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RMBS Rambus

Filed: 7 May 21, 1:07pm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 10-Q
_______________________________
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 000-22339
_______________________________
RAMBUS INC.
(Exact name of registrant as specified in its charter)
_______________________________
Delaware 94-3112828
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
4453 North First Street
Suite 100
San Jose,California95134
(Address of principal executive offices)(ZIP Code)
Registrant’s telephone number, including area code:
(408) 462-8000
________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, $.001 Par ValueRMBSThe NASDAQ Stock Market LLC
(The NASDAQ Global Select Market)

Securities registered pursuant to Section 12(g) of the Act:
None
________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☒ Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).  Yes   No 
The number of shares outstanding of the registrant’s Common Stock, par value $.001 per share, was 112,505,254 as of March 31, 2021.


RAMBUS INC.
TABLE OF CONTENTS
 
3

NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include, without limitation, predictions regarding the following aspects of our future:
Success in the markets of our products and services or our customers’ products;
Sources of competition;
Research and development costs and improvements in technology;
Sources, amounts and concentration of revenue, including royalties;
Success in signing and renewing license agreements;
Terms of our licenses and amounts owed under license agreements;
Technology product development;
Dispositions, acquisitions, mergers or strategic transactions and our related integration efforts;
Impairment of goodwill and long-lived assets;
Pricing policies of our customers;
Changes in our strategy and business model, including the expansion of our portfolio of inventions, products, software, services and solutions to address additional markets in memory, chip and security;
Deterioration of financial health of commercial counterparties and their ability to meet their obligations to us;
Effects of security breaches or failures in our or our customers’ products and services on our business;
Engineering, sales and general and administration expenses;
Contract revenue;
Operating results;
International licenses, operations and expansion;
Effects of changes in the economy and credit market on our industry and business;
Impact of the Novel Coronavirus (“COVID-19”) pandemic on our business operations and financial results;
Ability to identify, attract, motivate and retain qualified personnel;
Effects of government regulations on our industry and business;
Manufacturing, shipping and supply partners and/or sale and distribution channels;
Growth in our business;
Methods, estimates and judgments in accounting policies;
Adoption of new accounting pronouncements;
Effective tax rates, including as a result of recent U.S. tax legislation;
Restructurings and plans of termination;
Realization of deferred tax assets/release of deferred tax valuation allowance;
Trading price of our common stock;
Internal control environment;
The level and terms of our outstanding debt and the repayment or financing of such debt;
Protection of intellectual property (“IP”);
Any changes in laws, agency actions and judicial rulings that may impact the ability to enforce our IP rights;
Indemnification and technical support obligations;
Equity repurchase programs;
Issuances of debt or equity securities, which could involve restrictive covenants or be dilutive to our existing stockholders;
Effects of fluctuations in interest rates and currency exchange rates; and
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Outcome and effect of potential future IP litigation and other significant litigation.
You can identify these and other forward-looking statements by the use of words such as “may,” “future,” “shall,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continue,” “projecting” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.
Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part II, Item 1A, “Risk Factors.” All forward-looking statements included in this document are based on our assessment of information available to us at this time. We assume no obligation to update any forward-looking statements.

5

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
RAMBUS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 March 31,
2021
December 31,
2020
(In thousands, except shares
and par value)
ASSETS  
Current assets:  
Cash and cash equivalents$109,554 $128,967 
Marketable securities419,574 373,682 
Accounts receivable35,937 27,903 
Unbilled receivables137,729 138,813 
Inventories9,926 14,466 
Prepaids and other current assets11,616 15,881 
Total current assets724,336 699,712 
Intangible assets, net31,872 36,487 
Goodwill183,222 183,222 
Property, plant and equipment, net53,687 57,693 
Operating lease right-of-use assets27,214 28,708 
Deferred tax assets4,372 4,353 
Unbilled receivables207,016 236,699 
Other assets4,061 4,535 
Total assets$1,235,780 $1,251,409 
LIABILITIES & STOCKHOLDERS’ EQUITY
  
Current liabilities:  
Accounts payable$7,802 $8,993 
Accrued salaries and benefits14,113 23,326 
Deferred revenue13,534 10,198 
Income taxes payable20,186 20,064 
Operating lease liabilities7,026 4,724 
Other current liabilities17,741 18,559 
Total current liabilities80,402 85,864 
Convertible notes157,905 156,031 
Long-term operating lease liabilities32,535 34,305 
Long-term income taxes payable36,391 41,333 
Deferred tax liabilities14,711 14,276 
Other long-term liabilities4,430 6,894 
Total liabilities326,374 338,703 
Commitments and contingencies (Notes 9, 11 and 15)00
Stockholders’ equity:  
Convertible preferred stock, $.001 par value:  
Authorized: 5,000,000 shares; Issued and outstanding: no shares at March 31, 2021 and December 31, 2020
Common stock, $.001 par value:  
Authorized: 500,000,000 shares; Issued and outstanding: 112,505,254 shares at March 31, 2021 and 111,697,994 shares at December 31, 2020113 112 
Additional paid-in capital1,269,790 1,270,426 
Accumulated deficit(360,364)(357,751)
Accumulated other comprehensive loss(133)(81)
Total stockholders’ equity909,406 912,706 
Total liabilities and stockholders’ equity$1,235,780 $1,251,409 
Refer to Notes to Unaudited Condensed Consolidated Financial Statements
6

RAMBUS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) 
Three Months Ended
 March 31,
 20212020
(As Restated)
 (In thousands, except per share amounts)
Revenue:  
Product revenue$30,781 $30,728 
Royalties28,859 21,482 
Contract and other revenue10,742 13,567 
Total revenue70,382 65,777 
Cost of revenue:  
Cost of product revenue11,410 10,343 
Cost of contract and other revenue1,556 1,198 
Amortization of acquired intangible assets4,386 4,344 
Total cost of revenue17,352 15,885 
Gross profit53,030 49,892 
Operating expenses:
Research and development32,354 36,664 
Sales, general and administrative23,562 23,306 
Amortization of acquired intangible assets229 348 
Restructuring charges368 836 
Change in fair value of earn-out liability(1,800)
Total operating expenses56,513 59,354 
Operating loss(3,483)(9,462)
Interest income and other income (expense), net2,981 6,443 
Interest expense(2,614)(2,555)
Interest and other income (expense), net367 3,888 
Loss before income taxes(3,116)(5,574)
Provision for (benefit from) income taxes(503)965 
Net loss$(2,613)$(6,539)
Net loss per share:  
Basic$(0.02)$(0.06)
Diluted$(0.02)$(0.06)
Weighted-average shares used in per share calculation:  
Basic112,211 112,907 
Diluted112,211 112,907 

Refer to Notes to Unaudited Condensed Consolidated Financial Statements
7

RAMBUS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended
 March 31,
(In thousands)20212020
(As Restated)
Net loss$(2,613)$(6,539)
Other comprehensive loss:  
Foreign currency translation adjustment(21)
Unrealized loss on marketable securities, net of tax(31)(96)
Total comprehensive loss$(2,665)$(6,635)
Refer to Notes to Unaudited Condensed Consolidated Financial Statements
8

RAMBUS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)

For the Three Months Ended March 31, 2021
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive Gain (Loss)
(In thousands)SharesAmountTotal
Balances at December 31, 2020111,698 $112 $1,270,426 $(357,751)$(81)$912,706 
Net loss— — — (2,613)— (2,613)
Foreign currency translation adjustment— — — — (21)(21)
Unrealized loss on marketable securities, net of tax— — — — (31)(31)
Issuance of common stock upon exercise of options, equity stock and employee stock purchase plan807 (7,137)— — (7,136)
Stock-based compensation— — 6,501 — — 6,501 
Balances at March 31, 2021112,505 $113 $1,269,790 $(360,364)$(133)$909,406 
For the Three Months Ended March 31, 2020
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive Gain (Loss)
(In thousands)SharesAmountTotal
Balances at December 31, 2019112,131 $112 $1,261,142 $(285,789)$(92)$975,373 
Net loss (As Restated)— — — (6,539)— (6,539)
Unrealized loss on marketable securities, net of tax— — — — (96)(96)
Issuance of common stock upon exercise of options, equity stock and employee stock purchase plan1,144 (3,214)— — (3,213)
Stock-based compensation— — 6,072 — — 6,072 
Balances at March 31, 2020 (As Restated)113,275 $113 $1,264,000 $(292,328)$(188)$971,597 
Refer to Notes to Unaudited Condensed Consolidated Financial Statements
9

RAMBUS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) 
Three Months Ended
 March 31,
 20212020
(As Restated)
 (In thousands)
Cash flows from operating activities:  
Net loss$(2,613)$(6,539)
Adjustments to reconcile net loss to net cash provided by operating activities:  
Stock-based compensation6,501 6,072 
Depreciation6,198 7,711 
Amortization of intangible assets4,615 4,692 
Non-cash interest expense and amortization of convertible debt issuance costs1,874 1,773 
Deferred income taxes416 327 
Loss on equity investment200 212 
Change in fair value of earn-out liability(1,800)
Change in operating assets and liabilities:  
Accounts receivable(8,034)(325)
Unbilled receivables30,767 39,465 
Prepaid expenses and other assets3,589 1,855 
Inventories4,540 238 
Accounts payable297 416 
Accrued salaries and benefits and other liabilities(7,861)(7,966)
Income taxes payable(4,786)(4,069)
Deferred revenue3,223 (1,826)
Operating lease liabilities532 (2,978)
Net cash provided by operating activities39,458 37,258 
Cash flows from investing activities:  
Purchases of property, plant, and equipment(3,517)(1,950)
Purchases of marketable securities(159,755)(169,866)
Maturities of marketable securities106,475 215,164 
Proceeds from sale of marketable securities8,332 
Settlement of working capital adjustment from disposal of business(1,131)
Net cash provided by (used in) investing activities(48,465)42,217 
Cash flows from financing activities:
Proceeds received from issuance of common stock under employee stock plans920 4,005 
Payments of taxes on restricted stock units(8,057)(7,218)
Payments under installment payment arrangements(3,119)(2,551)
Net cash used in financing activities(10,256)(5,764)
Effect of exchange rate changes on cash and cash equivalents(144)(452)
Net increase (decrease) in cash, cash equivalents and restricted cash(19,407)73,259 
Cash, cash equivalents and restricted cash at beginning of period129,324 102,518 
Cash, cash equivalents and restricted cash at end of period$109,917 $175,777 
Non-cash investing and financing activities:  
Property, plant and equipment received and accrued in accounts payable and other liabilities$15,210 $33,190 
Reconciliation of the cash, cash equivalents and restricted cash balances as of March 31, 2021 and December 31, 2020:
March 31,
2021
December 31,
2020
Cash and cash equivalents$109,554 $128,967 
Restricted cash363 357 
Cash, cash equivalents and restricted cash$109,917 $129,324 
Refer to Notes to Unaudited Condensed Consolidated Financial Statements
10

RAMBUS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Restatement of Condensed Consolidated Financial Statements and Immaterial Correction of Prior-Period Error
Rambus Inc. (the “Company” or “Rambus”) restated its previously issued consolidated financial statements and related disclosures as of and for the fiscal years ended December 31, 2020 and 2019 and presented the impact of the restatement on the relevant unaudited interim financial information for each of the quarterly periods during the years ended December 31, 2020 and 2019 on Form 10-K/A filed on March 29, 2021, in order to correct errors resulting from the incorrect application of generally accepted accounting principles relating to revenue recognition as it pertains to a single customer agreement (the “Impacted Agreement”). Additionally, to correct errors that the Company has determined to be immaterial, both individually and in aggregate, the Company also restated the consolidated financial statements for the fiscal years ended December 31, 2020 and 2019.
Impact of Restatement
The following errors in the Company’s consolidated financial statements were identified and corrected:
a) Correction of revenue related to the Impacted Agreement: During the quarter ended March 31, 2021, the Company determined that a portion of revenue under a single customer agreement that had not yet been recognized, should have been recognized during the quarters ended September 30, 2019, December 31, 2019, March 31, 2020, and June 30, 2020. The Impacted Agreement contained a single performance obligation for a license to the Company’s patents and technology in exchange for consideration, a portion of which was fixed at the inception of the contract and a portion that was dependent on the customer’s applicable sales (as stipulated in the agreement) for the four consecutive quarters commencing on July 1, 2019 and ending on June 30, 2020. The Company accounted for the agreement as a right-to-use IP license agreement with the fixed portion of the consideration appropriately recognized at the inception of the agreement when control of the license was transferred to the customer. However, the Company did not recognize as revenue the portion of the consideration that depended on the customer’s sales beginning in the quarter ended September 30, 2019. During the quarter ended March 31, 2021, the Company reassessed its accounting for this uncertain portion of the consideration and determined that revenue associated with that uncertain portion of the consideration should have been recognized over the four quarters commencing on July 1, 2019 and ending June 30, 2020, which are the periods when the uncertainty surrounding the amount of the contingent consideration was resolved (that is when the customer’s sales occurred for which the contingent payments were based). This error resulted in royalty revenue being corrected by approximately $3.6 million in each of the years ended December 31, 2020 and 2019, resulting in an increase in royalty revenue for each of the respective periods. Unbilled receivables (both current and non-current, as applicable) on the consolidated balance sheets were also increased by the correction, given this additional revenue recognized is payable by the customer in ten equal quarterly installments with the first installment payable in the quarter ended March 31, 2021. Additionally, due to the significant financing component of the Impacted Agreement, immaterial amounts were corrected to increase interest and other income (expense), net, on the consolidated statements of operations.
b) Correction of immaterial asset retirement obligation (“ARO”) related to the Company’s previous Sunnyvale, California headquarters of approximately $1.0 million in fiscal year 2019 related to facility restoration costs. The Company originally recorded a liability for the ARO but expensed (included in sales, general and administrative expenses on the consolidated statements of operations) the entire amount in the year ended December 31, 2019. The Company corrected the consolidated financial statements to record the ARO asset within property, plant and equipment, net, within the consolidated balance sheets and reflect the amortization of the ARO asset over the remaining life of the lease of seven months beginning in December of 2019 through June 2020.
c) Recording of provision for income taxes impacts due to adjustments a) and b) above.
The restatement tables below present a reconciliation from the previously reported amounts to the restated amounts (in thousands, except shares and per share amounts). The amounts originally reported were derived from the Company’s Quarterly Report on Form 10-Q for the interim period ended March 31, 2020. Certain line items in the quarterly financial data below were excluded because they were not impacted by the restatement.
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For the Three Months Ended
March 31, 2020
As Originally ReportedAdjustmentsAs Restated
Condensed Consolidated Statement of Operations
Revenue:
Royalties$19,694 $1,788 $21,482 
Total revenue63,989 1,788 65,777 
Gross profit48,104 1,788 49,892 
Operating expenses:
Sales, general and administrative22,895 411 23,306 
Total operating expenses58,943 411 59,354 
Operating income (loss)(10,839)1,377 (9,462)
Interest income and other income (expense), net6,374 69 6,443 
Interest and other income (expense), net3,819 69 3,888 
Income (loss) before income taxes(7,020)1,446 (5,574)
Provision for income taxes963 965 
Net income (loss)(7,983)1,444 (6,539)
Net income (loss) per share:
Basic$(0.07)$0.01 $(0.06)
Diluted$(0.07)$0.01 $(0.06)
For the Three Months Ended
March 31, 2020
As Originally ReportedAdjustmentsAs Restated
Condensed Consolidated Statement of Comprehensive Loss
Net income (loss)$(7,983)$1,444 $(6,539)
Total comprehensive income (loss)(8,079)1,444 (6,635)
For the Three Months Ended
March 31, 2020
As Originally ReportedAdjustmentsAs Restated
Condensed Consolidated Statement of Stockholders’ Equity
Net loss attributable to:
Accumulated deficit$(298,227)$5,899 $(292,328)
Total stockholders’ equity965,698 5,899 971,597 
For the Three Months Ended
March 31, 2020
As Originally ReportedAdjustmentsAs Restated
Condensed Consolidated Statement of Cash Flows
Cash flows from operating activities:
Net loss$(7,983)$1,444 $(6,539)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation7,300 411 7,711 
Change in operating assets and liabilities, net of effects of acquisitions:
Unbilled receivables41,321 (1,856)39,465 
Prepaid expenses and other assets1,854 1,855 
Net cash provided by operating activities37,258 37,258 
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Immaterial Correction of Prior-Period Error
Subsequent to the reissuance of the consolidated financial statements as of and for the year ended December 31, 2020, the Company determined that $7.2 million in corporate investments originally classified as cash equivalents should have been classified as marketable securities in the consolidated balance sheet as of December 31, 2020. The Company assessed the effect of this correction based on an analysis of both quantitative and qualitative factors and determined that the correction was not material. Accordingly, the Company corrected the error as of December 31, 2020 in the accompanying condensed consolidated balance sheet and related footnotes. The following adjustments were made:
Cash and cash equivalents as of December 31, 2020 originally reported as $136.1 million was corrected to $129.0 million.
Marketable securities as of December 31, 2020 originally reported as $366.5 million was corrected to $373.6 million.
Correction of Note 7, “Marketable Securities” and Note 8, “Fair Value of Financial Instruments”, to reflect the above adjustments.
Additionally, in the 10-K for the period ending December 31, 2021, the Company will correct its presentation of net cash used in investing activities for the year ended December 31, 2020, which was originally reported as $90.4 million, to reflect cash used in investing activities of $97.6 million. The corrections did not affect the net cash provided by operating activities nor net cash used in financing activities.

1A. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Rambus Inc. (“Rambus” or the “Company”) and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements.
In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring items) necessary to state fairly the financial position and results of operations for each interim period presented. Interim results are not necessarily indicative of results for a full year.
The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information. Certain information and Note disclosures included in the financial statements prepared in accordance with generally accepted accounting principles have been omitted in these interim statements pursuant to such SEC rules and regulations. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto in Form 10-K/A for the year ended December 31, 2020.

2. Recent Accounting Pronouncements
Recent Accounting Pronouncements Adopted
In January 2020, the FASB issued ASU No. 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815).” The amendments in this ASU clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. This ASU is effective for interim and annual reporting periods beginning after December 15, 2020. The Company adopted this ASU on January 1, 2021 on a prospective basis. The adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In August 2020, the FASB issued ASU No. 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40).” The amendments in this ASU simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, the guidance removes the liability and equity separation models for convertible instruments. Instead, entities will account for convertible debt instruments wholly as debt unless convertible instruments contain features that require bifurcation as a derivative or that result in substantial premiums accounted for as paid-in capital. The guidance also requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. The guidance is effective for fiscal years beginning after December 15, 2021, with
13

early adoption permitted for fiscal years beginning after December 15, 2020, and can be adopted on either a retrospective or modified retrospective basis. The Company expects to adopt this guidance on January 1, 2022. Although the Company continues to evaluate the method of adoption and impact of this guidance on its condensed consolidated financial statements, upon adoption the Company expects this guidance to result in a reclassification of conversion feature balances from additional paid-in capital to debt and to decrease reported interest expense for its convertible notes.

3. Revenue Recognition
Contract Balances
The contract assets are primarily related to the Company’s fixed fee IP licensing arrangements and rights to consideration for performance obligations delivered but not billed as of March 31, 2021.
The Company’s contract balances were as follows:
As of
(In thousands)March 31, 2021December 31, 2020
Unbilled receivables$344,745 $375,512 
Deferred revenue13,685 10,461 
During the three months ended March 31, 2021, the Company recognized $4.6 million of revenue that was included in the contract balances as of December 31, 2020. During the three months ended March 31, 2020, the Company recognized $6.1 million of revenue that was included in the contract balances as of December 31, 2019.
Remaining Performance Obligations
Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted but unsatisfied performance obligations were approximately $21.8 million as of March 31, 2021, which the Company primarily expects to recognize over the next 2 years.

4. Earnings (Loss) Per Share
Basic earnings (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing the earnings by the weighted-average number of common shares and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of incremental common shares issuable upon exercise of stock options, employee stock purchases, restricted stock and restricted stock units and shares issuable upon the conversion of convertible notes. The dilutive effect of outstanding shares is reflected in diluted earnings per share by application of the treasury stock method. This method includes consideration of the amounts to be paid by the employees and the amount of unrecognized stock-based compensation related to future services. No potential dilutive common shares are included in the computation of any diluted per share amount when a net loss is reported.
The following table sets forth the computation of basic and diluted net income (loss) per share:
Three Months Ended
 March 31,
(In thousands, except per share amounts)20212020 (As Restated)
Net loss per share:
Numerator:  
Net loss$(2,613)$(6,539)
Denominator:
Weighted-average shares outstanding - basic112,211112,907
Effect of potential dilutive common shares
Weighted-average shares outstanding - diluted112,211112,907
Basic net loss per share$(0.02)$(0.06)
Diluted net loss per share$(0.02)$(0.06)
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For the three months ended March 31, 2020, options to purchase approximately 0.4 million shares were excluded from the calculation because they were anti-dilutive after considering proceeds from exercise and related unrecognized stock-based compensation expense. For the three months ended March 31, 2021, an immaterial amount of options to purchase shares were excluded from the calculation because they were anti-dilutive after considering proceeds from exercise and related unrecognized stock-based compensation expense.
For the three months ended March 31, 2021 and 2020, an additional 3.4 million and 2.3 million shares, respectively, were excluded from the weighted-average dilutive shares because there was a net loss position for the periods. In addition, during the three months ended March 31, 2021, the Company’s stock price exceeded the 2023 Notes' conversion price of $18.93 per share, therefore approximately 0.5 million shares were excluded in the weighted-average dilutive shares. Under the treasury stock method, the cumulative dilutive effect of the 2023 Notes would be approximately 9.1 million shares. However, upon conversion, there will be no economic dilution from the 2023 Notes, as exercise of the Convertible Note Hedge Transactions will eliminate any dilution from the 2023 Notes.

5. Intangible Assets and Goodwill
Goodwill
The following tables present goodwill information for the three months ended March 31, 2021:
(In thousands)As of December 31, 2020Adjustment to GoodwillAs of March 31, 2021
Total goodwill$183,222 $$183,222 

As of March 31, 2021
(In thousands)Gross Carrying AmountAccumulated Impairment LossesNet Carrying Amount
Total goodwill$204,992 $(21,770)$183,222 
Intangible Assets, Net
The components of the Company’s intangible assets as of March 31, 2021 and December 31, 2020 were as follows:
  As of March 31, 2021
(In thousands)Useful Life
Gross Carrying
 Amount
Accumulated
 Amortization
Net Carrying
 Amount
Existing technology3 to 10 years$263,789 $(235,385)$28,404 
Customer contracts and contractual relationships0.5 to 10 years36,293 (34,425)1,868 
Non-compete agreements and trademarks3 years300 (300)
In-process research and developmentNot applicable1,600 — 1,600 
Total intangible assets $301,982 $(270,110)$31,872 
  As of December 31, 2020
(In thousands)Useful Life
Gross Carrying
 Amount
Accumulated
 Amortization
Net Carrying
 Amount
Existing technology3 to 10 years$263,789 $(230,950)$32,839 
Customer contracts and contractual relationships0.5 to 10 years36,293 (34,245)2,048 
Non-compete agreements and trademarks3 years300 (300)
In-process research and developmentNot applicable1,600 — 1,600 
Total intangible assets $301,982 $(265,495)$36,487 
During the three months ended March 31, 2021, the Company did not purchase or sell any intangible assets.
15

Amortization expense for intangible assets for the three months ended March 31, 2021 and 2020 was $4.6 million and $4.7 million, respectively.
The estimated future amortization of intangible assets as of March 31, 2021 was as follows (in thousands):
Years Ending December 31:Amount
2021 (remaining nine months)$9,996 
20227,644 
20236,940 
20245,492 
2025200 
Thereafter
Total amortizable purchased intangible assets30,272 
In-process research and development1,600 
Total intangible assets$31,872 
It is reasonably possible that the businesses could perform significantly below the Company’s expectations or a deterioration of market and economic conditions could occur. This would adversely impact the Company’s ability to meet its projected results, which could cause the goodwill of its reporting unit or long-lived assets in any of its asset groups to become impaired. Significant differences between these estimates and actual cash flows could materially affect the Company’s future financial results. If the Company determines that its goodwill or long-lived assets are impaired, it would be required to record a non-cash charge that could have a material adverse effect on its results of operations and financial position.

6. Segments and Major Customers
Operating segments are based upon Rambus’ internal organization structure, the manner in which its operations are managed, the criteria used by its Chief Operating Decision Maker (“CODM”) to evaluate segment performance and availability of separate financial information regularly reviewed for resource allocation and performance assessment.
The Company has determined its CODM to be the Chief Executive Officer (“CEO”). The CEO reviews financial information presented on a consolidated basis for purposes of managing the business, allocating resources, making operating decisions and assessing financial performance. On this basis, the Company is organized and operates as a single segment within the semiconductor space. As of March 31, 2021, the Company has a single operating and reportable segment.
Accounts receivable from the Company’s major customers representing 10% or more of total accounts receivable at March 31, 2021 and December 31, 2020, respectively, was as follows:
As of
Customer March 31, 2021December 31, 2020
Customer 114 %13 %
Customer 214 %*
Customer 311 %14 %
Customer 4*11 %
_________________________________________
*    Customer accounted for less than 10% of total accounts receivable in the period.
Revenue from the Company’s major customers representing 10% or more of total revenue for the three months ended March 31, 2021 and 2020, respectively, was as follows:
Three Months Ended
 March 31,
Customer 20212020 (As Restated)
Customer A23 %12 %
Customer B14 %14 %
Customer C*14 %
_________________________________________
*    Customer accounted for less than 10% of total revenue in the period.
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Revenue from customers in the geographic regions based on the location of contracting parties was as follows:
Three Months Ended
 March 31,
(In thousands)20212020 (As Restated)
USA$46,151 $34,788 
Taiwan8,843 7,064 
South Korea388 1,820 
Japan4,588 4,631 
Europe446 738 
Canada54 512 
Singapore6,338 7,630 
Asia-Other3,574 8,594 
Total$70,382 $65,777 

7. Marketable Securities
Rambus invests its excess cash and cash equivalents primarily in U.S. government-sponsored obligations, commercial paper, corporate notes and bonds, money market funds and municipal notes and bonds that mature within three years.
All cash equivalents and marketable securities are classified as available-for-sale. Total cash, cash equivalents and marketable securities are summarized as follows:
 As of March 31, 2021
(In thousands)Fair Value
Amortized
 Cost
Gross
 Unrealized
 Gains
Gross
 Unrealized
 Losses
Weighted
 Rate of
 Return
Money market funds$28,625 $28,625 $$0.04 %
U.S. Government bonds and notes154,380 154,373 12 (5)0.10 %
Corporate notes, bonds and commercial paper283,229 283,325 21 (117)0.22 %
Total cash equivalents and marketable securities466,234 466,323 33 (122) 
Cash62,894 62,894 — —  
Total cash, cash equivalents and marketable securities$529,128 $529,217 $33 $(122) 
 As of December 31, 2020
(In thousands)Fair Value
Amortized
 Cost
Gross
 Unrealized
 Gains
Gross
 Unrealized
 Losses
Weighted
 Rate of
 Return
Money market funds$18,162 $18,162 $$0.01 %
U.S. Government bonds and notes169,633 169,670 (40)0.12 %
Corporate notes, bonds and commercial paper253,391 253,412 61 (82)0.20 %
Total cash equivalents and marketable securities441,186 441,244 64 (122) 
Cash61,463 61,463 — —  
Total cash, cash equivalents and marketable securities$502,649 $502,707 $64 $(122) 
Available-for-sale securities are reported at fair value on the balance sheets and classified along with cash as follows:
As of
(In thousands)March 31, 2021December 31, 2020
Cash equivalents$46,660 $67,504 
Short term marketable securities419,574 373,682 
Total cash equivalents and marketable securities466,234 441,186 
Cash62,894 61,463 
Total cash, cash equivalents and marketable securities$529,128 $502,649 
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The Company continues to invest in highly rated and highly liquid debt securities. The Company holds all of its marketable securities as available-for-sale, marks them to market, and regularly reviews its portfolio to ensure adherence to its investment policy and to monitor individual investments for risk analysis, proper valuation, and unrealized losses that may be other than temporary.
The estimated fair value and gross unrealized losses of cash equivalents and marketable securities classified by the length of time that the securities have been in a continuous unrealized loss position at March 31, 2021 and December 31, 2020 are as follows:
 Fair ValueGross Unrealized Loss
(In thousands)March 31, 2021December 31, 2020March 31, 2021December 31, 2020
Less than 12 months    
U.S. Government bonds and notes$20,517 $70,548 $(5)$(40)
Corporate notes, bonds and commercial paper207,323 181,349 (117)(82)
Total cash equivalents and marketable securities in a continuous unrealized loss position$227,840 $251,897 $(122)$(122)
The gross unrealized loss at March 31, 2021 and December 31, 2020 was not material in relation to the Company’s total available-for-sale portfolio. The gross unrealized loss can be primarily attributed to a combination of market conditions as well as the demand for and duration of the U.S. government-sponsored obligations and corporate notes and bonds. The Company reasonably believes that there is no need to sell these investments and that it can recover the amortized cost of these investments. The Company has found no evidence of impairment due to credit losses in its portfolio. Therefore, these unrealized losses were recorded in other comprehensive income (loss). However, the Company cannot provide any assurance that its portfolio of cash, cash equivalents and marketable securities will not be impacted by adverse conditions in the financial markets, which may require the Company in the future to record an impairment charge for credit losses which could adversely impact its financial results.
The contractual maturities of cash equivalents (excluding money market funds which have no maturity) and marketable securities are summarized as follows:
(In thousands)March 31, 2021
Due less than one year$360,852 
Due from one year through three years76,757 
Total$437,609 
Refer to Note 8, “Fair Value of Financial Instruments,” for discussion regarding the fair value of the Company’s cash equivalents and marketable securities.

8. Fair Value of Financial Instruments
The following table presents the financial instruments that are carried at fair value and summarizes the valuation of its cash equivalents and marketable securities by the below pricing levels as of March 31, 2021 and December 31, 2020:
 As of March 31, 2021
(In thousands)Total
Quoted Market Prices in Active Markets
 (Level 1)
Significant Other Observable Inputs
 (Level 2)
Significant Unobservable Inputs
 (Level 3)
Money market funds$28,625 $28,625 $$
U.S. Government bonds and notes154,380 154,380 
Corporate notes, bonds and commercial paper283,229 283,229 
Total available-for-sale securities$466,234 $28,625 $437,609 $
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 As of December 31, 2020
(In thousands)Total
Quoted Market Prices in Active Markets
 (Level 1)
Significant Other Observable Inputs
 (Level 2)
Significant Unobservable Inputs
 (Level 3)
Money market funds$18,162 $18,162 $$
U.S. Government bonds and notes169,633 169,633 
Corporate notes, bonds and commercial paper253,391 253,391 
Total available-for-sale securities$441,186 $18,162 $423,024 $
The Company monitors its investments for other-than-temporary impairment and records appropriate reductions in carrying value when necessary. The Company monitors its investments for other-than-temporary losses by considering current factors, including the economic environment, market conditions, operational performance and other specific factors relating to the business underlying the investment, reductions in carrying values when necessary and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery in the market. Any other-than-temporary loss is reported under “Interest and other income (expense), net” on the condensed consolidated statement of operations.
During the second half of 2018, the Company made an investment in a non-marketable equity security of a private company. This equity investment is accounted for under the equity method of accounting, and the Company accounts for its equity method share of the income (loss) on a quarterly basis. As of March 31, 2021, the Company’s 25.0% ownership percentage amounted to a $2.6 million equity interest in this equity investment and it was included in other assets on the accompanying consolidated balance sheets. The Company recorded immaterial amounts on its consolidated statements of operations representing its share of the investee’s loss for the three months ended March 31, 2021 and 2020.
During the three months ended March 31, 2021 and 2020, there were no transfers of financial instruments between different categories of fair value.
The following table presents the financial instruments that are not carried at fair value but require fair value disclosure as of March 31, 2021 and December 31, 2020:
 As of March 31, 2021As of December 31, 2020
(In thousands)
Face
 Value
Carrying
 Value
Fair Value
Face
 Value
Carrying
 Value
Fair Value
1.375% Convertible Senior Notes due 2023 (the “2023 Notes”)$172,500 $157,905 $204,896 $172,500 $156,031 $194,709 
The fair value of the convertible notes at each balance sheet date is determined based on recent quoted market prices for these notes which is a level 2 measurement. As discussed in Note 10, “Convertible Notes,” as of March 31, 2021, the convertible notes were carried at their face value of $172.5 million, less any unamortized debt discount and unamortized debt issuance costs. The carrying value of other financial instruments, including accounts receivable, accounts payable and other liabilities, approximated fair value due to their short maturities.

9. Leases
The Company leases office space, domestically and internationally, under operating leases. The Company’s leases have remaining lease terms generally between one year and ten years. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, and long-term operating lease liabilities on the Company’s unaudited condensed consolidated balance sheets. The Company does not have any finance leases.
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The table below reconciles the undiscounted cash flows for the first five years and total of the remaining years to the operating lease liabilities recorded on the unaudited condensed consolidated balance sheet as of March 31, 2021 (in thousands):
Years ending December 31,Amount
2021 (remaining nine months)$6,505 
20227,385 
20234,572 
20243,925 
20254,043 
Thereafter21,325 
Total minimum lease payments47,755 
Less: amount of lease payments representing interest(8,194)
Present value of future minimum lease payments39,561 
Less: current obligations under leases(7,026)
Long-term lease obligations$32,535 
As of March 31, 2021, the weighted-average remaining lease term for the Company’s operating leases was 8.1 years and the weighted-average discount rate used to determine the present value of the Company’s operating leases was 4.3%.
Operating lease costs included in research and development and selling, general and administrative costs on the condensed consolidated statements of operations were $1.9 million and $2.9 million for the three months ended March 31, 2021 and 2020, respectively.
Cash paid for amounts included in the measurement of operating lease liabilities were $2.1 million and $2.3 million for the three months ended March 31, 2021 and 2020, respectively.

10. Convertible Notes
The Company’s convertible notes are shown in the following table:
As of
(In thousands)March 31, 2021December 31, 2020
2023 Notes$172,500 $172,500 
Unamortized discount — 2023 Notes(13,671)(15,420)
Unamortized debt issuance costs — 2023 Notes(924)(1,049)
Total convertible notes157,905 156,031 
Less current portion
Total long-term convertible notes$157,905 $156,031 
Interest expense related to the notes for the three months ended March 31, 2021 and 2020 was as follows:
Three Months Ended
 March 31,
(In thousands)20212020
2023 Notes coupon interest at a rate of 1.375%$593 $593 
2023 Notes amortization of discount and debt issuance cost at an additional effective interest rate of 4.9%1,874 1,773 
Total interest expense on convertible notes$2,467 $2,366 

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11. Commitments and Contingencies
As of March 31, 2021, the Company’s material contractual obligations were as follows:
(In thousands)TotalRemainder of 20212022202320242025
Contractual obligations (1) (2)
      
Software licenses (3)
$15,820 $9,391 $6,429 $$$
Acquisition retention bonuses (4)
6,370 3,370 3,000 
Convertible notes172,500 172,500 
Interest payments related to convertible notes4,750 1,186 2,372 1,192 
Total$199,440 $13,947 $11,801 $173,692 $$
_________________________________________
(1)    The above table does not reflect possible payments in connection with unrecognized tax benefits of approximately $27.1 million including $23.8 million recorded as a reduction of long-term deferred tax assets and $3.3 million in long-term income taxes payable as of March 31, 2021. As noted below in Note 14, “Income Taxes,” although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the outcome at this time.
(2)    For the Company’s lease commitments as of March 31, 2021, refer to Note 9, “Leases.”
(3)    The Company has commitments with various software vendors for agreements generally having terms longer than one year.
(4)    In connection with the acquisition of Northwest Logic in the third quarter of 2019 and the Secure Silicon IP and Protocols business in the fourth quarter of 2019, the Company is obligated to pay retention bonuses to certain employees subject to certain eligibility and acceleration provisions including the condition of employment.
Indemnifications
From time to time, the Company indemnifies certain customers as a necessary means of doing business. Indemnification covers customers for losses suffered or incurred by them as a result of any patent, copyright, or other intellectual property infringement or any other claim by any third party arising as result of the applicable agreement with the Company. The Company generally attempts to limit the maximum amount of indemnification that the Company could be required to make under these agreements to the amount of fees received by the Company, however, this is not always possible. The fair value of the liability as of March 31, 2021 and December 31, 2020 was not material.

12. Equity Incentive Plans and Stock-Based Compensation
A summary of shares available for grant under the Company’s plans is as follows:
 
Shares Available
 for Grant
Total shares available for grant as of December 31, 202012,412,320
Stock options forfeited45,644
Nonvested equity stock and stock units granted (1) (2)
(3,156,609)
Nonvested equity stock and stock units forfeited (1)
934,842
Total shares available for grant as of March 31, 202110,236,197
_________________________________________
(1)    For purposes of determining the number of shares available for grant under the 2015 Equity Incentive Plan (the “2015 Plan”) against the maximum number of shares authorized, each restricted stock granted reduces the number of shares available for grant by 1.5 shares and each restricted stock forfeited increases shares available for grant by 1.5 shares.
(2)    Amount includes approximately 0.4 million shares that have been reserved for potential future issuance related to certain performance unit awards granted in the first quarter of 2021 and discussed under the section titled “Nonvested Equity Stock and Stock Units” below.
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General Stock Option Information
The following table summarizes stock option activity under the Company’s equity incentive plans for the three months ended March 31, 2021 and information regarding stock options outstanding, exercisable, and vested and expected to vest as of March 31, 2021.
 Options Outstanding  
 (In thousands, except per share amounts and years)
Number of
 Shares
Weighted-
 Average
 Exercise Price
 Per Share
Weighted-
 Average
 Remaining
 Contractual
 Term (years)
Aggregate
 Intrinsic
 Value
Outstanding as of December 31, 2020964,211$11.08   
Options granted0$  
Options exercised(81,713)$11.17   
Options forfeited(45,644)$15.03   
Outstanding as of March 31, 2021836,854$10.86 4.6$7,181 
Vested or expected to vest at March 31, 2021836,375$10.86 4.6$7,178 
Options exercisable at March 31, 2021732,117$10.55 4.2$6,507 
Employee Stock Purchase Plan
No purchases were made under the 2015 Employee Stock Purchase Plan (“2015 ESPP”) during the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, approximately 3.2 million shares under the 2015 ESPP remained available for issuance.
Stock-Based Compensation
For the three months ended March 31, 2021 and 2020, the Company maintained stock plans covering a broad range of potential equity grants including stock options, nonvested equity stock and equity stock units and performance based instruments. In addition, the Company sponsors the 2015 ESPP, whereby eligible employees are entitled to purchase common stock semi-annually, by means of limited payroll deductions, at a 15% discount from the fair market value of the common stock as of specific dates.
Stock Options
There were no stock options granted during the three months ended March 31, 2021 and 2020, respectively. During the three months ended March 31, 2021 and 2020, the Company recorded stock-based compensation expense related to stock options of $0.1 million each in both periods.
As of March 31, 2021, there was $0.9 million of total unrecognized compensation cost, net of expected forfeitures, related to non-vested stock-based compensation arrangements granted under the stock option plans. That cost is expected to be recognized over a weighted-average period of 1.7 years.
Employee Stock Purchase Plan
For the three months ended March 31, 2021 and 2020, the Company recorded compensation expense related to the 2015 ESPP of $0.5 million each in both periods. As of March 31, 2021, there was $0.2 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under the 2015 ESPP. That cost is expected to be recognized over one month.
Nonvested Equity Stock and Stock Units
The Company grants nonvested equity stock units to officers, employees and directors. During the three months ended March 31, 2021, the Company granted nonvested equity stock units totaling approximately 1.9 million shares. During the three months ended March 31, 2020, the Company granted nonvested equity stock units totaling approximately 1.7 million shares. These awards have a service condition, generally a service period of four years, except in the case of grants to directors, for which the service period is one year. For the three months ended March 31, 2021, the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $38.5 million. For the three months ended March 31, 2020, the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $27.6 million. During the first quarters of 2021 and 2020, the Company granted performance unit awards to certain Company executive officers with vesting subject to the achievement of certain performance and/or market conditions. The ultimate number of performance units
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that can be earned can range from 0% to 200% of target depending on performance relative to target over the applicable period. The shares earned will vest on the third anniversary of the date of grant. The Company’s shares available for grant have been reduced to reflect the shares that could be earned at the maximum target.
For the three months ended March 31, 2021, the Company recorded stock-based compensation expense of approximately $5.9 million related to all outstanding nonvested equity stock grants. For the three months ended March 31, 2020, the Company recorded stock-based compensation expense of approximately $5.4 million related to all outstanding nonvested equity stock grants. Unrecognized stock-based compensation related to all nonvested equity stock grants, net of estimated forfeitures, was approximately $56.2 million at March 31, 2021. This amount is expected to be recognized over a weighted-average period of 2.6 years.
The following table reflects the activity related to nonvested equity stock and stock units for the three months ended March 31, 2021:
Nonvested Equity Stock and Stock UnitsShares
Weighted-
 Average
 Grant-Date
 Fair Value
Nonvested at December 31, 20204,851,265$12.82 
Granted1,856,124$20.75 
Vested(1,139,592)$12.46 
Forfeited(438,579)$14.85 
Nonvested at March 31, 20215,129,218$15.59 

13. Stockholders’ Equity
Share Repurchase Programs
On October 29, 2020, the Board approved a new share repurchase program authorizing the repurchase of up to an aggregate of 20.0 million shares (the “2020 Repurchase Program”). Share repurchases under the 2020 Repurchase Program may be made through the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules, and regulations. There is no expiration date applicable to the 2020 Repurchase Program. During the three months ended March 31, 2021, the Company did not repurchase any shares of its common stock under the 2020 Repurchase Program.
On November 11, 2020, the Company entered into an accelerated share repurchase program with Deutsche Bank AG, London Branch as counterparty, through its agent Deutsche Bank Securities Inc. (“Deutsche Bank”) (the “2020 ASR Program”). The 2020 ASR Program was part of the share repurchase program previously authorized by the Company’s Board on October 29, 2020. Under the 2020 ASR Program, the Company pre-paid to Deutsche Bank the $50.0 million purchase price for its common stock and, in turn, the Company received an initial delivery of approximately 2.6 million shares of its common stock from Deutsche Bank in the fourth quarter of 2020, which were retired and recorded as a $40.0 million reduction to stockholders’ equity. The remaining $10.0 million of the initial payment was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to the Company’s stock.
The number of shares to be ultimately purchased by the Company will be determined based on the volume-weighted-average price of the common stock during the term of the transaction, minus an agreed upon discount between the parties. The 2020 ASR Program is expected to be completed within six months from the beginning of the program. During the three months ended March 31, 2021, the Company did not repurchase any shares of its common stock under the 2020 ASR Program.
As of March 31, 2021, there remained an outstanding authorization to repurchase approximately 17.4 million shares of the Company’s outstanding common stock under the 2020 Repurchase Program.
The Company records stock repurchases as a reduction to stockholders’ equity. The Company records a portion of the purchase price of the repurchased shares as an increase to accumulated deficit when the price of the shares repurchased exceeds the average original proceeds per share received from the issuance of common stock.

14. Income Taxes
The Company recorded a provision for (benefit from) income taxes of $(0.5) million and $1.0 million for the three months ended March 31, 2021 and 2020, respectively. The benefit from income taxes for the three months ended March 31, 2021 was driven by a combination of the valuation allowance recorded on U.S. deferred tax assets, foreign withholding taxes, the
23

statutory tax expense for the foreign jurisdictions for 2021 and indefinite-lived intangible tax amortization expense. The provision for income taxes for the three months ended March 31, 2020 was driven by a combination of the valuation allowance recorded on U.S. deferred tax assets, foreign withholding taxes, the projected annual effective tax rate for the foreign jurisdictions for 2020 and indefinite-lived intangible tax amortization expense.
During the three months ended March 31, 2021 and 2020, the Company paid withholding taxes of $5.4 million and $4.4 million, respectively.
The Company periodically evaluates the realizability of its net deferred tax assets based on all available evidence, both positive and negative. During the third quarter of 2018, the Company assessed the changes in its underlying facts and circumstances and evaluated the realizability of its existing deferred tax assets based on all available evidence, both positive and negative, and the weight accorded to each, and concluded a full valuation allowance associated with U.S. federal and California deferred tax assets was appropriate. The Company continues to maintain a full valuation allowance against its U.S. federal deferred tax assets. During 2020, as a result of the enactment of California A.B. 85 and the temporary suspension of California net operating loss utilization for tax years 2020 through 2022, the Company released $0.7 million of the valuation allowance on its deferred tax asset for California research and development tax credits. The Company continues to maintain a full valuation allowance on the remainder of its California deferred tax assets as it does not expect to be able to fully utilize them.
The Company has U.S. federal deferred tax assets related to research and development credits, foreign tax credits and other tax attributes that can be used to offset U.S. federal taxable income in future periods. These credit carryforwards will expire if they are not used within certain time periods. It is possible that some or all of these attributes could ultimately expire unused.
The Company maintains liabilities for uncertain tax positions within its long-term income taxes payable accounts and as a reduction to existing deferred tax assets to the extent tax attributes are available to offset such liabilities. These liabilities involve judgment and estimation and are monitored by management based on the best information available including changes in tax regulations, the outcome of relevant court cases and other information.
As of March 31, 2021, the Company had approximately $140.1 million of unrecognized tax benefits, including $23.8 million recorded as a reduction of long-term deferred tax assets, $113.0 million recorded as a reduction of other assets associated with refundable withholding taxes previously withheld from licensees in South Korea (Korea), and $3.3 million recorded in long-term income taxes payable. If recognized, $3.3 million would be recorded as an income tax benefit. As a result of recent court rulings in Korea, the Company has determined that they may be entitled to refund claims for foreign taxes previously withheld from licensees in Korea. The Company recognizes that there are numerous risks and uncertainties associated with the ultimate collection of this refund, and has therefore maintained an offsetting reserve for the entire amount of refundable withholding taxes previously withheld in Korea. As of December 31, 2020, the Company had $134.0 million of unrecognized tax benefits, including $23.6 million recorded as a reduction of long-term deferred tax assets, $109 million recorded as a reduction of other assets associated with refundable withholding taxes previously withheld from licensees in South Korea, and $1.9 million recorded in long-term income taxes payable.
Although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the outcome at this time.
The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision. At March 31, 2021 and December 31, 2020, an immaterial amount of interest and penalties is included in long-term income taxes payable.
Rambus files income tax returns for the U.S., California, India, the U.K., the Netherlands and various other state and foreign jurisdictions. The U.S. federal returns are subject to examination from 2016 and forward. The California returns are subject to examination from 2010 and forward. In addition, any research and development credit carryforward or net operating loss carryforward generated in prior years and utilized in these or future years may also be subject to examination. The India returns are subject to examination from fiscal year ending March 2012 and forward. The Company is currently under examination by California for the 2010, 2011, 2016 and 2018 tax years, and by New York for the 2017 through 2019 tax years. The Company’s India subsidiary is under examination by the Indian tax administration for tax years beginning with 2011, except for 2014, which was assessed in the Company’s favor. These examinations may result in proposed adjustments to the income taxes as filed during these periods. Management regularly assesses the likelihood of outcomes resulting from income tax examinations to determine the adequacy of their provision for income taxes and believes their provision for unrecognized tax benefits is adequate.
Additionally, the Company’s future effective tax rates could be adversely affected by earnings being higher than anticipated in countries where the Company has higher statutory rates or lower than anticipated in countries where it has lower statutory rates, by changes in valuation of its deferred tax assets and liabilities or by changes in tax laws or interpretations of those laws.
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On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. The CARES Act includes a number of federal income tax law changes, including, but not limited to (1) permitting net operating loss carrybacks to offset 100% of taxable income for taxable years beginning before 2021, (2) accelerating alternative minimum tax credit refunds, (3) temporarily increasing the allowable business interest deduction from 30% to 50% of adjusted taxable income, and (4) providing a technical correction for depreciation related to qualified improvement property. The CARES Act did not have a material impact on the Company’s condensed consolidated financial statements.

15. Litigation and Asserted Claims
Rambus is not currently a party to any material pending legal proceeding; however, from time to time, Rambus may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on our business, operating results, financial position or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management attention and resources and other factors.
The Company records a contingent liability when it is probable that a loss has been incurred and the amount is reasonably estimable in accordance with accounting for contingencies.

16. Restructuring Charges
2020 Restructuring Plan
In November 2020, the Company initiated a restructuring plan to reduce overall expenses which is expected to improve future profitability by reducing spending on research and development efforts and sales, general and administrative programs (the “2020 Restructuring Plan”). In connection with this restructuring plan, the Company initiated a plan of termination resulting in a reduction of approximately 70 employees. During the three months ended March 31, 2021, the Company recorded additional charges of approximately $0.4 million related primarily to the reduction in workforce. As of March 31, 2021, the Company’s accrued restructuring balance was approximately $0.1 million. The 2020 Restructuring Plan is expected to be substantially completed in the second quarter of 2021.
2019 Restructuring Plan
In June 2019, the Company initiated a restructuring plan to reduce overall expenses to improve future profitability by reducing spending on research and development efforts and sales, general and administrative programs (the “2019 Restructuring Plan”). In connection with the 2019 Restructuring Plan, the Company initiated a plan of termination resulting in a reduction of approximately 80 employees. During 2020, the Company recorded a charge of approximately $0.8 million related to the reduction in workforce. The 2019 Plan was substantially completed in the second quarter of 2020.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as described in more detail under “Note Regarding Forward-Looking Statements.” Our forward-looking statements are based on current expectations, forecasts and assumptions and are subject to risks, uncertainties and changes in condition, significance, value and effect. As a result of the factors described herein, and in the documents incorporated herein by reference, including, in particular, those factors described under “Risk Factors,” we undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this report with the Securities and Exchange Commission.
Rambus is a trademark of Rambus Inc. Other trademarks that may be mentioned in this quarterly report on Form 10-Q are the property of their respective owners.
The following information has been adjusted to reflect the restatement of our consolidated financial statements for the three months ended March 31, 2020 as described in Note 1, “Restatement of Condensed Consolidated Financial Statements and Immaterial Correction of Prior-Period Error,” of Notes to Unaudited Condensed Consolidated Financial Statements of this Form 10-Q.

Executive Summary
We had a strong quarter, delivering at the high end of our revenue and profitability targets. Our product revenue is up 41% quarter-over-quarter, consisting primarily of our memory interface chips.
Key 2021 first quarter financial results included:
Revenue of $70.4 million;
Operating expenses of $56.5 million; and
Net cash provided by operating activities of approximately $39.5 million.

Business Overview
Rambus produces products and innovations that address the fundamental challenges of accelerating data. We make industry-leading chips and silicon IP that enable critical performance improvements for data center and other growing markets. The ongoing shift to the cloud, along with the widespread advancement of AI across the data center, 5G, automotive and IoT, has led to exponential growth in data usage and tremendous demands on data infrastructure. Creating fast and safe connections, both in and across systems, remains one of the most mission-critical design challenges limiting performance in advanced hardware for these markets.
As an industry pioneer with over 30 years of advanced semiconductor experience in interconnect technologies, Rambus is ideally positioned to address the challenges of moving and protecting data. We are a leader in high-performance memory subsystems, providing chips, silicon IP and innovations that maximize the performance and security in data-intensive systems. Whether in the cloud, at the edge or in your hand, real-time and immersive applications depend on data throughput and integrity. Rambus products and innovations deliver the increased bandwidth, capacity and security required to meet the world’s data needs and drive ever-greater end-user experiences.
Our strategic objectives are focusing our product portfolio and research around our core strength in semiconductors, optimizing our operational efficiency, and leveraging our strong cash generation to re-invest for growth. We continue to maximize synergies across our businesses and customer base, leveraging the significant overlap in our ecosystem of customers, partners and influencers. The Rambus product and technology roadmap, as well as our go-to-market strategy, is driven by the application-specific requirements of our focus markets.
Revenue Sources
The Company’s consolidated revenue is comprised of product revenue, contract and other revenue and royalties.
Product revenue consists primarily of memory interface chips and is a significant and growing segment of the business. Our memory interface chips are sold to major DRAM manufacturers, Micron, Samsung and SK hynix, as well as directly to system manufacturers and cloud providers, for integration into server memory modules. Product revenue accounted for 44% of our consolidated revenue for the three months ended March 31, 2021, as compared to 47% for the three months ended March 31, 2020.
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Contract and other revenue consists primarily of Silicon IP, which is comprised our high-speed interface and security IP. Revenue sources under contract and other include our IP core licenses, software licenses and related implementation, support and maintenance fees, and engineering services fees. The timing and amounts invoiced to customers can vary significantly depending on specific contract terms and can therefore have a significant impact on deferred revenue or accounts receivable in any given period. Contract and other revenue accounted for 15% of our consolidated revenue for the three months ended March 31, 2021, as compared to 21% for the three months ended March 31, 2020.
Royalty revenue is derived from our patent licenses, through which we provide our customers certain rights to our broad worldwide portfolio of patented inventions. Our patent licenses enable our customers to use a portion of our patent portfolio in their own digital electronics products. The licenses typically range in term up to ten years and define the specific field of use where our customers may utilize our inventions in their products. Royalties may be structured as fixed, variable or a hybrid of fixed and variable royalty payments. Leading semiconductor and electronic system companies such as AMD, Broadcom, Cisco, CXMT, IBM, Infineon, Kioxia, Marvell, Mediatek, Micron, Nanya, NVIDIA, Panasonic, Phison, Qualcomm, Samsung, SK hynix, Socionext, STMicroelectronics, Toshiba, Western Digital, Winbond, and Xilinx have licensed our patents. The vast majority of our patents originate from our internal research and development efforts. Revenues from royalties accounted for 41% of our consolidated revenue for the three months ended March 31, 2021, as compared to 33% for the three months ended March 31, 2020.
Costs and Expenses
Cost of product revenue for the three months ended March 31, 2021 increased approximately $1.1 million as compared to the same period in 2020. The increase was primarily due to increased cost of sales associated with our memory interface chips.
Cost of contract and other revenue for the three months ended March 31, 2021 increased slightly by approximately $0.4 million as compared to the same period in 2020.
Research and development expenses continue to play a key role in our efforts to drive our product innovations. Our research and development expenses for the three months ended March 31, 2021 decreased $4.3 million as compared to the same period in 2020 primarily due to decreased headcount related expenses of $1.1 million, facilities costs of $0.8 million, retention bonus expense related to acquisitions of $0.7 million, prototyping costs of $0.6 million, engineering development tool costs of $0.5 million, allocated information technology costs of $0.4 million, legal patent costs of $0.2 million, travel costs of $0.2 million and consulting costs of $0.2 million, offset by increased bonus expense of $0.5 million.
Sales, general and administrative expenses for the three months ended March 31, 2021 increased $0.3 million as compared to the same period in 2020, primarily due to increased consulting, legal and accounting costs of $3.0 million related to the shareholder activism activity and restatement matters, and stock-based compensation expense of $0.3 million, offset by decreased facilities costs of $0.7 million, headcount related expenses of $0.5 million, other accounting costs of $0.4 million, depreciation expense of $0.4 million, equipment maintenance costs of $0.3 million, travel costs of $0.3 million and other consulting costs of $0.3 million.
Intellectual Property
As of March 31, 2021, our semiconductor, security, and other technologies are covered by 2,418 U.S. and foreign patents. Additionally, we have 585 patent applications pending. Some of the patents and pending patent applications are derived from a common parent patent application or are foreign counterpart patent applications. We have a program to file applications for and obtain patents in the United States and in selected foreign countries where we believe filing for such protection is appropriate and would further our overall business strategy and objectives. In some instances, obtaining appropriate levels of protection may involve prosecuting continuation and counterpart patent applications based on a common parent application. We believe our patented innovations provide our customers with the ability to achieve improved performance, lower risk, greater cost-effectiveness, and other benefits in their products and services.
Impact of the COVID-19 Pandemic
In December 2019, the Novel Coronavirus (COVID-19) was reported in China, in January 2020 the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern, and in March 2020 the WHO declared it a pandemic. The COVID-19 pandemic has created significant global economic uncertainty and may adversely impact the business of our customers, partners and vendors. The extent of the impact of the Novel Coronavirus (COVID-19) on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers and our sales cycles, and impact on our partners or employees, all of which are uncertain and cannot be predicted. The extent to which the Novel Coronavirus (COVID-19) may impact our financial condition or results of operations remains uncertain. Actual results could differ from any estimates and any such differences could be material to our
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financial statements. Furthermore, the effect of the Novel Coronavirus (COVID-19) may not be fully reflected in our results of operations until future periods, if at all.

Trends
There are a number of trends that may have a material impact on us in the future, including but not limited to, the evolution of memory and SerDes technology, adoption of security solutions, the use and adoption of our inventions or technologies generally, industry consolidation, and global economic conditions with the resulting impact on sales of consumer electronic systems.
We have a high degree of revenue concentration. Our top five customers represented approximately 59% of our revenue for the three months ended March 31, 2021 as compared to 53% for the three months ended March 31, 2020. The particular customers which account for revenue concentration have varied from period-to-period as a result of the addition of new contracts, expiration of existing contracts, renewals of existing contracts, industry consolidation, and the volumes and prices at which the customers have recently sold to their customers. These variations are expected to continue in the foreseeable future.
Our revenue from companies headquartered outside of the United States accounted for approximately 34% of our total revenue for the three months ended March 31, 2021 as compared to 47% for the three months ended March 31, 2020. We expect that revenue derived from international customers will continue to represent a significant portion of our total revenue in the future. Currently, our revenue from international customers is denominated in U.S. dollars. For additional information concerning international revenue, refer to Note 6, “Segments and Major Customers,” of Notes to Unaudited Condensed Consolidated Financial Statements of this Form 10-Q.
The royalties we receive from our semiconductor customers are partly a function of the adoption of our technologies by system companies. Many system companies purchase semiconductors containing our technologies from our customers and do not have a direct contractual relationship with us. Our customers generally do not provide us with details as to the identity or volume of licensed semiconductors purchased by particular system companies. As a result, we face difficulty in analyzing the extent to which our future revenue will be dependent upon particular system companies.
As a part of our overall business strategy, from time to time, we evaluate businesses and technologies for potential acquisition that are aligned with our core business and designed to supplement our growth, including the 2019 acquisitions of Northwest Logic and the Secure Silicon IP and Protocols business from Verimatrix, formerly Inside Secure. Similarly, we evaluate our current businesses and technologies that are not aligned with our core business for potential divestiture, such as the sale of our Payments and Ticketing businesses to Visa International Service Association in 2019. We expect to continue to evaluate and potentially enter into strategic acquisitions or divestitures which may adversely impact our business and operating results.
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Results of Operations
The following table sets forth, for the periods indicated, the percentage of total revenue represented by certain items reflected on our unaudited condensed consolidated statements of operations:
Three Months Ended
March 31,
 20212020 (As Restated)
Revenue:  
Product revenue43.7 %46.7 %
Royalties41.0 %32.7 %
Contract and other revenue15.3 %20.6 %
Total revenue100.0 %100.0 %
Cost of revenue:
Cost of product revenue16.2 %15.7 %
Cost of contract and other revenue2.2 %1.8 %
Amortization of acquired intangible assets6.2 %6.6 %
Total cost of revenue24.6 %24.1 %
Gross profit75.4 %75.9 %
Operating expenses: 
Research and development46.0 %55.7 %
Sales, general and administrative33.5 %35.4 %
Amortization of acquired intangible assets0.3 %0.5 %
Restructuring charges0.5 %1.3 %
Change in fair value of earn-out liability— %(2.7)%
Total operating expenses80.3 %90.2 %
Operating loss(4.9)%(14.3)%
Interest income and other income (expense), net4.2 %9.8 %
Interest expense(3.7)%(3.9)%
Interest and other income (expense), net0.5 %5.9 %
Loss before income taxes(4.4)%(8.4)%
Provision for (benefit from) income taxes(0.7)%1.5 %
Net loss(3.7)%(9.9)%
Three Months Ended
 March 31,Change in
(Dollars in millions)20212020 (As Restated)Percentage
Total Revenue:   
Product revenue$30.8 $30.7 0.2 %
Royalties28.9 21.5 34.3 %
Contract and other revenue10.7 13.6 (20.8)%
Total revenue$70.4 $65.8 7.0 %
Product Revenue
Product revenue consists of revenue from the sale of memory and security products. Product revenue increased approximately $0.1 million to $30.8 million for the three months ended March 31, 2021 from $30.7 million for the same period in 2020. The increase was due to higher sales of our memory interface chips.
We believe that product revenue will continue to increase in 2021 as compared to 2020, mainly from the sale of our memory interface chips. Our ability to continue to grow product revenue is dependent on, among other things, our ability to continue to obtain orders from customers and our ability to meet our customers’ demands.
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Royalties
Our royalties, which include patent and technology license royalties, increased approximately $7.4 million to $28.9 million for the three months ended March 31, 2021 from $21.5 million for the same period in 2020. The increase was primarily due to the timing of renewals and the related structure of architecture license agreements, which include both fixed and variable components.
We are continuously in negotiations for licenses with prospective customers. We expect patent royalties will continue to vary from period to period based on our success in adding new customers, renewing or extending existing agreements, as well as the level of variation in our customers’ reported shipment volumes, sales price and mix, offset in part by the proportion of customer payments that are fixed or hybrid in nature. We also expect that our technology royalties will continue to vary from period to period based on our customers’ shipment volumes, sales prices, and product mix.
Contract and Other Revenue
Contract and other revenue consists of revenue from technology development projects. Contract and other revenue decreased approximately $2.9 million to $10.7 million for the three months ended March 31, 2021 from $13.6 million for the same period in 2020. The decrease was primarily due to lower revenue associated with our Silicon IP offerings.
We believe that contract and other revenue will fluctuate over time based on our ongoing technology development contractual requirements, the amount of work performed, the timing of completing engineering deliverables, and the changes to work required, as well as new technology development contracts booked in the future.
Cost of Product Revenue
Three Months Ended
 March 31,Change in
(Dollars in millions)20212020Percentage
Cost of product revenue$11.4 $10.3 10.3 %
Cost of product revenue increased approximately $1.1 million to $11.4 million for the three months ended March 31, 2021 from $10.3 million for the same period in 2020. The increase was primarily due to increased cost of sales associated with higher sales of memory interface chips.
In the near term, we expect costs of product revenue to be higher as we expect higher sales of our various products in 2021 as compared to 2020.
Cost of Contract and Other Revenue
Three Months Ended
 March 31,Change in
(Dollars in millions)20212020Percentage
Cost of contract and other revenue$1.6 $1.2 29.9 %
Cost of contract and other revenue for the three months ended March 31, 2021 increased slightly by approximately $0.4 million as compared to the same period in 2020.
In the near term, we expect costs of contract and other revenue to vary from period to period based on varying revenue recognized from contract and other revenue.
Research and Development Expenses
Three Months Ended
 March 31,Change in
(Dollars in millions)20212020Percentage
Research and development expenses:  
Research and development expenses$29.8 $34.1 (12.6)%
Stock-based compensation2.6 2.6 — %
Total research and development expenses$32.4 $36.7 (11.8)%
Total research and development expenses decreased $4.3 million for the three months ended March 31, 2021 as compared to the same period in 2020 primarily due to decreased headcount related expenses of $1.1 million, facilities costs of $0.8 million,
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retention bonus expense related to acquisitions of $0.7 million, prototyping costs of $0.6 million, engineering development tool costs of $0.5 million, allocated information technology costs of $0.4 million, legal patent costs of $0.2 million, travel costs of $0.2 million and consulting costs of $0.2 million, offset by increased bonus expense of $0.5 million.
In the near term, we expect research and development expenses to be higher as we continue to make investments in the infrastructure and technologies required to maintain our product innovation in semiconductor, security and other technologies.
Sales, General and Administrative Expenses
Three Months Ended
 March 31,Change in
(Dollars in millions)20212020 (As Restated)Percentage
Sales, general and administrative expenses:   
Sales, general and administrative expenses$19.8 $19.8 — %
Stock-based compensation3.8 3.5 10.2 %
Total sales, general and administrative expenses$23.6 $23.3 1.1 %
Total sales, general and administrative expenses increased $0.3 million for the three months ended March 31, 2021 as compared to the same period in 2020 primarily due to increased consulting, legal and accounting costs of $3.0 million related to the shareholder activism activity and restatement matters, and stock-based compensation expense of $0.3 million, offset by decreased facilities costs of $0.7 million, headcount related expenses of $0.5 million, other accounting costs of $0.4 million, depreciation expense of $0.4 million, equipment maintenance costs of $0.3 million, travel costs of $0.3 million and other consulting costs of $0.3 million.
In the future, sales, general and administrative expenses will vary from period to period based on the trade shows, advertising, legal, acquisition and other sales, marketing and administrative activities undertaken, and the change in sales, marketing and administrative headcount in any given period. In the near term, we expect our sales, general and administrative expenses to remain relatively flat.
Amortization of Acquired Intangible Assets
Three Months Ended
 March 31,Change in
(Dollars in millions)20212020Percentage
Amortization of acquired intangible assets:   
Amortization of acquired intangible assets included in total cost of revenue$4.4 $4.3 1.0 %
Amortization of acquired intangible assets included in total operating expenses0.2 0.4 (34.2)%
Total amortization of acquired intangible assets$4.6 $4.7 (1.6)%
Amortization of acquired intangible assets recognized in cost of revenue and operating expenses for the three months ended March 31, 2021 decreased approximately $0.1 million as compared to the same period in 2020. The decrease was primarily due to certain intangible assets being fully amortized.
Restructuring Charges
Three Months Ended
 March 31,Change in
(Dollars in millions)20212020Percentage
Restructuring charges$0.4 $0.8 (56.0)%
In November 2020, we initiated a restructuring plan to reduce overall expenses which is expected to improve future profitability by reducing spending on research and development efforts and sales, general and administrative programs (the “2020 Restructuring Plan”). During the three months ended March 31, 2021, we recorded additional restructuring charges of $0.4 million, primarily related to headcount costs.
Refer to Note 16, “Restructuring Charges,” of Notes to Unaudited Condensed Consolidated Financial Statements of this Form 10-Q for further discussion.
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Change in Fair Value of Earn-Out Liability
Three Months Ended
 March 31,Change in
(Dollars in millions)20212020Percentage
Change in fair value of earn-out liability$— $(1.8)(100.0)%
During the first quarter of 2020, we recorded a reduction in the fair value of the earn-out liability related to the 2019 asset purchase agreement to acquire the Secure Silicon IP and Protocols business from Verimatrix, formerly Inside Secure, based on its then-current fair value in light of the likely achievement of the specified performance milestones, resulting in a gain on our condensed consolidated statements of operations.
Interest and Other Income (Expense), Net
Three Months Ended
 March 31,Change in
(Dollars in millions)20212020 (As Restated)Percentage
Interest income and other income (expense), net$3.0 $6.4 (53.7)%
Interest expense(2.6)(2.6)— %
Interest and other income (expense), net$0.4 $3.8 (90.6)%
Interest income and other income (expense), net, consists primarily of interest income of $2.8 million for the three months ended March 31, 2021 due to the significant financing component of licensing agreements. Interest income and other income (expense), net, also includes interest income generated from investments in high quality fixed income securities and any gains or losses from the re-measurement of our monetary assets or liabilities denominated in foreign currencies.
Interest expense primarily consists of interest expense associated with the non-cash interest expense related to the amortization of the debt discount and issuance costs on the 1.375% convertible senior notes due 2023 (the “2023 Notes”), as well as the coupon interest related to these notes. We expect our non-cash interest expense to increase steadily as the notes reach maturity.
Provision for (Benefit from) Income Taxes
Three Months Ended
 March 31,Change in
(Dollars in millions)20212020 (As Restated)Percentage
Provision for (benefit from) income taxes$(0.5)$1.0 NM*
Effective tax rate16.1 %(17.3)% 
_____________________________________
*    NM — percentage is not meaningful
The benefit from income taxes reported for the three months ended March 31, 2021 was driven by a combination of the valuation allowance recorded on U.S. deferred tax assets, foreign withholding taxes, the statutory tax expense for the foreign jurisdictions for 2021 and indefinite-lived intangible tax amortization expense. Our income tax provision for (benefit from) the three months ended March 31, 2021 and 2020 reflected an effective tax rate of 16.1% and (17.3)%, respectively. Our effective tax rate for the three months ended March 31, 2021 differed from the statutory rate primarily due to foreign tax credits and the full valuation allowance against U.S. deferred tax assets. Our effective tax rate for the three months ended March 31, 2020 differed from the statutory rate primarily due to foreign tax credits and the full valuation allowance against U.S. deferred tax assets.
We recorded a provision for (benefit from) income taxes of $(0.5) million and $1.0 million for the three months ended March 31, 2021 and 2020, respectively. During the three months ended March 31, 2021 and 2020, we paid withholding taxes of $5.4 million and $4.4 million, respectively.
We periodically evaluate the realizability of our net deferred tax assets based on all available evidence, both positive and negative. During the third quarter of 2018, we assessed the changes in our underlying facts and circumstances and evaluated the realizability of our existing deferred tax assets based on all available evidence, both positive and negative, and the weight accorded to each, and concluded a full valuation allowance associated with U.S. federal and California deferred tax assets was appropriate. During 2020, as a result of the enactment of California A.B. 85 and the temporary suspension of California net operating loss utilization for tax years 2020 through 2022, we released $0.7 million of the valuation allowance on our deferred
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tax asset for California research and development tax credits. We continue to maintain a full valuation allowance on the remainder of our California and U.S. federal deferred tax assets as we do not expect to be able to fully utilize them.
We have U.S. federal deferred tax assets related to research and development credits, foreign tax credits and other tax attributes that can be used to offset U.S. federal taxable income in future periods. These credit carryforwards will expire if they are not used within certain time periods. It is possible that some or all of these attributes could ultimately expire unused.

Liquidity and Capital Resources
 As of
(In millions)March 31,
2021
December 31,
2020
Cash and cash equivalents$109.6 $129.0 
Marketable securities419.5 373.6 
Total cash, cash equivalents, and marketable securities$529.1 $502.6 
Three Months Ended
 March 31,
(In millions)20212020 (As Restated)
Net cash provided by operating activities$39.5 $37.3 
Net cash provided by (used in) investing activities$(48.5)$42.2 
Net cash used in financing activities$(10.3)$(5.8)

Liquidity
We currently anticipate that existing cash, cash equivalents and marketable securities balances and cash flows from operations will be adequate to meet our cash needs for at least the next 12 months. Additionally, the majority of our cash and cash equivalents is in the United States. Our cash needs for the three months ended March 31, 2021 were funded primarily from cash collected from our customers.
We do not anticipate any liquidity constraints as a result of either the current credit environment or investment fair value fluctuations. Additionally, we have the intent and ability to hold our debt investments that have unrealized losses in accumulated other comprehensive gain (loss) for a sufficient period of time to allow for recovery of the principal amounts invested. Further, we have no significant exposure to European sovereign debt. We continually monitor the credit risk in our portfolio and mitigate our credit risk exposures in accordance with our policies.
As a part of our overall business strategy, from time to time, we evaluate businesses and technologies for potential acquisitions that are aligned with our core business and designed to supplement our growth.
To provide us with more flexibility in returning capital to our stockholders, on October 29, 2020, our Board approved the 2020 Repurchase Program authorizing the repurchase of up to an aggregate of 20.0 million shares. Share repurchases under the 2020 Repurchase Program may be made through the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules, and regulations. There is no expiration date applicable to the 2020 Repurchase Program.
On November 11, 2020, we entered into the 2020 ASR Program with Deutsche Bank. The 2020 ASR Program was part of the 2020 Repurchase Program. Under the 2020 ASR Program, we pre-paid to Deutsche Bank the $50.0 million purchase price for our common stock and, in turn, we received an initial delivery of approximately 2.6 million shares of our common stock from Deutsche Bank in the fourth quarter of 2020, which were retired and recorded as a $40.0 million reduction to stockholders’ equity. The remaining $10.0 million of the initial payment was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to our stock.
As of March 31, 2021, there remained an outstanding authorization to repurchase approximately 17.4 million shares of our outstanding common stock under the 2020 Repurchase Program. Refer to “Share Repurchase Program” below.
Operating Activities
Cash provided by operating activities of $39.5 million for the three months ended March 31, 2021 was primarily attributable to the cash generated from customer licensing, product sales and engineering services fees. Changes in operating assets and
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liabilities for the three months ended March 31, 2021 primarily included decreases in unbilled receivables, inventories, prepaids and other current assets, and an increase in deferred revenue, offset by increases in accounts receivable as well as decreases in accrued salaries and benefits and income taxes payable.
Cash provided by operating activities of $37.3 million for the three months ended March 31, 2020 was primarily attributable to the cash generated from customer licensing, product sales, support and maintenance fees, and engineering services fees. Changes in operating assets and liabilities for the three months ended March 31, 2020 primarily included decreases in unbilled receivables, accrued salaries and benefits, income taxes payable, deferred revenue, and prepaids and other current assets, offset by an increase in accounts payable.
Investing Activities
Cash used in investing activities of $48.5 million for the three months ended March 31, 2021 consisted of purchases of available-for-sale marketable securities of $159.8 million and $3.5 million paid to acquire property, plant and equipment, offset by proceeds from the maturities and sale of available-for-sale marketable securities of $106.5 million and $8.3 million, respectively.
Cash provided by investing activities of $42.2 million for the three months ended March 31, 2020 consisted of proceeds from the maturities of available-for-sale marketable securities of $215.2 million, offset by purchases of available-for-sale marketable securities of $169.9 million, $2.0 million paid to acquire property, plant and equipment, and $1.1 million paid to settle a net working capital adjustment related to the divestiture of the Company’s Payments and Ticketing businesses.
Financing Activities
Cash used in financing activities of $10.3 million for the three months ended March 31, 2021 was primarily due to $8.1 million in payments of taxes on restricted stock units and $3.1 million in payments under installment payment arrangements to acquire fixed assets, offset by $0.9 million in proceeds from the issuance of common stock under equity incentive plans.
Cash used in financing activities of $5.8 million for the three months ended March 31, 2020 was primarily due to $7.2 million in payments of taxes on restricted stock units and $2.6 million in payments under installment payment arrangements to acquire fixed assets, offset by $4.0 million in proceeds from the issuance of common stock under equity incentive plans.

Contractual Obligations
As of March 31, 2021, our material contractual obligations were as follows:
(In thousands)TotalRemainder of 20212022202320242025
Contractual obligations (1) (2)
      
Software licenses (3)
$15,820 $9,391 $6,429 $— $— $— 
Acquisition retention bonuses (4)
6,370 3,370 3,000 — — — 
Convertible notes172,500 — — 172,500 — — 
Interest payments related to convertible notes4,750 1,186 2,372 1,192 — — 
Total$199,440 $13,947 $11,801 $173,692 $— $— 
_________________________________________
(1)    The above table does not reflect possible payments in connection with unrecognized tax benefits of approximately $27.1 million including $23.8 million recorded as a reduction of long-term deferred tax assets and $3.3 million in long-term income taxes payable as of March 31, 2021. As noted in Note 14, “Income Taxes,” of Notes to Unaudited Condensed Consolidated Financial Statements of this Form 10-Q, although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, we cannot reasonably estimate the outcome at this time.
(2)    For our lease commitments as of March 31, 2021, refer to Note 9, “Leases,” of Notes to Unaudited Condensed Consolidated Financial Statements of this Form 10-Q.
(3)    We have commitments with various software vendors for agreements generally having terms longer than one year.
(4)    In connection with the acquisitions of Northwest Logic in the third quarter of 2019 and the Secure Silicon IP and Protocols business in the fourth quarter of 2019, we are obligated to pay retention bonuses to certain employees subject to certain eligibility and acceleration provisions including the condition of employment.
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Share Repurchase Program
On October 29, 2020, our Board approved the 2020 Repurchase Program authorizing the repurchase of up to an aggregate of 20.0 million shares. Share repurchases under the 2020 Repurchase Program may be made through the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules, and regulations. There is no expiration date applicable to the 2020 Repurchase Program. During the three months ended March 31, 2021, we did not repurchase any shares of our common stock under the 2020 Repurchase Program.
On November 11, 2020, we entered into the 2020 ASR Program with Deutsche Bank. The 2020 ASR Program was part of the 2020 Repurchase Program. Under the 2020 ASR Program, we pre-paid to Deutsche Bank the $50.0 million purchase price for our common stock and, in turn, we received an initial delivery of approximately 2.6 million shares of our common stock from Deutsche Bank in the fourth quarter of 2020, which were retired and recorded as a $40.0 million reduction to stockholders’ equity. The remaining $10.0 million of the initial payment was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to our stock.
The number of shares to be ultimately purchased by us will be determined based on the volume-weighted-average price of the common stock during the term of the transaction, minus an agreed upon discount between the parties. The 2020 ASR Program is expected to be completed within six months from the beginning of the program. During the three months ended March 31, 2021, we did not repurchase any shares of our common stock under the 2020 ASR Program.
As of March 31, 2021, there remained an outstanding authorization to repurchase approximately 17.4 million shares of our outstanding common stock under the 2020 Repurchase Program.
We record stock repurchases as a reduction to stockholders’ equity. We record a portion of the purchase price of the repurchased shares as an increase to accumulated deficit when the price of the shares repurchased exceeds the average original proceeds per share received from the issuance of common stock.

Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, investments, income taxes, litigation and other contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting estimates include those regarding (1) revenue recognition, (2) goodwill, (3) intangible assets, (4) income taxes, (5) stock-based compensation and (6) business combinations. For a discussion of our critical accounting estimates, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K/A for the year ended December 31, 2020.

Recent Accounting Pronouncements
Refer to Note 2, “Recent Accounting Pronouncements,” of Notes to Unaudited Condensed Consolidated Financial Statements of this Form 10-Q for discussion of recent accounting pronouncements including the respective expected dates of adoption.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to financial market risks, primarily arising from the effect of interest rate fluctuations on our investment portfolio. Interest rate fluctuation may arise from changes in the market’s view of the quality of the security issuer, the overall economic outlook, and the time to maturity of our portfolio. We mitigate this risk by investing only in high quality, highly liquid instruments. Securities with original maturities of one year or less must be rated by two of the three industry standard rating agencies as follows: A1 by Standard & Poor’s, P1 by Moody’s and/or F-1 by Fitch. Securities with original maturities of greater than one year must be rated by two of the following industry standard rating agencies as follows: AA- by Standard & Poor’s, Aa3 by Moody’s and/or AA- by Fitch. By corporate investment policy, we limit the amount of exposure to
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$15.0 million or 10% of the portfolio, whichever is lower, for any single non-U.S. Government issuer. A single U.S. Agency can represent up to 25% of the portfolio. No more than 20% of the total portfolio may be invested in the securities of an industry sector, with money market fund investments evaluated separately. Our policy requires that at least 10% of the portfolio be in securities with a maturity of 90 days or less. We may make investments in U.S. Treasuries, U.S. Agencies, corporate bonds and municipal bonds and notes with maturities up to 36 months. However, the bias of our investment portfolio is shorter maturities. All investments must be U.S. dollar denominated. Additionally, we have no significant exposure to European sovereign debt.
We invest our cash equivalents and marketable securities in a variety of U.S. dollar financial instruments such as U.S. Treasuries, U.S. Government Agencies, commercial paper and corporate notes. Our policy specifically prohibits trading securities for the sole purposes of realizing trading profits. However, we may liquidate a portion of our portfolio if we experience unforeseen liquidity requirements. In such a case, if the environment has been one of rising interest rates, we may experience a realized loss, similarly, if the environment has been one of declining interest rates, we may experience a realized gain. As of March 31, 2021, we had an investment portfolio of fixed income marketable securities of $466.2 million including cash equivalents. If market interest rates were to increase immediately and uniformly by 1.0% from the levels as of March 31, 2021, the fair value of the portfolio would decline by approximately $2.4 million. Actual results may differ materially from this sensitivity analysis.
The fair value of our convertible notes is subject to interest rate risk, market risk and other factors due to the convertible feature. The fair value of the convertible notes will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of the convertible notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines in value. The interest and market value changes affect the fair value of our convertible notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation.
We invoice the majority of our customers in U.S. dollars. Although the fluctuation of currency exchange rates may impact our customers, and thus indirectly impact us, we do not attempt to hedge this indirect and speculative risk. Our overseas operations consist primarily of international business operations in the Netherlands and the United Kingdom, design centers in Canada, India and Finland and small business development offices in Australia, China, Japan, Korea and Taiwan. We monitor our foreign currency exposure; however, as of March 31, 2021, we believe our foreign currency exposure is not material enough to warrant foreign currency hedging.

Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2021, our disclosure controls and procedures were not effective due to a previously reported material weakness in our internal control over financial reporting.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
As previously disclosed in our Annual Report on Form 10-K/A for the year ended December 31, 2020, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2020 due to the inadequate design and maintenance of controls to evaluate and monitor the accounting for patent and technology licensing arrangements with unusual contract terms. This material weakness resulted in a material misstatement of historical consolidated financial statements and could result in a misstatement of the royalties revenue, unbilled receivables and interest income account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

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Changes in Internal Control Over Financial Reporting
We have taken remediation steps to address the material weakness discussed above to strengthen our internal control over financial reporting. These include enhancement of our existing contract review control for patent and technology licensing arrangements with unusual terms to require review of the facts as summarized in the contract review analysis by legal and the licensing group to confirm appropriate understanding of the terms by the revenue recognition team as well as implementation of a new control designed to evaluate and monitor, at inception and on a quarterly basis, the accounting assessment of patent and technology licensing arrangements with unusual terms.
However, the identified material weakness in internal control over financial reporting will not be considered remediated until controls have been in operation for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We will continue to assess the effectiveness of our remediation efforts in connection with our evaluations of internal control over financial reporting. As we continue to evaluate and improve our internal control over financial reporting, we may take additional measures to address control deficiencies or we may modify certain of the remediation measures described above.

Other than the items described above, there have not been any changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended March 31, 2021, that materially affected, or that we believe are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings
We are not currently a party to any material pending legal proceeding; however, from time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business, operating results, financial position or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management attention and resources and other factors.

Item 1A. Risk Factors
Because of the following factors, as well as other variables affecting our operating results, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. See also “Note Regarding Forward-Looking Statements” at the beginning of this report.
Summary Risk Factors
Our business is subject to numerous risks and uncertainties that you should consider before investing in our company, as fully described below. The principal factors and uncertainties that make investing in our company risky include, among others:
The success of our business depends on sustaining or growing our licensing revenue and the failure to achieve such revenue would lead to a material decline in our results of operations.
Our licensing cycle is lengthy and costly, and our marketing and licensing efforts may be unsuccessful.
Some of our license agreements may convert to fully paid-up licenses at the expiration of their terms, or upon certain milestones, and we may not receive royalties after that time.
Future revenue is difficult to predict for several reasons, and our failure to predict revenue accurately may result in our stock price declining.
Our revenue is concentrated in a few customers, and if we lose any of these customers through contract terminations or acquisitions, our revenue may decrease substantially.
Some of our revenue is subject to the pricing policies of our customers over which we have no control.
We have traditionally operated in, and may enter other, industries that are highly cyclical and competitive.
We face risks related to the COVID-19 pandemic, which could significantly disrupt our research and development, operations, sales and financial results.
Our customers often require our products to undergo a lengthy and expensive qualification process which does not assure product sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, our business and operating results would suffer.
We may have to invest more resources in research and development than anticipated, which could increase our operating expenses and negatively impact our operating results.
Our business and operations could suffer in the event of security breaches and incidents.
Failures in our products and services or in the products of our customers, including those resulting from security vulnerabilities, defects, bugs or errors, could harm our business.
We may fail to meet our publicly announced guidance or other expectations about our business, which would likely cause our stock price to decline.
Changes in accounting principles and guidance could result in unfavorable accounting charges or effects.
We have in the past made and may in the future make acquisitions or enter into mergers, strategic investments, sales of assets, divestitures or other arrangements that may not produce expected operating and financial results.
A substantial portion of our revenue is derived from sources outside of the United States and this revenue and our business generally are subject to risks related to international operations that are often beyond our control.
Weak global economic conditions may adversely affect demand for the products and services of our customers.
If our counterparties are unable to fulfill their financial and other obligations to us, our business and results of operations may be affected adversely.
If we are unable to attract and retain qualified personnel, our business and operations could suffer.
We are subject to various government restrictions and regulations, including on the sale of products and services that use encryption technology and those related to privacy and other consumer protection matters.
Participation in standards setting organizations may subject us to IP licensing requirements or limitations that could adversely affect our business and prospects.
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Our operations are subject to risks of natural disasters, acts of war, terrorism, widespread illness or security breach at our domestic and international locations, any one of which could result in a business stoppage and negatively affect our operating results.
We do not have extensive experience in manufacturing and marketing products and, as a result, may be unable to sustain and grow a profitable commercial market for new and existing products.
We rely upon the accuracy of our customers’ recordkeeping, and any inaccuracies or payment disputes for amounts owed to us under our licensing agreements may harm our results of operations.
We rely on a number of third-party providers for data center hosting facilities, equipment, maintenance and other services, and the loss of, or problems with, one or more of these providers may impede our growth or cause us to lose customers.
We rely on third parties for a variety of services, including manufacturing, and these third parties’ failure to perform these services adequately could materially and adversely affect our business.
Warranty, service level agreement and product liability claims brought against us could cause us to incur significant costs and adversely affect our operating results as well as our reputation and relationships with customers.
Any failure in our delivery of high-quality technical support services may adversely affect our relationships with our customers and our financial results.
Certain software that we use in certain of our products is licensed from third parties and, for that reason, may not be available to us in the future, which has the potential to delay product development and production or cause us to incur additional expense, which could materially adversely affect our business, financial condition, operating results and cash flow.
Certain software we use is from open source code sources, which, under certain circumstances, may lead to unintended consequences and, therefore, could materially adversely affect our business, financial condition, operating results and cash flow.
Our business and operating results could be harmed if we undertake any restructuring activities.
Problems with our information systems could interfere with our business and could adversely impact our operations.
We are leveraged financially, which could adversely affect our ability to adjust our business to respond to competitive pressures and to obtain sufficient funds to satisfy our future research and development needs, to protect and enforce our intellectual property, and to meet other needs.
We have identified a material weakness in our internal control over financial reporting and determined that our disclosure controls and procedures were ineffective as of December 31, 2020 and March 31, 2021, which resulted in a restatement of our 2020 and 2019 consolidated financial statements included in our Form 10-K for the year ended December 31, 2020 and our March 31, 2020 condensed consolidated financial statements included in our Form 10-Q for the quarterly period ended March 31, 2021. The quarterly periods ended June 30, 2020 and September 30, 2020 will be restated in the respective 2021 Form 10-Q. In the future we may identify additional material weaknesses or otherwise fail to maintain an effective system of internal control over financial reporting or adequate disclosure controls and procedures, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.
Adverse litigation results could affect our business.
We have in the past, and may in the future, become engaged in litigation stemming from our efforts to protect and enforce our patents and intellectual property and make other claims, which could adversely affect our intellectual property rights, distract our management and cause substantial expenses and declines in our revenue and stock price.
From time to time, we are subject to proceedings by government agencies that may result in adverse determinations against us and could cause our revenue to decline substantially.
Litigation or other third-party claims of intellectual property infringement could require us to expend substantial resources and could prevent us from developing or licensing our technology on a cost-effective basis.
If we are unable to protect our inventions successfully through the issuance and enforcement of patents, our operating results could be adversely affected.
Our inability to protect and own the intellectual property we create would cause our business to suffer.
Third parties may claim that our products or services infringe on their intellectual property rights, exposing us to litigation that, regardless of merit, may be costly to defend.
Any dispute regarding our intellectual property may require us to indemnify certain customers, the cost of which could severely hamper our business operations and financial condition.
We have been party to, and may in the future be subject to, lawsuits relating to securities law matters which may result in unfavorable outcomes and significant judgments, settlements and legal expenses which could cause our business, financial condition and results of operations to suffer.
The price of our common stock may continue to fluctuate.
Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.
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Our certificate of incorporation and bylaws, Delaware law, our outstanding convertible notes and certain other agreements contain provisions that could discourage transactions resulting in a change in control, which may negatively affect the market price of our common stock.
Unanticipated changes in our tax rates or in the tax laws, treaties and regulations could expose us to additional income tax liabilities, which could affect our operating results and financial condition.

Risks Associated With Our Business, Industry and Market Conditions
The success of our business depends on sustaining or growing our licensing revenue and the failure to achieve such revenue would lead to a material decline in our results of operations.
A significant portion of our revenue consists of patent and technology license fees paid for access to our patented technologies, existing technology and other development and support services we provide to our customers. Our ability to secure and renew the licenses from which our revenues are derived depends on our customers adopting our technology and using it in the products they sell. Once secured, license revenue may be negatively affected by factors within and outside our control, including reductions in our customers’ sales prices, sales volumes, our failure to timely complete engineering deliverables, and the actual terms of such licenses themselves. In addition, our licensing cycle for new licensees as well as for renewals for existing licensees is lengthy, costly and unpredictable. We cannot provide any assurance that we will be successful in signing new license agreements or renewing existing license agreements on equal or favorable terms or at all. If we do not achieve our revenue goals, our results of operations could decline.
Our licensing cycle is lengthy and costly, and our marketing and licensing efforts may be unsuccessful.
The process of persuading customers to adopt and license our Chip interface, data Security IP, and other technologies can be lengthy. Even if successful, there can be no assurance that our technologies will be used in a product that is ultimately brought to market, achieves commercial acceptance or results in significant royalties to us. We generally incur significant marketing and sales expenses prior to entering into our license agreements, generating a license fee and establishing a royalty stream from each customer. The length of time it takes to establish a new licensing relationship can take many months or even years. We may incur costs in any particular period before any associated revenue stream begins, if at all. If our marketing and sales efforts are very lengthy or unsuccessful, then we may face a material adverse effect on our business and results of operations as a result of failure to obtain or an undue delay in obtaining royalties.
Some of our license agreements may convert to fully paid-up licenses at the expiration of their terms, or upon certain milestones, and we may not receive royalties after that time.
From time to time, we enter into license agreements that automatically convert to fully paid-up licenses upon expiration or upon reaching certain milestones. We may not receive further royalties from customers for any licensed technology under those agreements if they convert to fully paid-up licenses because such customers will be entitled to continue using some, if not all, of the relevant intellectual property (“IP”) or technology under the terms of the license agreements without further payment, even if relevant patents or technologies are still in effect. If we cannot find another source of royalties to replace the royalties from these license agreements converting to fully paid-up licenses, our results of operations following such conversion could be adversely affected.
Future revenue is difficult to predict for several reasons, and our failure to predict revenue accurately may result in our stock price declining.
Our lengthy license negotiation cycles could make our future revenue difficult to predict because we may not be successful in entering into or renewing licenses with our customers on our anticipated timelines. As we commercially launch each of our products, the sales volume of and resulting revenue from such products in any given period will be difficult to predict.
In addition, while some of our license agreements provide for fixed, quarterly royalty payments, many of our license agreements provide for volume-based royalties and may also be subject to caps on royalties in a given period. The sales volume and prices of our customers’ products in any given period can be difficult to predict. In addition, we began applying the new revenue recognition standard (“ASC 606”) during the first quarter of 2018, as required, and we anticipate that our revenue will vary greatly from quarter to quarter. As a result of the foregoing items, our actual results may differ substantially from analyst estimates or our forecasts in any given quarter.
Also, a portion of our revenue comes from development and support services provided to our customers. Depending upon the nature of the services, a portion of the related revenue may be recognized ratably over the support period, or may be recognized according to contract revenue accounting. Contract revenue accounting may result in deferral of the service fees to the completion of the contract, or may result in the recognition of service fees over the period in which services are performed on a percentage-of-completion basis.
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Our revenue is concentrated in a few customers, and if we lose any of these customers through contract terminations or acquisitions, our revenue may decrease substantially.
We have a high degree of revenue concentration. Our top five customers for each reporting period represented approximately 59% and 53% of our revenue for the three months ended March 31, 2021 and 2020, respectively. Additionally, our top five customers represented approximately 46% and 45% of our revenues for the years ended December 31, 2020 and 2019, respectively. We expect to continue to experience significant revenue concentration for the foreseeable future.
In addition, our license agreements are complex and some contain terms that require us to provide certain customers with the lowest royalty rate that we provide to other customers for similar technologies, volumes and schedules. These clauses may limit our ability to effectively price differently among our customers, to respond quickly to market forces, or otherwise to compete on the basis of price. These clauses may also require us to reduce royalties payable by existing customers when we enter into or amend agreements with other customers. Any adjustment that reduces royalties from current customers or licensees may have a material adverse effect on our operating results and financial condition.
We continue to negotiate with customers and prospective customers to enter into license agreements. Any future agreement may trigger our obligation to offer comparable terms or modifications to agreements with our existing customers, which may be less favorable to us than the existing license terms. We expect licensing fees will continue to vary based on our success in renewing existing license agreements and adding new customers, as well as the level of variation in our customers’ reported shipment volumes, sales price and mix, offset in part by the proportion of customer payments that are fixed. In particular, under our license agreement with Samsung, the license fees payable by Samsung are subject to certain adjustments and conditions, and we therefore cannot provide assurances that the revenues generated by this license will not decline in the future. In addition, some of our material license agreements may contain rights by the customer to terminate for convenience, or upon certain other events, such as change of control, material breach, insolvency or bankruptcy proceedings. If we are unsuccessful in entering into license agreements with new customers or renewing license agreements with existing customers, on favorable terms or at all, or if they are terminated, our results of operations may decline significantly.
Some of our revenue is subject to the pricing policies of our customers over which we have no control.
We have no control over our customers’ pricing of their products and there can be no assurance that licensed products will be competitively priced or will sell in significant volumes. Any premium charged by our customers in the price of memory and controller chips or other products over alternatives must be reasonable. If the benefits of our technology do not match the price premium charged by our customers, the resulting decline in sales of products incorporating our technology could harm our operating results.
We have traditionally operated in, and may enter other, industries that are highly cyclical and competitive.
Our target customers are companies that develop and market high volume business and consumer products in semiconductors, computing, data centers, networks, tablets, handheld devices, mobile applications, gaming and graphics, high-definition televisions, cryptography and data security. The electronics industry is intensely competitive and has been impacted by rapid technological change, short product life cycles, cyclical market patterns, price erosion and increasing foreign and domestic competition. We are subject to many risks beyond our control that influence whether or not we are successful in winning target customers or retaining existing customers, including, primarily, competition in a particular industry, market acceptance of such customers’ products and the financial resources of such customers. In particular, DRAM manufacturers, which such customers make up a significant part of our revenue, are prone to significant business cycles and have suffered material losses and other adverse effects to their businesses, leading to industry consolidation from time-to-time that may result in loss of revenues under our existing license agreements or loss of target customers. As a result of ongoing competition in the industries in which we operate and volatility in various economies around the world, we may achieve a reduced number of licenses or may experience tightening of customers’ operating budgets, difficulty or inability of our customers to pay our licensing fees, lengthening of the approval process for new licenses and consolidation among our customers. All of these factors may adversely affect the demand for our technology and may cause us to experience substantial fluctuations in our operating results.
We face competition from semiconductor and digital electronics products and systems companies, and other semiconductor IP companies that provide security cores that are available to the market. We believe the principal competition for our technologies may come from our prospective customers, some of which are evaluating and developing products based on technologies that they contend or may contend will not require a license from us. Some of our competitors use a system-level design approach similar to ours, including activities such as board and package design, power and signal integrity analysis, and thermal management. Many of these companies are larger and may have better access to financial, technical and other resources than we possess.
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To the extent that alternative technologies might provide comparable system performance at lower or similar cost to our technologies, or are perceived to require the payment of no or lower royalties, or to the extent other factors influence the industry, our customers and prospective customers may adopt and promote such alternative technologies. Even to the extent we determine that such alternative technologies infringe our patents, there can be no assurance that we would be able to negotiate agreements that would result in royalties being paid to us without litigation, which could be costly and the results of which would be uncertain.
In addition, our expansion into new markets subjects us to additional risks. We may have limited or no experience in new products and markets, and our customers may not adopt our new offerings. These and other new offerings may present new and difficult challenges, which could negatively affect our operating results.
We face risks related to the COVID-19 pandemic, which could significantly disrupt our research and development, operations, sales and financial results.
Our business may be adversely impacted by the effects of the COVID-19 pandemic. In addition to global macroeconomic effects, the COVID-19 pandemic and any other related adverse public health developments may cause disruption to our domestic and international operations and sales activities. Our third-party manufacturers, suppliers, third-party distributors, sub-contractors and customers have been and will be disrupted by worker absenteeism, quarantines and restrictions on our employees’ ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, or other travel or health-related restrictions. For example, government-mandated shelter-in-place and other restrictions on movement may impact our planned headquarters relocation, the ability of our employees to perform their jobs, and our ability to develop and design our products in a timely manner or meet required milestones or customer commitments. Depending on the magnitude of such effects on the operations of our suppliers, third-party distributors, or sub-contractors, our supply chain and product shipments may be delayed, which could adversely affect our business, operations and customer relationships. In addition, the COVID-19 pandemic or other disease outbreak will in the short-run and may over the longer term adversely affect the economies and financial markets of many countries, resulting in an economic downturn that may affect demand for our products and impact our operating results. There can be no assurance that any decrease in sales resulting from the COVID-19 pandemic will be offset by increased sales in subsequent periods. Although the magnitude of the impact of the Novel COVID-19 pandemic on our business and operations remains uncertain, the continued spread of the COVID-19 pandemic or the occurrence of other epidemics and the imposition of related public health measures and travel and business restrictions could adversely impact our business, financial condition, operating results and cash flows.
Our customers often require our products to undergo a lengthy and expensive qualification process which does not assure product sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, our business and operating results would suffer.
Prior to purchasing our products, our customers often require that our products undergo extensive qualification processes, which involve testing of our products in the customers’ systems, as well as testing for reliability. This qualification process may continue for several months. However, qualification of a product by a customer does not assure any sales of the product to that customer. Even after successful qualification and sales of a product to a customer, a subsequent revision in third-party manufacturing processes may require a new qualification process with our customers, which may result in delays and in our holding excess or obsolete inventory. After our products are qualified, it can take several months or more before the customer commences volume production of components or systems that incorporate our products. Despite these uncertainties, we devote substantial resources, including design, engineering, sales, marketing and management efforts, to qualify our products with customers in anticipation of sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, sales of those products to the customer may be precluded or delayed, which may impede our growth and cause our business to suffer.
We may have to invest more resources in research and development than anticipated, which could increase our operating expenses and negatively impact our operating results.
If new competitors, technological advances by existing competitors, and/or development of new technologies or other competitive factors require us to invest significantly greater resources than anticipated in our research and development efforts, our operating expenses could increase. If we are required to invest significantly greater resources than anticipated in research and development efforts without an increase in revenue, our operating results would decline. We expect these expenses to increase in the foreseeable future as our technology development efforts continue.
Our business and operations could suffer in the event of security breaches and incidents.
Attempts by others to gain unauthorized access to and disrupt our information technology systems are becoming more sophisticated. These attempts, which might be related to industrial or other espionage, may include covertly introducing malware to our computers and networks and impersonating authorized users, phishing attempts and other forms of social engineering, employee or contractor malfeasance, denial of service attacks and ransomware attacks, among others. We seek to
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detect and investigate all security incidents impacting our systems and to prevent their recurrence, but in some cases, we might be unaware of an incident or its magnitude and effects. We also utilize third-party service providers to host, transmit or otherwise process electronic data in connection with our business activities, including our supply chain processes, operations and communications. We and/or our third-party service providers have faced and may continue to face security threats and attacks from a variety of sources. Our data, corporate systems, third-party systems and security measures may be subject to breaches or intrusions due to the actions of outside parties, employee error, malfeasance, a combination of these, or otherwise, including social engineering and employee and contractor error or malfeasance, and, as a result, an unauthorized party may obtain access to our systems, networks, or data, including IP and confidential business information of ourselves and our customers. There have been and may continue to be significant supply chain attacks, and we cannot guarantee that our or our third-party service providers’ systems and networks have not been breached or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support us and our services. We and our service providers may face difficulties or delays in identifying or responding to any actual or perceived security breach or incident. While we have not identified any material incidents of unauthorized access to date, the theft or other unauthorized acquisition of, unauthorized use or publication of, or access to our IP and/or confidential business information could harm our competitive position and reputation, reduce the value of our investment in research and development and other strategic initiatives or otherwise adversely affect our business. To the extent that any future security breach results in inappropriate access to, or loss, corruption, acquisition or disclosure of our or our customers’ confidential information or any personally-identifiable information we or our third-party service providers maintain, including that of our employees, we could suffer a loss of intellectual property or loss of data, may be subject to claims, liability and proceedings, and may incur liability and otherwise suffer financial harm.
Any actual, alleged or perceived breach of security in our systems or networks, or any other actual, alleged or perceived data security incident we or our third-party service providers suffer, could result in damage to our reputation, negative publicity, loss of customers and sales, harm to our market position, increased costs to remedy any problems and otherwise respond to any incident, regulatory investigations and enforcement actions, claims, litigation, proceedings and other liability. In addition, we may incur significant costs and operational consequences of investigating, remediating, eliminating and putting in place additional tools and devices designed to prevent actual or perceived security breaches and other security incidents, as well as the costs to comply with any notification or other legal obligations resulting from any security incidents. Any of these negative outcomes could result in substantial costs and diversion of resources, distract management and technical personnel, adversely impact our sales and reputation and seriously harm our business or operating results.
Although we maintain insurance coverage that may cover certain liabilities in connection with some security breaches and other security incidents, we cannot be certain our insurance coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to us on commercially reasonable terms (if at all) or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, or denials of coverage, could have a material adverse effect on our business, including our financial condition, results of operations and reputation.
Failures in our products and services or in the products of our customers, including those resulting from security vulnerabilities, defects, bugs or errors, could harm our business.
Our products and services are highly technical and complex, and among our various businesses our products and services are crucial to providing security and other critical functions for our customers’ operations. Our products and services have from time to time contained and may in the future contain undetected errors, bugs, defects or other security vulnerabilities. Some errors in our products and services may only be discovered after a product or service has been deployed and used by customers, and may in some cases only be detected under certain circumstances or after extended use. In addition, because the techniques used by hackers to access or sabotage our products and services and other technologies change and evolve frequently and generally are not recognized until launched against a target, we may be unable to anticipate, detect or prevent these techniques and may not address them in our data security technologies. Any errors, bugs, defects or security vulnerabilities discovered in our solutions after commercial release could adversely affect our revenue, our customer relationships and the market’s perception of our products and services. We may not be able to correct any errors, bugs, defects, security flaws or vulnerabilities promptly, or at all. Any breaches, defects, errors or vulnerabilities in our products and services could result in:
expenditure of significant financial and research and development resources in efforts to analyze, correct, eliminate or work around breaches, errors, bugs or defects or to address and eliminate vulnerabilities;
financial liability to customers for breach of certain contract provisions, including indemnification obligations;
loss of existing or potential customers;
product shipment restrictions or prohibitions to certain customers;
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delayed or lost revenue;
delay or failure to attain market acceptance;
negative publicity, which would harm our reputation; and
litigation, regulatory inquiries or investigations that would be costly and harm our reputation.
We may fail to meet our publicly announced guidance or other expectations about our business, which would likely cause our stock price to decline.
We provide guidance regarding our expected financial and business performance including our anticipated future revenues, operating expenses and other financial and operation metrics. We enhanced our guidance following implementation of Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers in Accounting Standards Codification (“ASC”) Topic 606 (“ASC 606”, “the New Revenue Standard”) in the first quarter of 2018. Correctly identifying the key factors affecting business conditions and predicting future events is an inherently uncertain process. Any guidance that we provide may not always be accurate, or may vary from actual results, due to our inability to correctly identify and quantify risks and uncertainties to our business and to quantify their impact on our financial performance. We offer no assurance that such guidance will ultimately be accurate, and investors should treat any such guidance with appropriate caution. If we fail to meet our guidance or if we find it necessary to revise such guidance, even if such failure or revision is seemingly insignificant, investors and analysts may lose confidence in us and the market value of our common stock could be materially adversely affected.
Changes in accounting principles and guidance could result in unfavorable accounting charges or effects.
We prepare our financial statements in accordance with accounting principles generally accepted in the United States and these principles are subject to interpretation by the SEC and various bodies. A change in these principles or application guidance, or in their interpretations, may have a material effect on our reported results, as well as our processes and related controls, and may retroactively affect previously reported results. For instance, we adopted ASC 842, the New Leasing Standard, effective for us on January 1, 2019, using the alternative transition method and recognized a cumulative-effect adjustment to the opening balance of accumulated deficit on January 1, 2019. We also adopted ASC 606, the New Revenue Standard, effective for us on January 1, 2018, on a modified retrospective basis, with a cumulative-effect adjustment to the opening balance of accumulated deficit on January 1, 2018. The New Revenue Standard materially impacted the timing of revenue recognition for our fixed-fee IP licensing arrangements (including certain fixed-fee agreements that license our existing IP portfolio as well as IP added to our portfolio during the license term) as a majority of such revenue would be recognized at inception of the license term (as opposed to over time as is the case under prior U.S. GAAP), and we are required to compute and recognize interest income over time for certain licensing arrangements as control over the IP generally transfers significantly in advance of cash being received from customers. The impact of the adoption of the New Revenue Standard did not have a material impact on our other revenue streams. We also have enhanced the form and content of some of our guidance metrics that we provide following implementation of the New Revenue Standard. We expect that any change to current revenue recognition practices may significantly increase volatility in our quarterly revenue, financial results and trends, and may impact our stock price.
We have in the past made and may in the future make acquisitions or enter into mergers, strategic investments, sales of assets, divestitures or other arrangements that may not produce expected operating and financial results.
From time to time, we engage in acquisitions, strategic transactions, strategic investments, divestitures and potential discussions with respect thereto. For example, in 2019, we acquired Northwest Logic and the Secure Silicon IP and Protocols business from Verimatrix, formerly Inside Secure. Many of our acquisitions or strategic investments entail a high degree of risk, including those involving new areas of technology and such investments may not become liquid for several years after the date of the investment, if at all. Our acquisitions or strategic investments may not provide the advantages that we anticipated or generate the financial returns we expect, including if we are unable to close any pending acquisitions. For example, for any pending or completed acquisitions, we may discover unidentified issues not discovered in due diligence, and we may be subject to regulatory approvals or liabilities that are not covered by indemnification protection or become subject to litigation. Achieving the anticipated benefits of business acquisitions depends in part upon our ability to integrate the acquired businesses in an efficient and effective manner. The integration of companies that have previously operated independently may result in significant challenges, including, among others: retaining key employees; successfully integrating new employees, business systems and technology; retaining customers of the acquired business; minimizing the diversion of management’s and other employees’ attention from ongoing business matters; coordinating geographically separate organizations; consolidating research and development operations; and consolidating corporate and administrative infrastructures.
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Our strategic investments in new areas of technology may involve significant risks and uncertainties, including distraction of management from current operations, greater than expected liabilities and expenses, inadequate return of capital, and unidentified issues not discovered in due diligence. These investments are inherently risky and may not be successful.
In addition, we may record impairment charges related to our acquisitions or strategic investments. Any losses or impairment charges that we incur related to acquisitions, strategic investments or sales of assets will have a negative impact on our financial results and the market value of our common stock, and we may continue to incur new or additional losses related to acquisitions or strategic investments.
We may have to incur debt or issue equity securities to pay for any future acquisitions, which debt could involve restrictive covenants or which equity security issuance could be dilutive to our existing stockholders. We may also use cash to pay for any future acquisitions which will reduce our cash balance.
From time to time, we may also divest certain assets. These divestitures or proposed divestitures may involve the loss of revenue and/or potential customers, and the market for the associated assets may dictate that we sell such assets for less than what we paid. In addition, in connection with any asset sales or divestitures, we may be required to provide certain representations, warranties and covenants to buyers. While we would seek to ensure the accuracy of such representations and warranties and fulfillment of any ongoing obligations, we may not be completely successful and consequently may be subject to claims by a purchaser of such assets.
A substantial portion of our revenue is derived from sources outside of the United States and this revenue and our business generally are subject to risks related to international operations that are often beyond our control.
For the three months ended March 31, 2021 and 2020, revenues received from our international customers constituted approximately 34% and 47%, respectively, of our total revenue. Additionally, for the years ended December 31, 2020 and 2019, revenues received from our international customers constituted approximately 44% and 41%, respectively, of our total revenue. We expect that future revenue derived from international sources will continue to represent a significant portion of our total revenue.
To the extent that customer sales are not denominated in U.S. dollars, any royalties which are based on a percentage of the customers’ sales that we receive as a result of such sales could be subject to fluctuations in currency exchange rates. In addition, if the effective price of licensed products sold by our foreign customers were to increase as a result of fluctuations in the exchange rate of the relevant currencies, demand for licensed products could fall, which in turn would reduce our royalties. We do not use financial instruments to hedge foreign exchange rate risk.
Trade-related government actions, whether implemented by the U.S. government, China or other countries, that impose barriers or restrictions that would impact our ability to sell or ship products to certain customers may have a negative impact on our financial condition and results of operations. We cannot predict the actions government entities may take in this context and may be unable to quickly offset or effectively react to government actions that restrict our ability to sell to certain customers or in certain jurisdictions. Government actions that affect our customers’ ability to sell products or access critical elements of their supply chains may result in a decreased demand for their products, which may consequently reduce their demand for our products.
We currently have international business operations in the United Kingdom, France and the Netherlands, international design operations in Canada, India and Finland, and business development operations in China, Japan, Korea, and Taiwan. Our international operations and revenue are subject to a variety of risks which are beyond our control, including:
hiring, maintaining and managing a workforce and facilities remotely and under various legal systems, including compliance with local labor and employment laws;
non-compliance with our code of conduct or other corporate policies;
natural disasters, acts of war, terrorism, widespread global pandemics or illness, such as the current Novel Coronavirus (COVID-19), or security breaches;
export controls, tariffs, import and licensing restrictions and other trade barriers;
profits, if any, earned abroad being subject to local tax laws and not being repatriated to the United States or, if repatriation is possible, limited in amount;
adverse tax treatment of revenue from international sources and changes to tax codes, including being subject to foreign tax laws and being liable for paying withholding, income or other taxes in foreign jurisdictions;
unanticipated changes in foreign government laws and regulations;
increased financial accounting and reporting burdens and complexities;
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lack of protection of our IP and other contract rights by jurisdictions in which we may do business to the same extent as the laws of the United States;
potential vulnerability to computer system, internet or other systemic attacks, such as denial of service, viruses or other malware which may be caused by criminals, terrorists or other sophisticated organizations;
social, political and economic instability;
geopolitical issues, including changes in diplomatic and trade relationships, in particular with China; and
cultural differences in the conduct of business both with customers and in conducting business in our international facilities and international sales offices.
We and our customers are subject to many of the risks described above with respect to companies which are located in different countries. There can be no assurance that one or more of the risks associated with our international operations will not result in a material adverse effect on our business, financial condition or results of operations.
Weak global economic conditions may adversely affect demand for the products and services of our customers.
Our operations and performance depend significantly on worldwide economic conditions. Future uncertainty about global or regional economic and political conditions poses a risk as consumers and businesses may postpone spending in response to tighter credit, negative financial news and declines in income or asset values, which could have a material negative effect on the demand for the products of our customers in the foreseeable future. If our customers experience reduced demand for their products as a result of global or regional economic conditions or otherwise, this could result in reduced royalty revenue and our business and results of operations could be harmed.
If our counterparties are unable to fulfill their financial and other obligations to us, our business and results of operations may be affected adversely.
Any downturn in economic conditions or other business factors could threaten the financial health of our counterparties, including companies with which we have entered into licensing and/or settlement agreements, and their ability to fulfill their financial and other obligations to us. Such financial pressures on our counterparties may eventually lead to bankruptcy proceedings or other attempts to avoid financial obligations that are due to us. Because bankruptcy courts have the power to modify or cancel contracts of the petitioner which remain subject to future performance and alter or discharge payment obligations related to pre-petition debts, we may receive less than all of the payments that we would otherwise be entitled to receive from any such counterparty as a result of bankruptcy proceedings.
If we are unable to attract and retain qualified personnel, our business and operations could suffer.
Our success is dependent upon our ability to identify, attract, compensate, motivate and retain qualified personnel, especially engineers, senior management and other key personnel. The loss of the services of any key employees could be disruptive to our development efforts, business relationships and strategy, and could cause our business and operations to suffer.
Recently, we have experienced significant changes in our management team, including in the role of chief executive officer and other senior executives. Our future success depends in large part upon the continued service and enhancement of our management team and our employees. If there are further changes in management, such changes could be disruptive and could negatively affect our sales, operations, culture, future recruiting efforts and strategic direction. Competition for qualified executives is intense and if we are unable to compensate our key talent appropriately and continue expanding our management team, or successfully integrate new additions to our management team in a manner that enables us to scale our business and operations effectively, our ability to operate effectively and efficiently could be limited or negatively impacted. In addition, changes in key management positions may temporarily affect our financial performance and results of operations as new management becomes familiar with our business, processes and strategy. The loss of any of our key personnel, or our inability to attract, integrate and retain qualified employees, could require us to dedicate significant financial and other resources to such personnel matters, disrupt our operations and seriously harm our operations and business.
We are subject to various government restrictions and regulations, including on the sale of products and services that use encryption technology and those related to privacy and other consumer protection matters.
Various countries have adopted controls, license requirements and restrictions on the export, import and use of products or services that contain encryption technology. In addition, governmental agencies have proposed additional requirements for encryption technology, such as requiring the escrow and governmental recovery of private encryption keys. Restrictions on the sale or distribution of products or services containing encryption technology may impact our ability to license data security technologies to the manufacturers and providers of such products and services in certain markets or may require us or our customers to make changes to the licensed data security technology that is embedded in such products to comply with such restrictions. Government restrictions, or changes to the products or services our customers to comply with such restrictions,
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could delay or prevent the acceptance and use of such customers’ products and services. In addition, the United States and other countries have imposed export controls that prohibit the export of encryption technology to certain countries, entities and individuals. Our failure to comply with export and use regulations concerning encryption technology could subject us to sanctions and penalties, including fines, and suspension or revocation of export or import privileges.
We are subject to a variety of laws and regulations in the United States, the European Union and other countries that involve, for example, user privacy, data protection and security, content and consumer protection. A number of proposals are pending before federal, state, and foreign legislative and regulatory bodies that could significantly affect our business. For example, in 2016, a new EU data protection regime, the General Data Protection Regulation (“GDPR”) was adopted, with it fully effective on May 25, 2018, and California enacted the California Consumer Privacy Act as of January 1, 2020 (“CCPA”). Moreover, a new privacy law, the California Privacy Rights Act (“CPRA”), was approved by California voters in November 2020. The CPRA significantly modifies the CCPA when it becomes effective in most material respects on January 1, 2023. Further, on March 2, 2021, Virginia enacted the Virginia Consumer Data Protection Act (“CDPA”), a comprehensive privacy statute that shares similarities with the CCPA, CPRA and legislation proposed in other states. The GDPR and CCPA, and new and evolving laws such as the CPRA, CDPA and other future changes in laws or regulations relating to privacy, data protection and information security may require us to modify our existing practices with respect to the collection, use and disclosure of data. In particular, the GDPR provides for significant penalties in the case of non-compliance of up to €20 million or four percent of worldwide annual revenues, whichever is greater. The GDPR, CCPA, CPRA, CDPA and other existing and proposed laws and regulations can be costly to comply with and can delay or impede the development of new products, result in negative publicity, increase our operating costs and subject us to claims or other remedies.
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC established new disclosure and reporting requirements for those companies that use “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries in their products, whether or not these products are manufactured by third parties. These requirements could affect the sourcing and availability of minerals that are used in the manufacture of our products. We have to date incurred costs and expect to incur significant additional costs associated with complying with the disclosure requirements, including for example, due diligence in regard to the sources of any conflict minerals used in our products, in addition to the cost of remediation and other changes to products, processes, or sources of supply as a consequence of such verification activities. Additionally, we may face reputational challenges with our customers and other stakeholders if we are unable to sufficiently verify the origins of all minerals used in our products through the due diligence procedures that we implement. We may also face challenges with government regulators and our customers and suppliers if we are unable to sufficiently verify that the metals used in our products are conflict free.
Participation in standards setting organizations may subject us to IP licensing requirements or limitations that could adversely affect our business and prospects.
In the course of our participation in the development of emerging standards for some of our present and future products, we may be obligated to grant to all other participants a license to our patents that are essential to the practice of those standards on reasonable and non-discriminatory, or RAND, terms. If we fail to limit to whom we license our patents, or fail to limit the terms of any such licenses, we may be required to license our patents or other IP to others in the future, which could limit the effectiveness of our patents against competitors.
Our operations are subject to risks of natural disasters, acts of war, terrorism, widespread illness or security breach at our domestic and international locations, any one of which could result in a business stoppage and negatively affect our operating results.
Our business operations depend on our ability to maintain and protect our facilities, computer systems and personnel, which are primarily located in the San Francisco Bay Area in the United States, the Netherlands and India. The San Francisco Bay Area is in close proximity to known earthquake fault zones. Our facilities and transportation for our employees are susceptible to damage from earthquakes and other natural disasters such as fires, floods and similar events. Should a catastrophe disable our facilities, we do not have readily available alternative facilities from which we could conduct our business, so any resultant work stoppage could have a negative effect on our operating results. We also rely on our network infrastructure and technology systems for operational support and business activities which are subject to physical and cyber damage, and also susceptible to other related vulnerabilities common to networks and computer systems. Acts of terrorism, widespread illness, or global pandemics, including the current Novel Coronavirus (COVID-19) pandemic, war and any event that causes failures or interruption in our network infrastructure and technology systems could have a negative effect at our international and domestic facilities and could harm our business, financial condition, and operating results.
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We do not have extensive experience in manufacturing and marketing products and, as a result, may be unable to sustain and grow a profitable commercial market for new and existing products.
We do not have extensive experience in creating, manufacturing and marketing products. Our product offerings may present new and difficult challenges, and we may be subject to claims if customers of our offerings experience delays, failures, non-performance or other quality issues. In particular, we may experience difficulties with product design, qualification, manufacturing, marketing or certification that could delay or prevent our development, introduction or marketing and sales of products. Although we intend to design our products to be fully compliant with applicable industry standards, proprietary enhancements may not in the future result in full conformance with existing industry standards under all circumstances.
If we fail to introduce products that meet the demand of our customers, penetrate new markets in which we expend significant resources, or our marketing and sales cycles that we experience are longer than we anticipate, our revenues will be difficult to predict, may decrease over time and our financial condition could suffer. Additionally, if we concentrate resources on a new market that does not prove profitable or sustainable, it could damage our reputation and limit our growth, and our financial condition could decline.
We rely upon the accuracy of our customers’ recordkeeping, and any inaccuracies or payment disputes for amounts owed to us under our licensing agreements may harm our results of operations.
Many of our license agreements require our customers to document the manufacture and sale of products that incorporate our technology and report this data to us on a quarterly basis. While licenses with such terms give us the right to audit books and records of our customers to verify this information, audits rarely are undertaken because they can be expensive, time consuming, and potentially detrimental to our ongoing business relationship with our customers. Therefore, we typically rely on the accuracy of the reports from customers without independently verifying the information in them. Our failure to audit our customers’ books and records may result in our receiving more or less royalty revenue than we are entitled to under the terms of our license agreements. If we conduct royalty audits in the future, such audits may trigger disagreements over contract terms with our customers and such disagreements could hamper customer relations, divert the efforts and attention of our management from normal operations and impact our business operations and financial condition.
We are subject to increased inventory risks and costs because we build our products based on forecasts provided by customers before receiving purchase orders for the product.
We rely on a number of third-party providers for data center hosting facilities, equipment, maintenance and other services, and the loss of, or problems with, one or more of these providers may impede our growth or cause us to lose customers.
We rely on third-party providers to supply data center hosting facilities, equipment, maintenance and other services in order to enable us to provide some of our services, and have entered into various agreements for such services. The continuous availability of our services depends on the operations of those facilities, on a variety of network service providers and on third-party vendors. In addition, we depend on our third-party facility providers’ ability to protect these facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts, cyber-attacks and similar events. If there are any lapses of service or damage to a facility, we could experience lengthy interruptions in our service as well as delays and additional expenses in arranging new facilities and services. Even with current and planned disaster recovery arrangements, our business could be harmed. Any interruptions or delays in our service, whether as a result of third-party error, our own error, natural disasters, criminal acts, security breaches or other causes, whether accidental or willful, could harm our relationships with customers, harm our reputation and cause our revenue to decrease and/or our expenses to increase. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could further reduce our revenue, subject us to liability and cause us to issue credits or cause us to lose customers, any of which could materially adversely affect our business.
We rely on third parties for a variety of services, including manufacturing, and these third parties’ failure to perform these services adequately could materially and adversely affect our business.
We rely on third parties for a variety of services, including our manufacturing supply chain partners and third parties within our sales and distribution channels. Certain of these third parties are, and may be, our sole manufacturer or sole source of certain production materials. If we fail to manage our relationships with these manufacturers and suppliers effectively, or if they experience delays, disruptions, capacity constraints or quality control problems in their operations, our ability to ship products to our customers could be impaired and our competitive position and reputation could be harmed. In addition, any adverse change in any of our manufacturers and suppliers’ financial or business condition could disrupt our ability to supply quality products to our customers. If we are required to change our manufacturers, we may lose revenue, incur increased costs and damage our end-customer relationships. In addition, qualifying a new manufacturer and commencing production can be an expensive and lengthy process. If our third-party manufacturers or suppliers are unable to provide us with adequate supplies of high-quality products for any other reason, we could experience a delay in our order fulfillment, and our business, operating
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results and financial condition would be adversely affected. In the event these and other third parties we rely on fail to provide their services adequately, including as a result of errors in their systems or events beyond their control, or refuse to provide these services on terms acceptable to us or at all, and we are not able to find suitable alternatives, our business may be materially and adversely affected. In addition, our orders may represent a relatively small percentage of the overall orders received by our manufacturers from their customers. As a result, fulfilling our orders may not be considered a priority in the event our manufacturers are constrained in their ability to fulfill all of their customer obligations in a timely manner. If our manufacturers are unable to provide us with adequate supplies of high-quality products, or if we or our manufacturers are unable to obtain adequate quantities of components, it could cause a delay in our order fulfillment, in which case our business, operating results and financial condition could be adversely affected.
Warranty, service level agreement and product liability claims brought against us could cause us to incur significant costs and adversely affect our operating results as well as our reputation and relationships with customers.
We may from time to time be subject to warranty, service level agreement and product liability claims with regard to product performance and our services. We could incur material losses as a result of warranty, support, repair or replacement costs in response to customer complaints or in connection with the resolution of contemplated or actual legal proceedings relating to such claims. In addition to potential losses arising from claims and related legal proceedings, warranty and product liability claims could affect our reputation and our relationship with customers. We generally attempt to limit the maximum amount of indemnification or liability that we could be exposed to under our contracts, however, this is not always possible.
Any failure in our delivery of high-quality technical support services may adversely affect our relationships with our customers and our financial results.
Our customers depend on our support organization to resolve technical issues and provide ongoing maintenance relating to our products and services. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. Increased customer demand for these services, without corresponding revenues, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependent on our offerings and business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could adversely affect our reputation, our ability to sell our solutions to existing and prospective customers, and our business, operating results and financial position.
Certain software that we use in certain of our products is licensed from third parties and, for that reason, may not be available to us in the future, which has the potential to delay product development and production or cause us to incur additional expense, which could materially adversely affect our business, financial condition, operating results and cash flow.
Some of our products and services contain software licensed from third parties. Some of these licenses may not be available to us in the future on terms that are acceptable to us or allow our products to remain competitive. The loss of these licenses or the inability to maintain any of them on commercially acceptable terms could delay development of future offerings or the enhancement of existing products and services. We may also choose to pay a premium price for such a license in certain circumstances where continuity of the licensed product would outweigh the premium cost of the license. The unavailability of these licenses or the necessity of agreeing to commercially unreasonable terms for such licenses could materially adversely affect our business, financial condition, operating results and cash flow.
Certain software we use is from open source code sources, which, under certain circumstances, may lead to unintended consequences and, therefore, could materially adversely affect our business, financial condition, operating results and cash flow.
We use open source software in our services and we intend to continue to use open source software in the future. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products or alleging that these companies have violated the terms of an open source license. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software or alleging that we have violated the terms of an open source license. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional research and development resources to change our solutions. In addition, if we were to combine our proprietary software solutions with open source software in certain manners, we could, under certain open source licenses, be required to publicly release the source code of our proprietary software solutions. If we inappropriately use open source software, we may be required to re-engineer our solutions, discontinue the sale of our solutions, release the source code of our proprietary software to the public at no cost or take other remedial actions. There is a risk that open source licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our solutions, which could adversely affect our business, operating results and financial condition.
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Our business and operating results could be harmed if we undertake any restructuring activities.
From time to time, we may undertake restructurings of our business, including discontinuing certain products, services and technologies and planned reductions in force. There are several factors that could cause restructurings to have adverse effects on our business, financial condition and results of operations. These include potential disruption of our operations, the development of our technology, the deliveries to our customers and other aspects of our business. Loss of sales, service and engineering talent, in particular, could damage our business. Any restructuring would require substantial management time and attention and may divert management from other important work. Employee reductions or other restructuring activities also would cause us to incur restructuring and related expenses such as severance expenses. Moreover, we could encounter delays in executing any restructuring plans, which could cause further disruption and additional unanticipated expense.
Problems with our information systems could interfere with our business and could adversely impact our operations.
We rely on our information systems and those of third parties for fulfilling licensing and contractual obligations, processing customer orders, delivering products, providing services and support to our customers, billing and tracking our customer orders, performing accounting operations and otherwise running our business. If our systems fail, our disaster and data recovery planning and capacity may prove insufficient to enable timely recovery of important functions and business records. Any disruption in our information systems and those of the third parties upon whom we rely could have a significant impact on our business. Additionally, our information systems may not support new business models and initiatives and significant investments could be required in order to upgrade them. Delays in adapting our information systems to address new business models and accounting standards could limit the success or result in the failure of such initiatives and impair the effectiveness of our internal controls. Even if we do not encounter these adverse effects, the implementation of these enhancements may be much more costly than we anticipated. If we are unable to successfully implement the information systems enhancements as planned, our operating results could be negatively impacted.
We are leveraged financially, which could adversely affect our ability to adjust our business to respond to competitive pressures and to obtain sufficient funds to satisfy our future research and development needs, to protect and enforce our intellectual property, and to meet other needs.
We have material indebtedness. In November 2017, we issued $172.5 million aggregate principal amount of our 2023 Notes, the entire amount of which remains outstanding. The degree to which we are leveraged could have negative consequences, including, but not limited to, the following:
we may be more vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in responding to changing business and economic conditions;
our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, litigation, general corporate or other purposes may be limited;
a substantial portion of our cash flows from operations in the future may be required for the payment of interest and principal when due at maturity in February 2023; and
we may be required to make cash payments upon any conversion of the 2023 Notes, which would reduce our cash on hand.
A failure to comply with the covenants and other provisions of our debt instruments could result in events of default under such instruments, which could permit acceleration of all of our outstanding 2023 Notes. Any required repurchase of the 2023 Notes as a result of a fundamental change or acceleration of the 2023 Notes would reduce our cash on hand such that we would not have those funds available for use in our business.
If we are at any time unable to generate sufficient cash flows from operations to service our indebtedness when payment is due, we may be required to attempt to renegotiate the terms of the instruments relating to the indebtedness, seek to refinance all or a portion of the indebtedness or obtain additional financing. There can be no assurance that we will be able to successfully renegotiate such terms, that any such refinancing would be possible or that any additional financing could be obtained on terms that are favorable or acceptable to us.
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We have identified a material weakness in our internal control over financial reporting and determined that our disclosure controls and procedures were ineffective as of December 31, 2020 and March 31, 2021, which resulted in a restatement of our 2020 and 2019 consolidated financial statements included in our Form 10-K for the year ended December 31, 2020 and our March 31, 2020 condensed consolidated financial statements included in our Form 10-Q for the quarterly period ended March 31, 2021. The quarterly periods ended June 30, 2020 and September 30, 2020 will be restated in the respective 2021 Form 10-Q. In the future we may identify additional material weaknesses or otherwise fail to maintain an effective system of internal control over financial reporting or adequate disclosure controls and procedures, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting and our disclosure controls and procedures as of December 31, 2020. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. In Management’s Report on Internal Control over Financial Reporting included in our Original Form 10-K for the year ended December 31, 2020, our management initially concluded that we maintained effective internal control over financial reporting as of December 31, 2020. Our management subsequently concluded that a material weakness existed and our disclosure controls and procedures were not effective as of December 31, 2020. During the quarter ending March 31, 2021, we determined that a portion of revenue under a single customer agreement that had not yet been recognized should have been recognized beginning in the third quarter of 2019. As a result, we determined that a material misstatement of the financial statements had occurred, which required a restatement of the 2019 and 2020 financial statements included in our Form 10-K for the year ended December 31, 2020 and our Form 10-Qs for the quarterly periods ended September 30, 2019 through September 30, 2020. This was due to the inadequate design and maintenance of controls to evaluate and monitor the accounting for patent and technology licensing contracts with unusual contract terms. Additionally, this control deficiency could result in a misstatement of the revenue, unbilled receivables and interest income account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management determined that this control deficiency constituted a material weakness, and as a result, management concluded that, as of December 31, 2020, our internal control over financial reporting were not effective based on the criteria in Internal Control — Integrated Framework (2013) issued by the COSO, and our disclosure controls and procedures were not effective. Management subsequently restated its determinations related to our internal control over financial reporting and disclosure controls and procedures as of December 31, 2020 to reflect that both were ineffective.
Management is actively engaged in the planning for, and implementation of, remediation efforts to address our material weakness and improve our internal control over financial reporting and disclosure controls and procedures. The remediation plan includes enhancement of our existing contract review control for revenue arrangements with unusual terms to require review of the facts as summarized in the contract review analysis by legal and the licensing group to confirm appropriate understanding of the terms by the revenue recognition team, as well as implementation of a new control designed to evaluate and monitor, at inception and on a quarterly basis, the accounting assessment of revenue contracts with unusual terms. If we are not successful in our remediation efforts and do not improve our internal control over financial reporting and disclosure controls and procedures, we may have future material misstatements in our periodic reports, which could lead to the discovery of additional material weaknesses, require restatement of our previously filed financial statements, cause us to fail to meet our reporting obligations and adversely impact our results of operations. Additionally, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
If we are not able to comply with the requirements of the Sarbanes-Oxley Act or if we are unable to maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to produce timely and accurate financial statements or guarantee that information required to be disclosed by us in the reports that we file with the SEC, is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. Any failure of our internal control over financial reporting or disclosure controls and procedures could cause our investors to lose confidence in our publicly reported information, cause the market price of our stock to decline, expose us to sanctions or investigations by the SEC or other regulatory authorities, or impact our results of operations.
Risks Associated with Litigation, Regulation and Our Intellectual Property
Adverse litigation results could affect our business.
We may be subject to legal claims or regulatory matters involving consumer, stockholder, employment, competition, IP and other issues on a global basis. Litigation can be lengthy, expensive and disruptive to our operations, and results cannot be predicted with certainty. An adverse decision could include monetary damages or, in cases for which injunctive relief is sought,
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an injunction prohibiting us from manufacturing or selling one or more of our products or technologies. If we were to receive an unfavorable ruling on a matter, our business, operating results or financial condition could be materially harmed.
We have in the past, and may in the future, become engaged in litigation stemming from our efforts to protect and enforce our patents and intellectual property and make other claims, which could adversely affect our intellectual property rights, distract our management and cause substantial expenses and declines in our revenue and stock price.
We seek to diligently protect our IP rights and will continue to do so. While we are not currently involved in IP litigation, any future litigation, whether or not determined in our favor or settled by us, would be expected to be costly, may cause delays applicable to our business (including delays in negotiating licenses with other actual or potential customers), would be expected to discourage future design partners, would tend to impair adoption of our existing technologies and would divert the efforts and attention of our management and technical personnel from other business operations. In addition, we may be unsuccessful in any litigation if we have difficulty obtaining the cooperation of former employees and agents who were involved in our business during the relevant periods related to our litigation and are now needed to assist in cases or testify on our behalf. Furthermore, any adverse determination or other resolution in litigation could result in our losing certain rights beyond the rights at issue in a particular case, including, among other things: our being effectively barred from suing others for violating certain or all of our IP rights; our patents being held invalid or unenforceable or not infringed; our being subjected to significant liabilities; our being required to seek licenses from third parties; our being prevented from licensing our patented technology; or our being required to renegotiate with current customers on a temporary or permanent basis.
From time to time, we are subject to proceedings by government agencies that may result in adverse determinations against us and could cause our revenue to decline substantially.
An adverse resolution by or with a governmental agency could result in severe limitations on our ability to protect and license our IP, and could cause our revenue to decline substantially. Third parties have and may attempt to use adverse findings by a government agency to limit our ability to enforce or license our patents in private litigations, to challenge or otherwise act against us with respect to such government agency proceedings.
Further, third parties have sought and may seek review and reconsideration of the patentability of inventions claimed in certain of our patents by the U.S. Patent and Trademark Office (“USPTO”) and/or the European Patent Office (the “EPO”). Any re-examination or inter parties review proceedings may be initiated by the USPTO’s Patent Trial and Appeal Board (“PTAB”). The PTAB and the related former Board of Patent Appeals and Interferences have previously issued decisions in a few cases, finding some challenged claims of Rambus’ patents to be valid, and others to be invalid. Decisions of the PTAB are subject to further USPTO proceedings and/or appeal to the Court of Appeals for the Federal Circuit. A final adverse decision, not subject to further review and/or appeal, could invalidate some or all of the challenged patent claims and could also result in additional adverse consequences affecting other related U.S. or European patents, including in any IP litigation. If a sufficient number of such patents are impaired, our ability to enforce or license our IP would be significantly weakened and could cause our revenue to decline substantially.
The pendency of any governmental agency acting as described above may impair our ability to enforce or license our patents or collect royalties from existing or potential customers, as any litigation opponents may attempt to use such proceedings to delay or otherwise impair any pending cases and our existing or potential customers may await the final outcome of any proceedings before agreeing to new licenses or to paying royalties.
Litigation or other third-party claims of intellectual property infringement could require us to expend substantial resources and could prevent us from developing or licensing our technology on a cost-effective basis.
Our research and development programs are in highly competitive fields in which numerous third parties have issued patents and patent applications with claims closely related to the subject matter of our programs. We have also been named in the past, and may in the future be named, as a defendant in lawsuits claiming that our technology infringes upon the IP rights of third parties. As we develop additional products and technology, we may face claims of infringement of various patents and other IP rights by third parties. In the event of a third-party claim or a successful infringement action against us, we may be required to pay substantial damages, to stop developing and licensing our infringing technology, to develop non-infringing technology, and to obtain licenses, which could result in our paying substantial royalties or our granting of cross licenses to our technologies. We may not be able to obtain licenses from other parties at a reasonable cost, or at all, which could cause us to expend substantial resources, or result in delays in, or the cancellation of, new products. Moreover, customers and/or suppliers of our products may seek indemnification for alleged infringement of IP rights. We could be liable for direct and consequential damages and expenses including attorneys’ fees. A future obligation to indemnify our customers and/or suppliers may harm our business, financial condition and operating results.
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If we are unable to protect our inventions successfully through the issuance and enforcement of patents, our operating results could be adversely affected.
We have an active program to protect our proprietary inventions through the filing of patents. There can be no assurance, however, that:
any current or future U.S. or foreign patent applications will be approved and not be challenged by third parties;
our issued patents will protect our IP and not be challenged by third parties;
the validity of our patents will be upheld;
our patents will not be declared unenforceable;
the patents of others will not have an adverse effect on our ability to do business;
Congress or the U.S. courts or foreign countries will not change the nature or scope of rights afforded patents or patent owners or alter in an adverse way the process for seeking or enforcing patents;
changes in law will not be implemented, or changes in interpretation of such laws will occur, that will affect our ability to protect and enforce our patents and other IP;
new legal theories and strategies utilized by our competitors will not be successful;
others will not independently develop similar or competing chip interfaces or design around any patents that may be issued to us; or
factors such as difficulty in obtaining cooperation from inventors, pre-existing challenges or litigation, or license or other contract issues will not present additional challenges in securing protection with respect to patents and other IP that we acquire.
If any of the above were to occur, our operating results could be adversely affected.
Furthermore, patent reform legislation, such as the Leahy-Smith America Invents Act, could increase the uncertainties and costs surrounding the prosecution of any patent applications and the enforcement or defense of our licensed patents. The federal courts, the USPTO, the Federal Trade Commission, and the U.S. International Trade Commission have also recently taken certain actions and issued rulings that have been viewed as unfavorable to patentees. While we cannot predict what form any new patent reform laws or regulations may ultimately take, or what impact recent or future reforms may have on our business, any laws or regulations that restrict or negatively impact our ability to enforce our patent rights against third parties could have a material adverse effect on our business.
In addition, our patents will continue to expire according to their terms, with expected expiration dates ranging from 2021 to 2040. Our failure to continuously develop or acquire successful innovations and obtain patents on those innovations could significantly harm our business, financial condition, results of operations, or cash flows.
Our inability to protect and own the intellectual property we create would cause our business to suffer.
We rely primarily on a combination of license, development and nondisclosure agreements, trademark, trade secret and copyright law and contractual provisions to protect our non-patentable IP rights. If we fail to protect these IP rights, our customers and others may seek to use our technology without the payment of license fees and royalties, which could weaken our competitive position, reduce our operating results and increase the likelihood of costly litigation. The growth of our business depends in part on the use of our IP in the products of third-party manufacturers, and our ability to enforce IP rights against them to obtain appropriate compensation. In addition, effective trade secret protection may be unavailable or limited in certain foreign countries. Although we intend to protect our rights vigorously, if we fail to do so, our business will suffer.
Effective protection of trademarks, copyrights, domain names, patent rights, and other IP rights is expensive and difficult to maintain, both in terms of application and maintenance costs, as well as the costs of defending and enforcing those rights. The efforts we have taken to protect our IP rights may not be sufficient or effective. Our IP rights may be infringed, misappropriated, or challenged, which could result in them being narrowed in scope or declared invalid or unenforceable. In addition, the laws or practices of certain countries do not protect our proprietary rights to the same extent as do the laws of the United States. Significant impairments of our IP rights, and limitations on our ability to assert our IP rights against others, could have a material and adverse effect on our business.
Third parties may claim that our products or services infringe on their intellectual property rights, exposing us to litigation that, regardless of merit, may be costly to defend.
Our success and ability to compete are also dependent upon our ability to operate without infringing upon the patent, trademark and other IP rights of others. Third parties may claim that our current or future products or services infringe upon their IP rights. Any such claim, with or without merit, could be time consuming, divert management’s attention from our
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business operations and result in significant expenses. We cannot assure you that we would be successful in defending against any such claims. In addition, parties making these claims may be able to obtain injunctive or other equitable relief affecting our ability to license the products that incorporate the challenged IP. As a result of such claims, we may be required to obtain licenses from third parties, develop alternative technology or redesign our products. We cannot be sure that such licenses would be available on terms acceptable to us, if at all. If a successful claim is made against us and we are unable to develop or license alternative technology, our business, financial condition, operating results and cash flows could be materially adversely affected.
Any dispute regarding our intellectual property may require us to indemnify certain customers, the cost of which could severely hamper our business operations and financial condition.
In any potential dispute involving our patents or other IP, our customers could also become the target of litigation. While we generally do not indemnify our customers, some of our agreements provide for indemnification, and some require us to provide technical support and information to a customer that is involved in litigation involving use of our technology. In addition, we may be exposed to indemnification obligations, risks and liabilities that were unknown at the time that we acquired assets or businesses for our operations. Any of these indemnification and support obligations could result in substantial and material expenses. In addition to the time and expense required for us to indemnify or supply such support to our customers, a customer’s development, marketing and sales of licensed semiconductors, mobile communications and data security technologies could be severely disrupted or shut down as a result of litigation, which in turn could severely hamper our business operations and financial condition as a result of lower or no royalty payments.
We have been party to, and may in the future be subject to, lawsuits relating to securities law matters which may result in unfavorable outcomes and significant judgments, settlements and legal expenses which could cause our business, financial condition and results of operations to suffer.
We and certain of our current and former officers and directors, as well as our current auditors, were subject from 2006 to 2011 to several stockholder derivative actions, securities fraud class actions and/or individual lawsuits filed in federal court against us and certain of our current and former officers and directors. The complaints generally alleged that the defendants violated the federal and state securities laws and stated state law claims for fraud and breach of fiduciary duty. Although to date these complaints have either been settled or dismissed, the amount of time to resolve any future lawsuits is uncertain, and these matters could require significant management and financial resources. Unfavorable outcomes and significant judgments, settlements and legal expenses in litigation related to any future securities law claims could have material adverse impacts on our business, financial condition, results of operations, cash flows and the trading price of our common stock.
General Risk Factors
The price of our common stock may continue to fluctuate.
Our common stock is listed on The NASDAQ Global Select Market under the symbol “RMBS.” The trading price of our common stock has at times experienced price volatility and may continue to fluctuate significantly in response to various factors, some of which are beyond our control. Some of these factors include:
any progress, or lack of progress, real or perceived, in the development of products that incorporate our innovations and technology companies’ acceptance of our products, including the results of our efforts to expand into new target markets;
our signing or not signing new licenses or renewing existing licenses, and the loss of strategic relationships with any customer;
announcements of technological innovations or new products by us, our customers or our competitors;
changes in our strategies, including changes in our licensing focus and/or acquisitions or dispositions of companies or businesses with business models or target markets different from our core;
positive or negative reports by securities analysts as to our expected financial results and business developments;
developments with respect to patents or proprietary rights and other events or factors;
new litigation and the unpredictability of litigation results or settlements;
repurchases of our common stock on the open market;
issuance of additional securities by us, including in acquisitions, or large cash payments, including in acquisitions; and
changes in accounting pronouncements, including the effects of ASC 606 and ASC 842.
In addition, the stock market in general, and prices for companies in our industry in particular, have experienced extreme volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our common stock, regardless of our operating performance.
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We have outstanding senior convertible notes in an aggregate principal amount totaling $172.5 million. Because these notes are convertible into shares of our common stock, volatility or depressed prices of our common stock could have a similar effect on the trading price of such notes. In addition, the existence of these notes may encourage short selling in our common stock by market participants because the conversion of the notes could depress the price of our common stock.
Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.
Changing laws, regulations and standards relating to corporate governance and public disclosure have historically created uncertainty for companies such as ours. Any new or changed laws, regulations and standards are subject to varying interpretations due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Our certificate of incorporation and bylaws, Delaware law, our outstanding convertible notes and certain other agreements contain provisions that could discourage transactions resulting in a change in control, which may negatively affect the market price of our common stock.
Our certificate of incorporation, our bylaws and Delaware law contain provisions that might enable our management to discourage, delay or prevent a change in control. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our common stock. Pursuant to such provisions:
our board of directors is authorized, without prior stockholder approval, to create and issue preferred stock, commonly referred to as “blank check” preferred stock, with rights senior to those of common stock, which means that a stockholder rights plan could be implemented by our board;
our board of directors is staggered into two classes, only one of which is elected at each annual meeting;
stockholder action by written consent is prohibited;
nominations for election to our board of directors and the submission of matters to be acted upon by stockholders at a meeting are subject to advance notice requirements;
certain provisions in our bylaws and certificate of incorporation such as notice to stockholders, the ability to call a stockholder meeting, advance notice requirements and action of stockholders by written consent may only be amended with the approval of stockholders holding 66 2/3% of our outstanding voting stock;
our stockholders have no authority to call special meetings of stockholders; and
our board of directors is expressly authorized to make, alter or repeal our bylaws.
We are also subject to Section 203 of the Delaware General Corporation Law, which provides, subject to enumerated exceptions, that if a person acquires 15% or more of our outstanding voting stock, the person is an “interested stockholder” and may not engage in any “business combination” with us for a period of three years from the time the person acquired 15% or more of our outstanding voting stock.
Certain provisions of our outstanding Notes could make it more difficult or more expensive for a third party to acquire us. Upon the occurrence of certain transactions constituting a fundamental change, holders of such Notes will have the right, at their option, to require us to repurchase, at a cash repurchase price equal to 100% of the principal amount plus accrued and unpaid interest on such Notes, all or a portion of their Notes. We may also be required to increase the conversion rate of such Notes in the event of certain fundamental changes.
Unanticipated changes in our tax rates or in the tax laws, treaties and regulations could expose us to additional income tax liabilities, which could affect our operating results and financial condition.
We are subject to income taxes in both the United States and various foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. Our effective tax rate could be adversely affected by several factors, many of which are outside of our control, including changes in the mix of earnings and losses in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, rates, treaties and regulations or the interpretation of the same, changes to the financial accounting rules for income taxes, the outcome of current and future tax audits, examinations or administrative appeals and certain non-deductible expenses. Our tax determinations are regularly subject to audit by tax authorities and developments in those audits could adversely affect our income tax provision, and we are currently undergoing such audits of certain of our tax returns. Although we believe that our tax estimates are reasonable, the final determination of tax audits or tax disputes may be different from what is reflected in our historical income tax provisions, which could affect our operating results.
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Recently, in the United States, the Biden administration proposed to increase the U.S. corporate income tax rate from 21% to 28%, increase U.S. taxation of international business operations and impose a global minimum tax. Many countries and organizations such as the Organization for Economic Cooperation and Development are also actively considering changes to existing tax laws or have proposed or enacted new laws that could increase our tax obligations in countries where we do business or cause us to change the way we operate our business. Any of these developments or changes in federal, state, or international tax laws or tax rulings could adversely affect our effective tax rate and our operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.

Item 3. Defaults Upon Senior Securities
None.

Item 4. Mine Safety Disclosures
Not applicable.

Item 5. Other Information
None.

Item 6. Exhibits
INDEX TO EXHIBITS
Exhibit
Number
 Description of Document
Form of Indemnification Agreement.
Letter agreement dated as of March 12, 2021, among Rambus Inc. and Barington Companies Equity Partners, L.P. and certain other parties.
 Certification of Principal Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 Certification of Principal Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
_________________________________________
*    The certifications furnished in Exhibit 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as
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amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
(1)    Incorporated by reference to the Form 8-K filed on March 16, 2021, with the Securities and Exchange Commission.
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SIGNATURE 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 RAMBUS INC.
  
Date:May 7, 2021By:/s/ Rahul Mathur
  Rahul Mathur
  Senior Vice President, Finance and Chief Financial Officer
  (Principal Financial Officer and Duly Authorized Officer)
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