrowed$715.0 million , which matures onNovember 22, 2024 . Loans under the 2019 Term Loan Facility bear interest, at the Company's option, at an interest rate equal to either (a) the London Interbank Offered Rate ("LIBOR"), plus (i) if TiVo's Total Leverage Ratio (as defined in the 2019 Term Loan Facility) is greater than or equal to 3.50:1.00, 5.75%, (ii) if TiVo's Total Leverage Ratio is greater than or equal to 3.00:1.00 but less than 3.50:100, 5.50%, or (iii) if TiVo's Total Leverage Ratio is less than 3.00:1.00, 5.25%, in each case, subject to a 1.00% LIBOR 56
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floor or (b) the Base Rate (as defined in the 2019 Term Loan Facility), (i) if TiVo's Total Leverage Ratio is greater than or equal to 3.50:1.00, 4.75%, (ii) if TiVo's Total Leverage Ratio is greater than or equal to 3.00:1.00 but less than 3.50:100, 4.50%, or (iii) if TiVo's Total Leverage Ratio is less than 3.00:1.00, 4.25%, in each case, subject to a 2.00% Base Rate floor. TiVo may voluntarily prepay the 2019 Term Loan Facility at any time subject to (i) a 3.00% prepayment premium if the loans are prepaid on or prior toNovember 22, 2020 and (ii) a 2.00% prepayment premium if the loans are prepaid on or prior toNovember 22, 2021 . TiVo is required to make mandatory prepayments with (i) net cash proceeds from certain asset sales, (ii) net insurance or condemnation proceeds, (iii) net cash proceeds from issuances of debt (other than permitted debt), (iv) beginning with the fiscal year endingDecember 31, 2020 , 50% of TiVo's Consolidated Excess Cash Flow (as defined in the 2019 Term Loan Facility), (v) extraordinary receipts and (vi) certain net litigation proceeds, in each case, subject to certain exceptions. In the event the Xperi Combination is completed on or prior toNovember 22, 2020 , TiVo would be required to repay the then-outstanding principal of the 2019 Term Loan Facility at par plus a 3.00% prepayment premium. OnMarch 31, 2020 , TiVo will be required to make a payment equal to 0.25% of the original principal amount of the 2019 Term Loan Facility. Thereafter, quarterly installments in an amount equal to 2.50% of the original principal amount of the 2019 Term Loan Facility are due, with any remaining balance payable on the final maturity date of the 2019 Term Loan Facility. The Company also entered into a$60.0 million Revolving Loan Credit Facility as part of the 2019 Credit Agreements, which expires onMarch 31, 2021 . Availability of the Revolving Loan Credit Facility is based upon a borrowing base formula and periodic borrowing base certifications valuing certain of the Loan Parties' accounts receivable as reduced by certain reserves, if any. There were no amounts outstanding under the Revolving Loan Credit Agreement at any time during the year endedDecember 31, 2019 . Loans under the Revolving Loan Credit Facility bear interest, at TiVo's option, at a rate equal to either (a) LIBOR, plus (i) if the average daily Specified Excess Availability (as defined in the Revolving Loan Credit Agreement) is greater than 66.67%, 1.50%, (ii) if the average daily Specified Excess Availability is greater than 33.33% but less than or equal to 66.66%, 1.75%, or (iii) if the average daily Specified Excess Availability is less than or equal to 33.33%, 2.00%, in each case, subject to a 0.00% LIBOR floor or (b) the Base Rate (as defined in the Revolving Loan Credit Agreement), (i) if the average daily Specified Excess Availability is greater than 66.67%, 0.50%, (ii) if the average daily Specified Excess Availability is greater than 33.33% but less than or equal to 66.66%, 0.75%, or (iii) if the average daily Specified Excess Availability is less than or equal to 33.33%, 1.00%, in each case, subject to a 1.00% Base Rate floor.
Revolving loans may be borrowed, repaid and re-borrowed until
The 2019 Credit Agreements contain customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness, and dividends and other distributions. The 2019 Credit Agreements are secured by substantially all of the Company's assets.
Financing for the Xperi Combination
In connection with the execution of the Xperi Merger Agreement, TiVo and Xperi obtained a debt commitment letter (the "Commitment Letter"), datedDecember 18, 2019 , withBank of America, N.A . ("Bank of America "),BofA Securities, Inc. and Royal Bank of Canada ("Royal Bank "), pursuant to which,Bank of America andRoyal Bank have committed to provide a senior secured first lien term loan B facility in an aggregate principal amount of$1,100 million (the "Debt Financing"). OnJanuary 3, 2020 , TiVo, Xperi,Bank of America ,Royal Bank and Barclays Bank PLC ("Barclays") entered into a supplement to the Commitment Letter to add Barclays as an additional initial lender and an additional joint lead arranger and joint bookrunner and to reallocate a portion of the debt commitments ofBank of America andRoyal Bank under the Commitment Letter to Barclays. The proceeds from the Debt Financing may be used (i) to pay fees and expenses incurred in connection with the Merger and the related transactions, (ii) to finance the refinancing of certain existing indebtedness of TiVo and Xperi, and (iii) to the extent of any remaining amounts, for working capital and other general corporate purposes.
Critical Accounting Policies and Estimates
The preparation of our Consolidated Financial Statements in accordance withU.S. GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. Our estimates, assumptions and judgments are based on historical experience and various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amount of assets and liabilities that are not readily apparent from other sources. Making estimates, assumptions and judgments about 57
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future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Management believes the estimates, assumptions and judgments employed and resulting balances reported in the Consolidated Financial Statements are reasonable; however, actual results could differ materially. A summary of our significant accounting policies, including a discussion about associated risks and uncertainties, is contained in Note 1 to the Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K, which is incorporated by reference herein. An accounting policy is deemed critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used or if changes to the estimate that are reasonably possible could materially affect the financial statements. Of our significant accounting policies, the following are considered critical to understanding our Consolidated Financial Statements and evaluating our results as they are inherently uncertain, involve the most subjective or complex judgments, include areas where different estimates reasonably could have been used and the use of an alternative estimate that is reasonably possible could materially affect the financial statements.
Revenue Recognition
General
Revenue is recognized when control of the promised goods or services is transferred to a customer in an amount that reflects the consideration we expect to receive in exchange for those goods or services, which may include various combinations of products and services which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Depending on the terms of the contract, a portion of the consideration received may be deferred because of a requirement to satisfy a future obligation. Stand-alone selling price for separate performance obligations is based on observable prices charged to customers for goods or services sold separately or the cost-plus-a-margin approach when observable prices are not available, considering overall pricing objectives.
Arrangements with Multiple Performance Obligations
Some of our contracts with customers contain multiple performance obligations. For these contracts, the individual performance obligations are separately accounted for if they are distinct. In an arrangement with multiple performance obligations, the transaction price is allocated among the separate performance obligations on a relative stand-alone selling price basis. The determination of stand-alone selling price considers market conditions, the size and scope of the contract, customer and geographic information, and other factors. The allocation of transaction price among performance obligations in a contract may impact the amount and timing of revenue recognized in the Consolidated Statements of Operations during a given period.
Contract Modifications
Contracts may be modified due to changes in contract specifications or customer requirements. Contract modifications occur when the change in terms either creates new enforceable rights and obligations or changes existing enforceable rights and obligations. The effect of a contract modification for goods and services that are not distinct in the context of the contract on the transaction price is recognized as an adjustment to revenue on a cumulative catch-up basis. Contract modifications that result in goods or services that are distinct from the existing goods or services are accounted for as separate contracts if they are sold at their stand-alone selling price, or otherwise prospectively.
Variable Consideration
When a contract with a customer includes a variable transaction price, an
estimate of the consideration to which we expect to be entitled to for
transferring the promised goods or services is made at contract inception.
Depending on the terms of the contract, variable consideration is estimated
using either the expected value approach or the most likely value approach.
Under either approach to estimating variable consideration, the estimate
considers all information (historical, current and forecast) that is reasonably
available at contract inception. The amount of variable consideration is
estimated at contract inception and updated as additional information becomes
available. The estimate of variable consideration is included in the transaction
price to the extent it is probable that a significant reversal of cumulative
revenue recognized will not occur when the uncertainty associated with the
variable consideration is resolved. Subsequent changes in the transaction price
resulting from changes in the estimate of variable consideration are allocated
to the performance obligations in the contract on the same basis as at contract
inception. Certain payments to retailers and distributors, such as market
development funds and revenue shares,
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are treated as a reduction of the transaction price, and therefore revenue, rather than Selling, general and administrative expense.
When variable consideration is in the form of a sales-based or usage-based royalty in exchange for a license of intellectual property, or when a license of intellectual property is the predominant item to which the variable consideration relates, revenue is recognized at the later of when the subsequent sale or usage occurs or the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied or partially satisfied.
Significant Judgments
Determining whether promises to transfer multiple goods and services in contracts with customers are considered distinct performance obligations that should be accounted for separately requires significant judgment, including related to the level of integration and interdependency between the performance obligations. In addition, judgment is necessary to allocate the transaction price to the distinct performance obligations, including whether there is a discount or significant financing component to be allocated based on the relative stand-alone selling price of the various performance obligations. Significant judgment is required to determine the stand-alone selling price for each distinct performance obligation when an observable price is not available. In instances where stand-alone selling price is not directly observable, such as when we do not sell the good or service separately, the stand-alone selling price is determined using a range of inputs that includes market conditions and other observable inputs. More than one stand-alone selling price may exist for individual goods and services due to the stratification of those goods and services, considering attributes such as the size of the customer and geographic region. Due to the nature of the work required to be performed on some performance obligations, significant judgment may be required to determine the transaction price. It is common for our license agreements to contain provisions that can either increase or decrease the transaction price. These variable amounts are generally estimated based on usage. In addition to estimating variable consideration, significant judgment is necessary to identify forms of variable consideration, determine whether the variable consideration relates to a sales-based or usage-based royalty of intellectual property and determine whether and when to include estimates of variable consideration in the transaction price. Some hardware products are sold with a right of return and in other circumstances, other credits or incentives may be provided such as consideration (sales incentives) given to customers or resellers, which are accounted for as variable consideration and recognized as a reduction to the revenue recognized. Estimates of returns, credits and incentives are made at contract inception and updated each reporting period. In contracts where we do not host the TiVo service and that include engineering services that are essential to the functionality of the licensed technology or involve significant customization or modification of software, we recognize revenue as progress toward completion occurs using an input method based on the ratio of costs incurred to date to total estimated costs of the project. Significant judgment is required to estimate the remaining effort to complete the project. These estimates are reassessed throughout the term of the arrangement. On an ongoing basis, management evaluates its estimates, inputs and assumptions related to revenue recognition. Using different estimates, inputs or assumptions may materially affect the reported amounts of assets and liabilities as of the date of the financial statements and the results of operations for the reporting period.
Nature of Goods and Services
The following is a discussion of the principal activities from which we generate revenue.
Patent Licensing Agreements
We license our discovery patent portfolio to traditional pay TV providers,
virtual service providers, OTT video providers, CE manufacturers and others. We
license our patented technology portfolio under two revenue models: (i) fixed
fee licenses and (ii) per-unit royalty licenses.
Our long-term fixed-fee license agreements provide rights to future patented
technologies over the term of the agreement that are highly interdependent or
highly interrelated to the patented technologies provided at the inception of
the agreement. We treat these rights as a single performance obligation with
revenue recognized on a straight-line basis over the term of the fixed-fee
license agreement.
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At times, we enter into license agreements in which a licensee is released from past patent infringement claims and is granted a license to ship an unlimited number of units over a future period for a fixed fee. In these arrangements, we allocate the transaction price between the release for past patent infringement claims and the future license. In determining the stand-alone selling price of the release for past patent infringement claims and the future license, we consider such factors as the number of units shipped in the past and in what geographies these units where shipped, the number of units expected to be shipped in the future and in what geographies these units are expected to be shipped, as well as the licensing rate we generally receive for units shipped in the same geographies. As the release from past patent infringement claims is generally satisfied at execution of the agreement, the transaction price allocated to the release from past patent infringement claims is generally recognized in the period the agreement is executed and the amount of transaction price allocated to the future license is recognized ratably over the future license term. We recognize revenue from per-unit royalty licenses in the period in which the licensee's sales are estimated to have occurred, which results in an adjustment to revenue when actual sales are subsequently reported by the licensees, which is generally in the month or quarter following usage or shipment. We generally recognize revenue from per-unit royalty licenses on a per-subscriber per-month model for licenses with service providers and a per-unit shipped model for licenses with CE manufacturers.
Arrangements with Multiple System Operators for the TiVo Service
Our arrangements with multiple system operators ("MSOs") typically include
software customization and set-up services, associated maintenance and support,
limited training, post-contract support, TiVo-enabled digital video recorders
("DVRs"), non-DVR STBs and the TiVo service.
We have two types of arrangements with MSOs that include technology deployment
and engineering services. In instances where we host the TiVo service,
non-refundable payments received for customization and set-up services are
deferred and recognized as revenue ratably over the hosting term. The related
cost of such services is capitalized to the extent it is deemed recoverable and
amortized to cost of revenues over the same period as the related TiVo service
revenue is recognized. We estimate the stand-alone selling prices for training,
DVRs, non-DVR STBs and maintenance and support based on the price charged in
stand-alone sales of the promised good or service. The stand-alone selling price
for the TiVo service is determined considering the size of the MSO and expected
volume of deployment, market conditions, competitive landscape, internal costs
and total gross margin objectives. For a term license to the TiVo service, we
receive license fees for the hosted TiVo service on either a per-subscriber
per-month basis or a fixed fee. We recognize revenue from per-subscriber
per-month licenses during the month the TiVo service is provided to the customer
and recognize revenue from fixed fee licenses ratably over the license period.
In arrangements where we do not host the TiVo service and that include
engineering services that are essential to the functionality of the licensed
technology or involve significant customization or modification of the software,
we recognize revenue as progress toward completion is made using an input method
based on the ratio of costs incurred to date to total estimated costs of the
project. Project costs are primarily labor related to the specific activities
required for the project. Costs related to general infrastructure or uncommitted
platform development are not included in the project cost estimates and are
expensed as incurred. Estimating project costs requires forecasting costs,
tracking progress toward completion and projecting the remaining effort to
complete the project. These estimates are reassessed throughout the term of the
arrangement, and revisions to estimates are recognized on a cumulative catch-up
basis when the changed conditions become known. Provisions for losses are
recorded when estimates indicate it is probable that a loss will be incurred for
the contract. We generally recognize revenue from license fees for the TiVo
service that we do not host on a per-subscriber per-month basis due to the
recognition constraint on intellectual property usage-based royalties.
Subscription Services
Subscription services revenues primarily consist of fees to provide customers
with access to one or more of our hosted products such as our iGuide IPG,
advanced search and recommendations, metadata and analytics products, including
routine customer support. We generally receive per-subscriber per-month fees for
our iGuide IPG and search and recommendations service and revenue is recorded in
the month the customer uses the service. We generally receive a monthly or
quarterly fee from metadata or analytics licenses for the right to use the
metadata or access our analytics platform and to receive regular updates.
Revenue from our metadata and analytics service is recognized ratably over the
subscription period.
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We license our Passport IPG software to pay TV providers in North and
South America . We generally receive per-subscriber per-month fees for licenses
to the Passport IPG software and support. Due to the usage-based royalty
provisions of the revenue recognition guidance, revenue is generally recognized
in the month the customer uses the software.
Advertising
We generate advertising revenue through our IPGs. Advertising revenue is recognized when the related advertisement is provided. Advertising revenue is recorded net of agency commissions and revenue shares with service providers and CE manufacturers.
TiVo-enabled DVRs and TiVo Service
We sell TiVo-enabled DVRs and the related service directly to customers through sales programs via the TiVo.com website and license the sale of TiVo-enabled DVRs through a limited number of retailers. For sales through the TiVo.com website, the customer receives a DVR and commits to either a minimum subscription period of one year or for the lifetime of the DVR. Customers who purchase a DVR from TiVo.com have the right to return the DVR within 30 days of purchase for a full refund. For licensed sales of TiVo-enabled DVRs through retailers, the customer commits to either a minimum subscription period of one year or for the lifetime of the DVR. All customers have the right to cancel their subscription to the TiVo service within 30 days of subscription activation for a full refund. After the initial subscription period, all customers have various pricing options when they renew their subscription. The stand-alone selling price for the TiVo service is established based on stand-alone sales of the service and varies by the length of the service period. The stand-alone selling price of the DVR is determined based on the price for which we would sell the DVR without any service commitment from the customer. The transaction price allocated to the DVR is recognized as revenue on delivery and the transaction price allocated to the TiVo service is recognized as revenue ratably over the service period. Subscription revenues from lifetime subscriptions are recognized ratably over the estimated useful life of the DVR associated with the subscription. The estimated useful life for a DVR depends on a number of assumptions, including, but not limited to, customer retention rates, the timing of new product introductions and historical experience. As ofDecember 31, 2019 , we recognize revenue for lifetime subscriptions over a 72-month period. We periodically reassess the estimated useful life of a DVR. When the actual useful life of the DVR materially differs from our estimate, the estimated useful life of the DVR is adjusted, which could result in the recognition of revenue over a longer or shorter period of time. Shipping and handling costs associated with outbound freight after control of a DVR has transferred to a customer are accounted for as a fulfillment cost and are included in Cost of hardware revenues, excluding depreciation and amortization of intangible assets as incurred.
Indefinite-Lived Intangible Assets and
Indefinite-lived intangible assets andGoodwill are evaluated for potential impairment annually, as of the beginning of the fourth quarter, and whenever events or changes in circumstances indicate their carrying amount may not be recoverable. Qualitative factors are first assessed to determine whether events or changes in circumstances indicate it is more-likely-than-not that an indefinite-lived intangible asset or the fair value of a reporting unit is less than its carrying amount. Qualitative factors which could trigger an interim impairment review, include, but are not limited to a: • significant deterioration in general economic, industry or market conditions;
• significant adverse development in cost factors;
• significant deterioration in actual or expected financial performance
or operating results;
• significant adverse changes in legal factors or in the business
climate, including adverse regulatory actions or assessments; and
• significant sustained decrease in share price.
Indefinite-Lived Intangible Assets
If, based on the qualitative assessment, it is considered more-likely-than-not
that the fair value of an indefinite-lived intangible asset is less than its
carrying amount, then a quantitative impairment test is performed. In the
quantitative impairment
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test for indefinite-lived intangible assets, fair value is compared to the carrying amount of the indefinite-lived intangible asset. When we are required to estimate the fair value of an indefinite-lived intangible asset, we use an income approach, such as a relief-from-royalty technique. If the fair value of an indefinite-lived intangible asset exceeds its carrying amount, the indefinite-lived intangible asset is not impaired. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss equal to the difference is recognized. The process of evaluating indefinite-lived intangible assets for potential impairment is subjective and requires significant estimates, assumptions and judgments, particularly related to estimating the fair value of the asset. Estimating the fair value of an indefinite-lived intangible asset considers the amount and timing of the future cash flows associated with the asset, the expected long-term growth rate, assumed royalty rates, income tax rates and economic and market conditions, as well as risk-adjusted discount rates. For reasons similar to those described below related to goodwill, during the fourth quarter of 2018, the third quarter of 2019 and the fourth quarter of 2019, sufficient indicators of potential impairment were identified that management concluded it was more-likely-than-not that the indefinite-lived intangible asset was impaired and that quantitative interim impairment tests should be performed as ofDecember 31, 2018 ,September 30, 2019 andDecember 31, 2019 . The quantitative interim impairment test for the indefinite-lived intangible asset performed as ofDecember 31, 2019 andDecember 31, 2018 indicated that its fair value exceeded its carrying amount by 37% and 57%, respectively. Accordingly, as ofDecember 31, 2019 andDecember 31, 2018 , no impairment charges were recognized for the indefinite-lived intangible asset. As ofDecember 31, 2019 , the carrying amount of the indefinite-lived intangible asset was$14.0 million .Goodwill Goodwill represents the excess of cost over fair value of the net assets of an acquired business. The recoverability of goodwill is assessed at the reporting unit level, which is either the operating segment or one level below. If, based on the qualitative assessment, it is considered more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then a quantitative impairment test is performed. In the quantitative impairment test, the fair value of each reporting unit is compared to its carrying amount. In 2019, the fair value of the Product reporting unit and theIntellectual Property Licensing reporting unit was estimated using an income approach. In 2018, the fair value of the Product reporting unit was estimated by weighting the fair values derived from an income approach and a market approach and the fair value of theIntellectual Property Licensing reporting unit was estimated using an income approach. Under the income approach, the fair value of a reporting unit is estimated based on the present value of estimated future cash flows and considers estimated revenue growth rates, future operating margins and risk-adjusted discount rates. Under the market approach, the fair value of a reporting unit is estimated based on market multiples of revenue or earnings derived from comparable publicly-traded companies. The carrying amount of a reporting unit is determined by assigning the assets and liabilities, including goodwill and intangible assets, to the reporting unit. If the fair value of a reporting unit exceeds its carrying amount, goodwill is not impaired. If the fair value of a reporting unit is less than its carrying amount, an impairment loss equal to the difference is recognized. The process of evaluating goodwill for potential impairment is subjective and requires significant estimates, assumptions and judgments particularly related to the identification of reporting units, the assignment of assets and liabilities to reporting units and estimating the fair value of each reporting unit. Estimating the fair value of a reporting unit considers future revenue growth rates, operating margins, income tax rates and economic and market conditions, as well as risk-adjusted discount rates and the identification of appropriate market comparable data. DuringDecember 2018 , sufficient indicators of potential impairment were identified that management concluded it was more-likely-than-not that goodwill was impaired and a quantitative interim goodwill impairment test should be performed as ofDecember 31, 2018 for the Product andIntellectual Property Licensing reporting units. Indicators of potential impairment included a significant decline in the trading price of TiVo's common stock during the second half of the fourth quarter of 2018 and current market conditions, as well as lower-than-previously forecast revenue and profitability levels over a sustained period of time and downward revisions to management's short- and long-term forecasts. The forecast revisions were identified as part of TiVo's overall long-term forecasting process, which was substantially completed inDecember 2018 . The revised forecast reflected lower expectations for the Company's Platform Solutions products, including changes in both the market and business models internationally, as well as the decision to eliminate certain analytics products. The changes in expectations related to revenue growth rates, current market trends, business mix, cost structure and other expectations about anticipated short- and long-term operating results. As a result of the quantitative interim goodwill impairment test performed as ofDecember 31 , 62
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2018, aGoodwill impairment charge of$269.0 million was recognized related to the Product reporting unit. As a result of the quantitative interim goodwill impairment test performed as ofDecember 31, 2018 , noGoodwill impairment charge was recognized related to theIntellectual Property Licensing reporting unit. DuringSeptember 2019 , sufficient indicators of potential impairment were identified that management concluded it was more-likely-than-not that goodwill was impaired and a quantitative interim goodwill impairment test should be performed as ofSeptember 30, 2019 , for the Product andIntellectual Property Licensing reporting units. Indicators of potential impairment included a significant and sustained decline in the trading price of TiVo's common stock, as well as lower-than-previously forecast revenue and profitability levels for the Product reporting unit and downward revisions to this reporting unit's short- and long-term forecasts. The forecast revisions for the Product reporting unit were identified as part of TiVo's 2020 budgeting process and reflect lower expectations for its Platform Solutions products, including changes in both the market and business models internationally. The changes in such expectations related to revenue growth rates, current market trends, business mix, cost structure and other expectations about the anticipated short- and long-term operating results. As a result of the quantitative interim goodwill impairment test performed as ofSeptember 30, 2019 , aGoodwill impairment charge of$137.5 million was recognized, of which$79.3 million relates to the Product reporting unit and$58.2 million relates to theIntellectual Property Licensing reporting unit. TheGoodwill impairment charge for theIntellectual Property Licensing reporting unit resulted from an increase in the discount rate used to estimate fair value due to the decline in the trading price of TiVo's common stock. Following the Company's announcement of the Xperi Combination inDecember 2019 , management concluded sufficient indicators of potential impairment were identified and that it was more-likely-than-not that goodwill was impaired and that quantitative interim goodwill impairment tests should be performed as ofDecember 31, 2019 for the Product andIntellectual Property Licensing reporting units. Although the long-range forecasts for the Product andIntellectual Property Licensing reporting units did not materially change from those used in performing the quantitative interim goodwill impairment test as ofSeptember 30, 2019 , the fair value decreased. The decrease in fair value was primarily due to the elimination of an assumed control premium from the fair value estimate following execution of the Xperi Merger Agreement. Based on this decline in fair value, aGoodwill impairment charge of$217.1 million was recognized during the three months endedDecember 31, 2019 , of which$20.5 million related to the Product reporting unit and$196.6 million related to theIntellectual Property Licensing reporting unit. Following the recognition of theGoodwill impairment charge during the three months endedDecember 31, 2019 , the equity fair value of the Product reporting unit equaled its carrying amount of$420.4 million and the equity fair value of theIntellectual Property Licensing reporting unit equaled its carrying amount of$653.3 million , which was net of the Company's debt as ofDecember 31, 2019 . A deterioration in conditions or circumstances similar to those described above may result in additional goodwill impairment charges for the Product orIntellectual Property Licensing reporting units in the future. In addition, if we fail to renew licenses, or renew licenses with materially different terms than those assumed, or if there is an adverse outcome with respect to patent infringement claims we have asserted against Comcast, an impairment of goodwill for theIntellectual Property Licensing reporting unit could result, the effect of which could be material.
Long-Lived Assets, including Property and Equipment and Finite-Lived Intangible Assets
Long-lived assets, such as property and equipment and finite-lived intangible
assets, are assessed for potential impairment whenever events or changes in
circumstances (collectively, "triggering events") indicate the carrying amount
of an asset group may not be recoverable. An asset group is established by
identifying the lowest level of cash flows generated by a group of assets that
are largely independent of the cash flows of other assets and could include
assets used across multiple businesses or segments. Once a triggering event has
been identified, the impairment test employed is based on whether we intend to
continue to use the asset group or to hold the asset group for sale. For assets
held for use, recoverability is assessed based on the estimated undiscounted
future cash flows expected to result from the use and eventual disposition of
the asset group. If the undiscounted future cash flows are less than the
carrying amount of the asset group, the asset group is impaired. The amount of
impairment, if any, is measured as the difference between the carrying amount of
the asset group and its fair value. To the extent the carrying amount of each
asset exceeds its fair value, the impairment is allocated to the finite-lived
assets of the asset group on a pro rata basis using their relative carrying
amounts.
For assets held for sale, to the extent the asset group's carrying amount is
greater than its fair value less cost to sell, an impairment loss is recognized
for the difference. Assets held for sale are separately presented in the
Consolidated Balance Sheets at the lower of their carrying amount or fair value
less cost to sell, and are no longer depreciated.
Determining whether a finite-lived asset group is impaired requires various
estimates, assumptions and judgments, including whether a triggering event has
occurred and the identification of appropriate asset groups. When required to
estimate
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the fair value of a finite-lived asset group, we generally use an income approach, such as a discounted cash flow technique. Significant estimates, assumptions and judgments inherent in the income approach include the amount and timing of the future cash flows associated with the asset group, the expected long-term growth rate, income tax rates and economic and market conditions, as well as risk-adjusted discount rates. If we establish different asset groups or utilize different valuation methodologies or assumptions, the impairment test results could differ.
As of
Equity-Based Compensation
Equity-based compensation costs are estimated based on the grant date fair value of the award. Equity-based compensation cost is recognized for those awards expected to meet the service or performance vesting conditions on a straight-line basis over the requisite service period of the award. Equity-based compensation is estimated based on the aggregate grant for service-based awards and at the individual vesting tranche for awards with performance or market conditions. Forfeiture estimates are based on historical experience.
As our restricted stock awards are generally not eligible for dividend protection, the fair value of restricted awards subject to service or performance conditions is estimated as the price of our common stock at the close of trading on the date of grant, less the present value of dividends expected to be paid during the vesting period. When restricted stock award requires a post-vesting restriction on sale, the grant date fair value is adjusted to reflect a liquidity discount based on the expected post-vesting holding period.
A Monte Carlo simulation is used to estimate the fair value of restricted stock
units subject to market conditions with expected volatility estimated using the
historical volatility of our common stock.
We use the Black-Scholes-Merton option-pricing formula to estimate the fair
value of stock options and employee stock purchase plan ("ESPP") shares. The
Black-Scholes-Merton option-pricing formula uses complex and subjective inputs,
such as the expected volatility of our common stock over the expected term of
the award and projected employee exercise behavior. Expected volatility is
estimated using a combination of historical volatility and implied volatility
derived from publicly-traded options on our common stock. The expected term is
estimated by calculating the average term from historical experience. The
risk-free interest rate is the yield on U.S. Treasury zero-coupon bonds with
remaining terms similar to the expected term of the ESPP shares at the grant
date. The expected dividend yield assumes a constant dividend yield commensurate
with the dividend yield of TiVo's common stock on the grant date.
The number of awards expected to vest during the requisite service period is
estimated at the time of grant. We use historical data to estimate pre-vesting
forfeitures and record equity-based compensation only for those awards for which
the requisite service is expected to be rendered. Forfeiture estimates are
revised during the requisite service period and the effect of changes in the
number of awards expected to be forfeited is recorded as a cumulative adjustment
in the period estimates are revised.
The estimated fair value of our equity-based compensation awards is subject to
significant estimates, assumptions and judgments. Changing the terms of our
equity-based compensation awards, granting new forms of awards, changing the
number of awards granted, changes in the price of our common stock or the
historical or implied volatility derived from publicly-traded options on our
common stock or adjusting our forfeiture assumptions, may cause us to realize
material changes in equity-based compensation in the future.
Income Taxes
We are subject to income taxes in theU.S. and numerous foreign jurisdictions and are subject to the examination of our income tax returns by the relevant tax authorities which may assert assessments against us. Significant estimates, assumptions and judgments are required in determining our provision for income taxes and income tax assets and liabilities, including the effects of any valuation allowance or unrecognized tax benefits. Our estimates, assumptions and judgments consider existing tax laws, our interpretation of existing tax laws and possible outcomes of current and future audits conducted by various tax authorities. Changes in tax law or our interpretation of existing tax laws and the resolution of current and future tax audits could significantly impact the provision for income taxes in our Consolidated Financial Statements. We assess the likelihood that we will be able to recover the carrying amount of our deferred tax assets and reflect any changes to our estimate of the amount we are more likely than not to realize as a deferred tax asset valuation allowance, with a 64
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corresponding adjustment to earnings or other comprehensive income, as appropriate. The ultimate realization of a deferred tax asset depends on the generation of future taxable income during the periods in which those deferred tax assets will become deductible. In determining the need for a valuation allowance, we assess all available positive and negative evidence regarding the realizability of our deferred tax assets, including the future reversal of existing taxable temporary differences, taxable income in carryback periods, prudent and feasible tax planning strategies, estimated future taxable income (including the reversal of deferred tax liabilities) and whether we have a recent history of pre-tax losses. Significant judgment is required in assessing the need for, and extent of, any deferred tax asset valuation allowance. The deferred tax asset valuation allowance can be affected by changes in tax regulations, interpretations and rulings, changes to enacted statutory tax rates and changes to estimates of future taxable income. CumulativeU.S. GAAP pre-tax losses incurred beginning in 2014, including those from discontinued operations, represent a significant source of negative evidence indicating the need for a valuation allowance with respect to a substantial portion of our deferred tax assets. We believe the size and frequency of losses, including those from discontinued operations, in recent years and the uncertainty associated with projecting future taxable income support the conclusion that a valuation allowance is required to reduce our deferred tax assets to the amount expected to be realized. If we achieve profitability in future periods, an evaluation would be performed of whether the recent history of profitability would constitute sufficient positive evidence to support the reversal of a portion, or all, of the valuation allowances. From time to time, we engage in transactions for which the tax consequences may be uncertain. Accruals are established for unrecognized tax benefits, which represent the difference between a tax position taken or expected to be taken in a tax return and the benefit recognized for financial reporting purposes, when we believe it is not more-likely-than-not that the tax position will be sustained on examination by the taxing authority based on the technical merits of the position. We adjust our accruals for unrecognized tax benefits when facts and circumstances change, such as the closing of a tax audit, notice of an assessment by a taxing authority or the refinement of an estimate. The final outcome of a matter can differ from amounts recorded for a number of reasons, including the decision to settle rather than litigate a matter, relevant legal precedent related to similar matters and success in supporting our position with the tax authorities. Although we believe we have adequately accrued for our unrecognized tax benefits, if our estimate proves different than the ultimate outcome, such differences will affect the provision for income taxes in the period in which such a determination is made.
Contractual Obligations
Our contractual obligations as of
Payments due by period
Contractual Obligations (1) Total 2020 2021 - 2022 2023 - 2024 Thereafter Long-term debt (2)$ 1,010,048 $ 350,413 $ 143,048 $ 516,587 $ - Interest on long-term debt (2, 3) 209,152 55,223 90,284 63,645 - Purchase obligations 19,771 6,693 9,671 3,407 - Operating lease commitments (4) 91,529 17,657 30,087 23,676 20,109 Transition Tax (5) 486 69 200 217 - Total$ 1,330,986 $ 430,055 $ 273,290 $ 607,532 $ 20,109
(1) The following items have been excluded from the table:
• Due to uncertainty about the periods in which tax examinations will be
completed and limited information related to ongoing tax return audits,
we are unable to reliably estimate the timing of cash payments and
settlements associated with accruals for unrecognized tax benefits;
therefore, amounts related to these obligations have been excluded from
the table.
(2) The 2020 Convertible Notes can be freely converted by holders at any time.
For additional information, see Note 8 to the Consolidated Financial
Statements included in Part IV of this Annual Report on Form 10-K,
which is incorporated by reference herein.
(3) Interest on the 2019 Term Loan Facility is presented based on the interest
rate in effect as of December 31, 2019 . For additional information, see
Note 8 to the Consolidated Financial Statements included in Part IV of
this Annual Report on Form 10-K, which is incorporated by reference
herein.
(4) Operating leases are presented on a gross basis. We have agreements to
receive payments of approximately
2026.
(5) As a result of the Tax Act of 2017, during the year ended December 31 ,2018, we determined our Transition Tax on unrepatriated foreign earnings
of our foreign subsidiaries was
of available tax
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credits to offset the majority of the Transition Tax. We elected to pay the Transition Tax over the 8 year period provided by the Tax Act of 2017. For additional information on the Tax Act of 2017, see Note 13 to the Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K, which is incorporated by reference herein.
Off-Balance Sheet Arrangements
We have not engaged in any material off-balance sheet arrangements, including the use of structured finance vehicles, special purpose entities or variable interest entities.
Recent Accounting Pronouncements
For a summary of applicable recent accounting pronouncements, see Note 1 to the Consolidated Financial Statements included in Part IV of this Annual Report on Form 10-K, which is incorporated by reference herein.
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