RAMBUS INC. 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 theSecurities and Exchange Commission . Rambus is a trademark ofRambus 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 and nine months endedSeptember 30, 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. 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. Executive Summary The Company's continued execution delivered strong results during the third quarter, driven by continued demand in our memory interface chips, continued design wins in Silicon IP and continued stability from our royalties revenue. We also closed our acquisitions ofAnalogX Inc. ("AnalogX") andPLDA Group ("PLDA"), bolstering our Silicon IP business and CXL Memory Interconnect Initiative. Key 2021 third quarter financial results included: •Revenue of$81.3 million ; •Operating expenses of$58.2 million ; and •Net cash provided by operating activities of$46.0 million . Operational Highlights 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 31 -------------------------------------------------------------------------------- Table of Contents manufacturers and cloud providers, for integration into server memory modules. Product revenue accounted for 45% and 42% of our consolidated revenue for the three and nine months endedSeptember 30, 2021 , as compared to 52% and 50% for the three and nine months endedSeptember 30, 2020 . Contract and other revenue consists primarily of Silicon IP, which is comprised of 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 14% of our consolidated revenue for both the three and nine months endedSeptember 30, 2021 , as compared to 19% for both the three and nine months endedSeptember 30, 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% and 44% of our consolidated revenue for the three and nine months endedSeptember 30, 2021 , as compared to 29% and 31% for the three and nine months endedSeptember 30, 2020 . Costs and Expenses Cost of product revenue for the three months endedSeptember 30, 2021 increased approximately$3.5 million as compared to the same period in 2020. Cost of product revenue for the nine months endedSeptember 30, 2021 increased approximately$5.7 million as compared to the same period in 2020. The increase in both periods was primarily due to increases in sales volumes during the respective periods. Cost of contract and other revenue for the three months endedSeptember 30, 2021 increased by approximately$0.2 million as compared to the same period in 2020. Cost of contract and other revenue for the nine months endedSeptember 30, 2021 was flat 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 endedSeptember 30, 2021 increased$1.9 million as compared to the same period in 2020, primarily due to increased prototyping costs of$1.2 million , consulting costs of$0.6 million , facilities costs of$0.4 million , equipment maintenance costs of$0.2 million , offset by decreased engineering development tool costs of$0.3 million , headcount-related expenses of$0.2 million and legal patent costs of$0.2 million . Research and development expenses for the nine months endedSeptember 30, 2021 decreased$5.7 million as compared to the same period in 2020, primarily due to decreased headcount-related expenses of$2.2 million , retention bonus expense related to acquisitions of$1.5 million , engineering development tool costs of$1.4 million , facilities costs of$1.2 million and allocated information technology costs of$1.0 million , offset by increased consulting costs of$0.8 million and prototyping costs of$0.6 million . Sales, general and administrative expenses for the three months endedSeptember 30, 2021 increased$2.0 million as compared to the same period in 2020, primarily due to increased depreciation expense of$0.6 million , stock-based compensation expense of$0.6 million , acquisition-related costs (including retention bonus expense) of$0.3 million and consulting costs of$0.3 million . Sales, general and administrative expenses for the nine months endedSeptember 30, 2021 increased$2.8 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, acquisition-related costs (including retention bonus expense) of$1.5 million , stock-based compensation expense of$1.5 million and allocated information technology costs of$1.0 million , offset by decreased facilities costs of$1.9 million , headcount-related expenses of$0.9 million , other consulting costs of$0.6 million , equipment maintenance costs of$0.5 million and bonus accrual expense of$0.5 million . Intellectual Property As ofSeptember 30, 2021 , our semiconductor, security, and other technologies are covered by 2,369U.S. and foreign patents. Additionally, we have 584 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 inthe 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 32 -------------------------------------------------------------------------------- Table of Contents 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 InDecember 2019 , the Novel Coronavirus (COVID-19) was reported inChina , inJanuary 2020 theWorld Health Organization ("WHO") declared it a Public Health Emergency of International Concern, and inMarch 2020 theWHO 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 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% and 54% of our revenue for the three and nine months endedSeptember 30, 2021 as compared to 49% and 48% for the three and nine months endedSeptember 30, 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 ofthe United States accounted for approximately 32% and 38% of our total revenue for the three and nine months endedSeptember 30, 2021 as compared to 49% and 48% for the three and nine months endedSeptember 30, 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 inU.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. Several of our licensees have renewed or extended their license agreements with us during the nine months endedSeptember 30, 2021 including Qualcomm, Kioxia and Western Digital. 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, including the 2021 acquisitions of AnalogX and PLDA, as well as the 2019 acquisitions of Northwest Logic and the Secure Silicon IP and Protocols business fromVerimatrix , 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 toVisa 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. 33 -------------------------------------------------------------------------------- Table of Contents 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 Nine Months Ended September 30, September 30, 2020 (As 2021 2020 (As Restated) 2021 Restated) Revenue: Product revenue 45.1 % 52.3 % 41.7 % 50.0 % Royalties 40.7 % 29.2 % 43.9 % 30.8 % Contract and other revenue 14.2 % 18.5 % 14.4 % 19.2 % Total revenue 100.0 % 100.0 % 100.0 % 100.0 % Cost of revenue: Cost of product revenue 16.2 % 17.0 % 15.2 % 16.4 % Cost of contract and other revenue 1.8 % 2.2 % 1.7 % 2.2 % Amortization of acquired intangible assets 4.7 % 7.6 % 5.4 % 7.0 % Total cost of revenue 22.7 % 26.8 % 22.3 % 25.6 % Gross profit 77.3 % 73.2 % 77.7 % 74.4 % Operating expenses: Research and development 43.8 % 59.3 % 42.0 % 57.0 % Sales, general and administrative 27.3 % 35.5 % 28.7 % 35.3 % Amortization of acquired intangible assets 0.4 % 0.4 % 0.3 % 0.5 % Restructuring charges - % - % 0.2 % 0.5 % Change in fair value of earn-out liability - % - % - %
(1.0) %
Total operating expenses 71.5 % 95.2 % 71.2 % 92.3 %
Operating income (loss) 5.8 % (22.0) % 6.5 % (17.9) %
Interest income and other income (expense), net 3.4 % 6.2 % 3.4 % 8.0 %
Interest expense (3.4) % (4.5) % (3.3) % (4.2) %
Interest and other income (expense), net - % 1.7 % 0.1 % 3.8 %
Income (loss) before income taxes 5.8 % (20.3) % 6.6 % (14.1) %
Provision for income taxes 1.3 % 2.1 % 1.4 % 1.3 %
Net income (loss) 4.5 % (22.4) % 5.2 % (15.4) %
Three Months Ended Nine Months Ended
September 30, Change in September 30, Change in
2020 (As
(Dollars in millions) 2021 2020 Percentage 2021 Restated) Percentage
Total revenue:
Product revenue $ 36.7 $ 29.8 23.3 % $ 98.7 $ 92.2 7.0 %
Royalties 33.1 16.6 99.0 % 103.8 56.8 82.7 %
Contract and other revenue 11.5 10.5 9.3 % 34.0 35.4 (3.7) %
Total revenue $ 81.3 $ 56.9 42.8 % $ 236.5 $ 184.4 28.3 %
Product Revenue
Product revenue consists of revenue from the sale of memory and security
products. Product revenue increased approximately $6.9 million to $36.7 million
for the three months ended September 30, 2021 from $29.8 million for the same
period in 2020. Product revenue increased approximately $6.5 million to
$98.7 million for the nine months ended September 30, 2021 from $92.2 million
for the same period in 2020. The increase in both periods 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. However, 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 $16.5 million to $33.1 million for the three months ended
September 30, 2021 from $16.6 million for the same period in 2020. Our royalty
revenue increased approximately $47.0 million to $103.8 million for the nine
months ended September 30, 2021 from $56.8 million for the same period in 2020.
The increase in both periods was primarily due to the timing and structure of
renewals.
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 increased approximately $1.0 million to
$11.5 million for the three months ended September 30, 2021 from $10.5 million
for the same period in 2020. The increase was primarily due to higher support
revenue. Contract and other revenue decreased approximately $1.4 million to
$34.0 million for the nine months ended September 30, 2021 from $35.4 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 Nine Months Ended
September 30, Change in September 30, Change in
(Dollars in millions) 2021 2020 Percentage 2021 2020
Percentage
Cost of product revenue $ 13.2 $ 9.7 36.2 % $ 36.0 $ 30.3 18.9 %
Cost of product revenue increased approximately $3.5 million to $13.2 million
for the three months ended September 30, 2021 from $9.7 million for the same
period in 2020. Cost of product revenue increased approximately $5.7 million to
$36.0 million for the nine months ended September 30, 2021 from $30.3 million
for the same period in 2020. The increase for both periods was primarily due to
increases in sales volumes during the respective periods.
In the near term, we expect costs of product revenue to continue 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 Nine Months Ended
September 30, Change in September 30, Change in
(Dollars in millions) 2021 2020 Percentage 2021 2020 Percentage
Cost of contract and other revenue $ 1.5 $ 1.3 14.9 % $ 4.0 $ 4.0 - %
Cost of contract and other revenue for the three months ended September 30, 2021
increased by approximately $0.2 million as compared to the same period in 2020.
Cost of contract and other revenue for the nine months ended September 30, 2021
was flat as compared to the same period in 2020.
In the near term, we expect costs of contract and other revenue to vary from
period to period based on varying revenue recognized from contract and other
revenue.
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Research and Development Expenses
Three Months Ended Nine Months Ended
September 30, Change in September 30, Change in
(Dollars in millions) 2021 2020 Percentage 2021 2020 PercentageResearch and development expenses:
Research and development expenses$ 33.0 $ 31.1 6.0 %$ 91.7 $ 97.3 (5.8) % Stock-based compensation 2.6 2.6 - % 7.7 7.8 (0.8) % Total research and development expenses$ 35.6 $ 33.7 5.5 %$ 99.4 $ 105.1 (5.4) % Total research and development expenses increased$1.9 million for the three months endedSeptember 30, 2021 as compared to the same period in 2020, primarily due to increased prototyping costs of$1.2 million , consulting costs of$0.6 million , facilities costs of$0.4 million , equipment maintenance costs of$0.2 million , offset by decreased engineering development tool costs of$0.3 million , headcount-related expenses of$0.2 million and legal patent costs of$0.2 million . Total research and development expenses decreased$5.7 million for the nine months endedSeptember 30, 2021 as compared to the same period in 2020, primarily due to decreased headcount-related expenses of$2.2 million , retention bonus expense related to acquisitions of$1.5 million , engineering development tool costs of$1.4 million , facilities costs of$1.2 million and allocated information technology costs of$1.0 million , offset by increased consulting costs of$0.8 million and prototyping costs of$0.6 million . In the near term, we expect research and development expenses to be higher as we continue to make investments in the infrastructure and technologies required to maintain our product innovation in semiconductor, security and other technologies. Sales, General and Administrative Expenses Three Months Ended Nine Months Ended September 30, Change in September 30, Change in 2020 (As (Dollars in millions) 2021 2020 Percentage 2021 Restated) Percentage Sales, general and administrative expenses: Sales, general and administrative expenses$ 17.4 $ 16.0 9.2 %$ 54.7 $ 53.3 2.4 % Stock-based compensation 4.8 4.2 13.1 % 13.3 11.9 12.4 % Total sales, general and administrative expenses$ 22.2 $ 20.2 10.0 %$ 68.0 $ 65.2 4.2 % Total sales, general and administrative expenses increased$2.0 million for the three months endedSeptember 30, 2021 as compared to the same period in 2020, primarily due to increased depreciation expense of$0.6 million , stock-based compensation expense of$0.6 million , acquisition-related costs (including retention bonus expense) of$0.3 million and consulting costs of$0.3 million . Total sales, general and administrative expenses increased$2.8 million for the nine months endedSeptember 30, 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, acquisition-related costs (including retention bonus expense) of$1.5 million , stock-based compensation expense of$1.5 million and allocated information technology costs of$1.0 million , offset by decreased facilities costs of$1.9 million , headcount-related expenses of$0.9 million , other consulting costs of$0.6 million , equipment maintenance costs of$0.5 million and bonus accrual expense of$0.5 million . In the future, sales, general and administrative expenses will vary from period to period based on the trade shows, advertising, legal, acquisition and other sales, marketing and administrative activities undertaken, and the change in sales, marketing and administrative headcount in any given period. In the near term, we expect our sales, general and administrative expenses to remain relatively flat. 36 -------------------------------------------------------------------------------- Table of Contents Amortization of Acquired Intangible Assets Three Months Ended Nine Months Ended September 30, Change in September 30, Change in (Dollars in millions) 2021 2020 Percentage 2021 2020 Percentage Amortization of acquired intangible assets: Amortization of acquired intangible assets included in total cost of revenue$ 3.8 $ 4.3 (12.1) %$ 12.6 $ 13.0 (2.9) % Amortization of acquired intangible assets included in total operating expenses 0.4 0.2 52.1 % 0.8 0.8 - % Total amortization of acquired intangible assets$ 4.2 $ 4.5 (8.7) %$ 13.4 $ 13.8 (2.8) % Amortization of acquired intangible assets recognized in cost of revenue and operating expenses for the three and nine months endedSeptember 30, 2021 decreased as compared to the same periods in 2020. Restructuring Charges Three Months Ended Nine Months Ended September 30, Change in September 30, Change in
(Dollars in millions) 2021 2020 Percentage 2021 2020 Percentage Restructuring charges $ - $ - - %$ 0.4 $ 0.8 (56.0) % InNovember 2020 , we 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 "2020 Restructuring Plan"). During the nine months endedSeptember 30, 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. Change in Fair Value of Earn-Out Liability Three Months Ended Nine Months Ended September 30, Change in September 30, Change in (Dollars in millions) 2021 2020 Percentage 2021 2020
Percentage
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 fromVerimatrix , 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 Nine Months Ended September 30, Change in September 30, Change in 2020 (As 2020 (As (Dollars in millions) 2021 Restated) Percentage 2021 Restated) Percentage
Interest income and other income (expense), net
$ 3.6 (23.3) %$ 8.1 $ 14.7 (44.9) % Interest expense (2.7) (2.6) 3.3 % (8.0) (7.7) 3.2 % Interest and other income (expense), net$ 0.1 $ 1.0 (94.4) %$ 0.1 $ 7.0 (98.3) % Interest income and other income (expense), net, consists primarily of interest income of$2.2 million and$7.4 million for the three and nine months endedSeptember 30, 2021 , respectively, due to the significant financing component of licensing agreements. Interest income and other income (expense), net, also includes interest income generated from investments in high quality fixed income securities and any gains or losses from the re-measurement of our monetary assets or liabilities denominated in foreign currencies. Interest expense primarily consists of interest expense associated with the non-cash interest expense related to the amortization of the debt discount and issuance costs on the 1.375% convertible senior notes due 2023 (the "2023 Notes"), as 37
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well as the coupon interest related to these notes. We expect our non-cash
interest expense to increase steadily as the notes reach maturity.
Provision for Income Taxes
Three Months Ended Nine Months Ended
September 30, Change in September 30, Change in
2020 (As 2020 (As
(Dollars in millions) 2021 Restated) Percentage 2021 Restated) PercentageProvision for income taxes$ 1.1 $ 1.2 (11.0)%$ 3.2 $ 2.3 37.4 % Effective tax rate 22.6 % (10.4) % 20.7 % (8.9) % The provision for income taxes reported for the three and nine months endedSeptember 30, 2021 was driven by a combination of the valuation allowance recorded onU.S. deferred tax assets, foreign withholding taxes, the statutory tax expense for the foreign jurisdictions for 2021, tax on Canadian capital gains related to the acquisition of AnalogX, and indefinite-lived intangible tax amortization expense. Our income tax provision for the three months endedSeptember 30, 2021 and 2020 reflected an effective tax rate of 22.6% and (10.4)%, respectively. Our income tax provision for the nine months endedSeptember 30, 2021 and 2020 reflected an effective tax rate of 20.7% and (8.9)%, respectively. Our effective tax rate for the three and nine months endedSeptember 30, 2021 differed from the statutory rate primarily due to foreign tax credits and the full valuation allowance againstU.S. deferred tax assets. Our effective tax rate for the three and nine months endedSeptember 30, 2020 differed from the statutory rate primarily due toU.S. and foreign current taxes payable and no benefit for current losses due to the full valuation allowance againstU.S. deferred tax assets. During the three months endedSeptember 30, 2021 and 2020, we paid withholding taxes of$5.0 million and$5.2 million , respectively. During the nine months endedSeptember 30, 2021 and 2020, we paid withholding taxes of$15.4 million and$14.8 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 withU.S. federal andCalifornia deferred tax assets was appropriate. During 2020, as a result of the enactment ofCalifornia A.B. 85 and the temporary suspension ofCalifornia net operating loss utilization for tax years 2020 through 2022, we released$0.7 million of the valuation allowance on our deferred tax asset forCalifornia research and development tax credits. We continue to maintain a full valuation allowance on the remainder of ourCalifornia andU.S. federal deferred tax assets as we do not expect to be able to fully utilize them. We haveU.S. federal deferred tax assets related to research and development credits, foreign tax credits and other tax attributes that can be used to offsetU.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
September 30, December 31,
(In millions) 2021 2020
Cash and cash equivalents $ 151.9 $ 129.0
Marketable securities 267.8 373.6
Total cash, cash equivalents, and marketable securities $ 419.7 $ 502.6
Nine Months Ended
September 30,
(In millions) 2021 2020 (As Restated)
Net cash provided by operating activities $ 137.0 $ 143.4
Net cash provided by (used in) investing activities
(146.1)
Net cash used in financing activities$ (114.9) $ (9.9) 38
-------------------------------------------------------------------------------- Table of Contents 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 inthe United States . Our cash needs for the nine months endedSeptember 30, 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, onOctober 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. OnNovember 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. During the second quarter of 2021, the accelerated share repurchase program was completed and we received an additional 0.1 million shares of our common stock as the final settlement of the accelerated share repurchase program. OnJune 15, 2021 , we entered into the 2021 ASR Program with Deutsche Bank. The 2021 ASR Program was part of the 2020 Repurchase Program. Under the 2021 ASR Program, we pre-paid to Deutsche Bank the$100.0 million purchase price for our common stock and, in turn, we received an initial delivery of approximately 3.9 million shares of our common stock from Deutsche Bank in the second quarter of 2021, which were retired and recorded as$80.0 million reduction to stockholders' equity. The remaining$20.0 million of the initial payment was recorded as a reduction to stockholders' equity as an unsettled forward contract indexed to our stock. InOctober 2021 , the accelerated share repurchase program was completed and we received an additional 0.4 million shares of our common stock as the final settlement of the accelerated share repurchase program. As ofSeptember 30, 2021 , there remained an outstanding authorization to repurchase approximately 13.4 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$137.0 million for the nine months endedSeptember 30, 2021 was primarily attributable to the cash generated from customer licensing, product sales and engineering services fees. Changes in operating assets and liabilities for the nine months endedSeptember 30, 2021 primarily included decreases in unbilled receivables, inventories, prepaids and other current assets and an increase in deferred revenue, offset by an increase in accounts receivable, as well as decreases in income taxes payable, accrued salaries and benefits and operating lease liabilities. Cash provided by operating activities of$143.4 million for the nine months endedSeptember 30, 2020 was primarily attributable to the cash generated from customer licensing, product sales and engineering services fees. Changes in operating assets and liabilities for the nine months endedSeptember 30, 2020 primarily included decreases in unbilled receivables, accounts receivable, and increases in accounts payable and deferred revenue, offset by increases in inventories and decreases in income taxes payable as well as accrued salaries and benefits. Investing Activities Cash provided by investing activities of$1.1 million for the nine months endedSeptember 30, 2021 consisted of proceeds from the maturities and sale of available-for-sale marketable securities of$297.8 million and$227.0 million , respectively, offset by purchases of available-for-sale marketable securities of$419.1 million ,$97.1 million paid for the acquisitions of AnalogX and PLDA, net of total cash acquired of$8.6 million , and$7.5 million paid to acquire property, plant and equipment. 39 -------------------------------------------------------------------------------- Table of Contents Cash used in investing activities of$146.1 million for the nine months endedSeptember 30, 2020 consisted of purchases of available-for-sale marketable securities of$655.1 million ,$20.8 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, offset by proceeds from the maturities and sale of available-for-sale marketable securities of$528.0 million and$2.9 million , respectively. Financing Activities Cash used in financing activities of$114.9 million for the nine months endedSeptember 30, 2021 was primarily due to an aggregate payment of$100.0 million to Deutsche Bank as part of the 2021 ASR Program. We also paid$10.0 million in payments of taxes on restricted stock units,$9.8 million under installment payment arrangements to acquire fixed assets and$0.1 million in fees related to the 2021 ASR Program, offset by$5.0 million in proceeds from the issuance of common stock under equity incentive plans. Cash used in financing activities of$9.9 million for the nine months endedSeptember 30, 2020 was primarily due to$9.2 million in payments under installment payment arrangements to acquire fixed assets and$8.8 million in payments of taxes on restricted stock units, offset by$8.1 million in proceeds from the issuance of common stock under equity incentive plans.
Contractual Obligations
As of
Remainder of
(In thousands) Total 2021 2022 2023 2024 2025
Contractual obligations (1) (2)
Software licenses (3)$ 11,393 $ 3,485
9,870 370 5,167 2,167 2,166 -
Convertible notes 172,500 - - 172,500 - -
Interest payments related to
convertible notes 3,564 - 2,372 1,192 - -
Total $ 197,327 $ 3,855 $ 15,126 $ 176,180 $ 2,166 $ -
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(1) The above table does not reflect possible payments in connection with unrecognized tax benefits of approximately$21.4 million , including$19.8 million recorded as a reduction of long-term deferred tax assets and$1.6 million in long-term income taxes payable as ofSeptember 30, 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 ofSeptember 30, 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 acquisition of Northwest Logic in the third quarter of 2019, the Secure Silicon IP and Protocols business in the fourth quarter of 2019, and the acquisitions of AnalogX and PLDA in the third quarter of 2021, we are obligated to pay retention bonuses to certain employees subject to certain eligibility and acceleration provisions including the condition of employment. Share Repurchase Program OnOctober 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 nine months endedSeptember 30, 2021 , we repurchased shares of our common stock under the 2020 Repurchase Program as discussed below. OnNovember 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 40
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Table of Contents 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. During the second quarter of 2021, the accelerated share repurchase program was completed and we received an additional 0.1 million shares of our common stock as the final settlement of the accelerated share repurchase program. OnJune 15, 2021 , we entered into the 2021 ASR Program with Deutsche Bank. The 2021 ASR Program was part of the share repurchase program previously authorized by our Board onOctober 29, 2020 . Under the 2021 ASR Program, we pre-paid to Deutsche Bank the$100.0 million purchase price for our common stock and, in turn, we received an initial delivery of approximately 3.9 million shares of our common stock from Deutsche Bank in the second quarter of 2021, which were retired and recorded as a$80.0 million reduction to stockholders' equity. The remaining$20.0 million of the initial payment was recorded as a reduction to stockholders' equity as an unsettled forward contract indexed to our stock. InOctober 2021 , the accelerated share repurchase program was completed and we received an additional 0.4 million shares of our common stock as the final settlement of the accelerated share repurchase program. During the nine months endedSeptember 30, 2021 , there were no other repurchases of our common stock under the 2020 Repurchase Program. As ofSeptember 30, 2021 , there remained an outstanding authorization to repurchase approximately 13.4 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 inthe 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 endedDecember 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.
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