# RAMBUS INC (RMBS) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from RAMBUS INC's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/917273/000091727322000010/rmbs-20211231.htm
Accession: 0000917273-22-000010
Filing date: 2022-02-28
Report date: 2021-12-31
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub.
Confidence: high

Company profile: /company/RMBS/
All MD&A years: /company/RMBS/mda/
Next year: /company/RMBS/mda/fy2022/ (FY 2022)

Executive Summary

Highlights from our annual results for the year ended December 31, 2021 were as follows:

•Revenue of $328.3 million;

•Operating expenses of $233.6 million;

•GAAP diluted net income per share of $0.16; and

•Net cash provided by operating activities of $209.2 million.

We had record annual product revenue of $143.9 million in 2021, which was primarily driven by our memory interface chips and was up 26% as compared to 2020. In addition, our cash provided by operating activities for 2021 was $209.2 million, which was a record for the Company and up 13% as compared to 2020.

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 manufacturers and cloud providers, for integration into server memory modules. Product revenue accounted for 44%, 46% and 32% of our consolidated revenue for the years ended December 31, 2021, 2020 and 2019, respectively.

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%, 19% and 27% of our consolidated revenue for the years ended December 31, 2021, 2020 and 2019, respectively.

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,

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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 42%, 34% and 41% of our consolidated revenue for the years ended December 31, 2021, 2020 and 2019, respectively.

Costs and Expenses

Cost of product revenue for 2021 increased approximately $11.7 million to $49.4 million from $37.7 million as compared to 2020, primarily due to increases in sales volumes of our memory interface chips.

Cost of contract and other revenue for 2021 decreased approximately $0.9 million to $4.7 million from $5.6 million as compared to 2020.

Research and development expenses continue to play a key role in our efforts to maintain product innovations. Our research and development expenses for 2021 decreased approximately $4.2 million as compared to 2020, primarily due to decreased engineering development tool costs of $3.6 million, headcount-related expenses of $1.7 million, retention bonus expense related to acquisitions of $1.1 million, allocated information technology costs of $0.8 million, facilities costs of $0.7 million and prototyping costs of $0.6 million, offset by an increase in engineering costs allocated to cost of revenue of $1.9 million, consulting costs of $1.8 million and stock-based compensation expense of $0.6 million.

Sales, general and administrative expenses for 2021 increased approximately $4.6 million as compared to 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 $1.8 million, allocated information technology costs of $0.8 million, stock-based compensation expense of $0.8 million and recruiting expenses of $0.6 million, offset by decreased facilities costs of $2.2 million, other consulting costs of $0.6 million and sales and marketing costs of $0.6 million.

Impact of the COVID-19 Pandemic

In December 2019, the COVID-19 virus 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 and new variants have created significant global economic uncertainty and may adversely impact the business of our customers, partners and vendors. The extent of the impact of the ongoing COVID-19 pandemic and subsequent variants 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 ongoing COVID-19 pandemic and subsequent variants 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 COVID-19 and the new variants 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 56% of our revenue for 2021 as compared to 46% in 2020 and 45% in 2019. 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 36% in 2021 as compared to 44% in 2020 and 41% in 2019. We expect that revenue derived from international customers will continue to represent a significant portion of our total revenue in the future. Currently, our revenue from international customers is denominated in U.S. dollars. For additional information concerning international revenue, refer to Note 7, “Segments and Major Customers,” of Notes to Consolidated Financial Statements of this Form 10-K.

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

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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 year ended December 31, 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 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 consolidated statements of operations:

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2021","","2020","","2019"],["Revenue:"],["Product revenue","43.9","%","","46.3","%","","32.1","%"],["Royalties","41.6","%","","34.3","%","","41.4","%"],["Contract and other revenue","14.5","%","","19.4","%","","26.5","%"],["Total revenue","100.0","%","","100.0","%","","100","%"],["Cost of revenue:"],["Cost of product revenue","15.0","%","","15.3","%","","11.9","%"],["Cost of contract and other revenue","1.5","%","","2.3","%","","4.4","%"],["Amortization of acquired intangible assets","4.9","%","","7.1","%","","6.3","%"],["Total cost of revenue","21.4","%","","24.7","%","","22.6","%"],["Gross profit","78.6","%","","75.3","%","","77.4","%"],["Operating expenses:"],["Research and development","41.3","%","","56.8","%","","68.9","%"],["Sales, general and administrative","27.8","%","","35.0","%","","44.2","%"],["Amortization of acquired intangible assets","0.4","%","","0.4","%","","1.2","%"],["Restructuring and other charges","0.1","%","","1.7","%","","3.9","%"],["Loss on divestiture","\u2014","%","","\u2014","%","","3.3","%"],["Change in fair value of earn-out liability","1.6","%","","(0.7)","%","","\u2014","%"],["Total operating expenses","71.2","%","","93.2","%","","121.4","%"],["Operating income (loss)","7.4","%","","(17.9)","%","","(44.0)","%"],["Interest income and other income (expense), net","3.0","%","","7.3","%","","12.0","%"],["Interest expense","(3.3)","%","","(4.2)","%","","(4.3)","%"],["Interest and other income (expense), net","(0.3)","%","","3.1","%","","7.7","%"],["Income (loss) before income taxes","7.1","%","","(14.8)","%","","(36.3)","%"],["Provision for income taxes","1.5","%","","1.6","%","","1.5","%"],["Net income (loss)","5.6","%","","(16.4)","%","","(37.8)","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","2020 to 2021","","2019 to 2020"],["(Dollars in millions)","","2021","","2020","","2019","","Change","","Change"],["Total Revenue"],["Product revenue","","$","143.9","","","$","114.0","","","$","73.0","","","26.3","%","","56.2","%"],["Royalties","","136.7","","","84.6","","","94.4","","","61.7","%","","(10.4)","%"],["Contract and other revenue","","47.7","","","47.7","","","60.2","","","(0.2)","%","","(20.7)","%"],["Total revenue","","$","328.3","","","$","246.3","","","$","227.6","","","33.3","%","","8.2","%"]]
[[/GREPCENT_TABLE]]

Product Revenue

Product revenue consists of revenue from the sale of memory and security products.

Product revenue increased approximately $29.9 million to $143.9 million for the year ended December 31, 2021 from $114.0 million for 2020. The increase was due to continued market share gains of our memory interface chips.

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Product revenue increased approximately $41.0 million to $114.0 million for the year ended December 31, 2020 from $73.0 million for 2019. The increase was due to market share gains of our memory interface chips.

We believe that product revenue will continue to increase in 2022 as compared to 2021, 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, our ability to meet our customers’ demands and our ability to mitigate any supply chain risk due to the ongoing COVID-19 pandemic and subsequent variants.

Royalties

Royalty revenue, which includes patent and technology license royalties, increased approximately $52.1 million to $136.7 million for the year ended December 31, 2021 from $84.6 million for 2020. The increase was primarily due to the timing and structure of license renewals.

Royalty revenue decreased approximately $9.8 million to $84.6 million for the year ended December 31, 2020 from $94.4 million for 2019. The decrease was primarily due to the timing and structure of license 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 remained flat at $47.7 million for the year ended December 31, 2021 as compared to 2020.

Contract and other revenue decreased approximately $12.5 million to $47.7 million for the year ended December 31, 2020 from $60.2 million for 2019. The decrease was primarily due to the divestiture of our former Payments and Ticketing businesses resulting in no corresponding revenue in 2020, offset by growth experienced in our Silicon IP offerings.

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

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","2020 to 2021","","2019 to 2020"],["(Dollars in millions)","","2021","","2020","","2019","","Change","","Change"],["Cost of product revenue","","$","49.4","","","$","37.7","","","$","27.2","","","30.9","%","","39.0","%"]]
[[/GREPCENT_TABLE]]

Cost of product revenue are costs attributable to the sale of memory and security products.

For the year ended December 31, 2021 as compared to 2020, cost of product revenue increased 30.9% primarily due to increases in sales volumes of our memory interface chips.

For the year ended December 31, 2020 as compared to 2019, cost of product revenue increased 39.0% primarily due to increases in sales volumes of our memory interface chips.

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 2022 as compared to 2021.

Cost of Contract and Other Revenue

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","2020 to 2021","","2019 to 2020"],["(Dollars in millions)","","2021","","2020","","2019","","Change","","Change"],["Cost of contract and other revenue","","$","4.7","","","$","5.6","","","$","9.9","","","(15.8)","%","","(43.0)","%"]]
[[/GREPCENT_TABLE]]

Cost of contract and other revenue reflects the portion of the total engineering costs which are specifically devoted to individual customer development and support services.

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For the year ended December 31, 2021 as compared to 2020, cost of contract and other revenue decreased 15.8% due to lower engineering services associated with the contracts.

For the year ended December 31, 2020 as compared to 2019, cost of contract and other revenue decreased 43.0% primarily due to the divestiture of our Payments and Ticketing businesses in the fourth quarter of 2019.

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

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","2020 to 2021","","2019 to 2020"],["(Dollars in millions)","","2021","","2020","","2019","","Change","","Change"],["Research and development expenses"],["Research and development expenses","","$","125.1","","","$","129.8","","","$","145.8","","","(3.6)","%","","(11.0)","%"],["Stock-based compensation","","10.6","","","10.0","","","11.0","","","5.7","%","","(9.1)","%"],["Total research and development expenses","","$","135.7","","","$","139.8","","","$","156.8","","","(3.0)","%","","(10.8)","%"]]
[[/GREPCENT_TABLE]]

Research and development expenses are those expenses incurred for the development of applicable technologies.

For the year ended December 31, 2021 as compared to 2020, total research and development expenses decreased 3.0% primarily due to decreased engineering development tool costs of $3.6 million, headcount-related expenses of $1.7 million, retention bonus expense related to acquisitions of $1.1 million, allocated information technology costs of $0.8 million, facilities costs of $0.7 million and prototyping costs of $0.6 million, offset by an increase in engineering costs allocated to cost of revenue of $1.9 million, consulting costs of $1.8 million and stock-based compensation expense of $0.6 million.

For the year ended December 31, 2020 as compared to 2019, total research and development expenses decreased 10.8% primarily due to decreased headcount-related expenses of $11.8 million (which includes the reduction in headcount due to the divestiture of the Payments and Ticketing businesses in 2019), consulting costs of $5.2 million, travel costs of $1.9 million and stock-based compensation expense of $1.0 million, offset by increased retention bonus expense related to acquisitions of $2.0 million and prototyping costs of $0.9 million.

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

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","2020 to 2021","","2019 to 2020"],["(Dollars in millions)","","2021","","2020","","2019","","Change","","Change"],["Sales, general and administrative expenses"],["Sales, general and administrative expenses","","$","74.5","","","$","70.7","","","$","85.2","","","5.4","%","","(16.9)","%"],["Stock-based compensation","","16.5","","","15.7","","","15.4","","","4.9","%","","2.0","%"],["Total sales, general and administrative expenses","","$","91.0","","","$","86.4","","","$","100.6","","","5.3","%","","(14.0)","%"]]
[[/GREPCENT_TABLE]]

Sales, general and administrative expenses include expenses and costs associated with trade shows, public relations, advertising, litigation, general legal, insurance and other sales, marketing and administrative efforts. Consistent with our business model, our licensing, sales and marketing activities aim to develop or strengthen relationships with potential new and current customers. In addition, we work with current customers through marketing, sales and technical efforts to drive adoption of their products that use our innovations and solutions, by system companies. Due to the long business development cycles we face and the semi-fixed nature of sales, general and administrative expenses in a given period, these expenses generally do not correlate to the level of revenue in that period or in recent or future periods.

For the year ended December 31, 2021 as compared to 2020, total sales, general and administrative costs increased 5.3% primarily due to increased consulting, legal and accounting costs of $3.0 million related to the shareholder activism activity and restatement matters during the first quarter of 2021, acquisition-related costs (including retention bonus expense) of $1.8 million, allocated information technology costs of $0.8 million, stock-based compensation expense of $0.8 million and recruiting expenses of $0.6 million, offset by decreased facilities costs of $2.2 million, other consulting costs of $0.6 million and sales and marketing costs of $0.6 million.

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For the year ended December 31, 2020 as compared to 2019, total sales, general and administrative costs decreased 14.0% primarily due to decreased headcount-related expenses of $5.4 million, acquisition and divestiture-related costs of $4.1 million, travel costs of $3.4 million and consulting costs of $2.7 million, offset by increased bonus accrual expense of $0.5 million and stock-based compensation expense of $0.3 million.

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

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","2020 to 2021","","2019 to 2020"],["(Dollars in millions)","","2021","","2020","","2019","","Change","","Change"],["Amortization of acquired intangible assets"],["Amortization of acquired intangible assets included in total cost of revenue","","$","16.2","","","$","17.4","","","$","14.3","","","(6.4)","%","","21.2","%"],["Amortization of acquired intangible assets included in total operating expenses","","1.2","","","1.0","","","2.7","","","15.6","%","","(61.3)","%"],["Total amortization of acquired intangible assets","","$","17.4","","","$","18.4","","","$","17.0","","","(5.1)","%","","7.9","%"]]
[[/GREPCENT_TABLE]]

Amortization expense is related to various acquired IP.

For the year ended December 31, 2021 as compared to 2020, total amortization of acquired intangible assets decreased 5.1% primarily due to certain intangible assets being fully amortized, offset by additional amortization from intangible assets acquired as part of the acquisitions of AnalogX and PLDA in 2021.

For the year ended December 31, 2020 as compared to 2019, total amortization of acquired intangible assets increased 7.9% primarily due to additional amortization from intangible assets acquired as part of the acquisitions from the second half of 2019, partially offset by certain other intangible assets being fully amortized.

Restructuring and Other Charges

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","2020 to 2021","","2019 to 2020"],["(Dollars in millions)","","2021","","2020","","2019","","Change","","Change"],["Restructuring and other charges","","$","0.4","","","$","4.1","","","$","8.8","","","NM*","","(53.6)","%"]]
[[/GREPCENT_TABLE]]

_____________________________________

*    NM — percentage is not meaningful

In November 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”). As a result, we recorded a charge of $3.3 million primarily related to headcount costs.

During 2019, we initiated a restructuring program to reduce overall expenses. Additionally, we recorded other severance-related charges of $1.4 million.

Refer to Note 18, “Restructuring and Other Charges,” of Notes to Consolidated Financial Statements of this Form 10-K for further discussion.

Change in Fair Value of Earn-Out Liability

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","2020 to 2021","","2019 to 2020"],["(Dollars in millions)","","2021","","2020","","2019","","Change","","Change"],["Change in fair value of earn-out liability","","$","5.3","","","$","(1.8)","","","$","\u2014","","","NM*","","100.0","%"]]
[[/GREPCENT_TABLE]]

_____________________________________

*    NM — percentage is not meaningful

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During the fourth quarter of 2021, we remeasured the fair value of the earn-out liability related to the acquisition of PLDA, which is subject to certain revenue targets of the acquired business for the next three years. The remeasurement of the earn-out liability resulted in an additional expense of $5.3 million on our consolidated statements of operations.

During 2020, we recorded a full reduction in the fair value of the earn-out liability related to the 2019 asset purchase agreement to acquire the Secure Silicon IP and Protocols business from Verimatrix, formerly Inside Secure, since the specified performance milestones were not met for calendar year 2020, which resulted in a gain on our consolidated statements of operations.

Interest and Other Income (Expense), Net

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","2020 to 2021","","2019 to 2020"],["(Dollars in millions)","","2021","","2020","","2019","","Change","","Change"],["Interest income and other income (expense), net","","$","9.7","","","$","17.8","","","$","27.5","","","(45.6)","%","","(34.9)","%"],["Interest expense","","(10.7)","","","(10.3)","","","(9.9)","","","3.5","%","","5.0","%"],["Interest and other income (expense), net","","$","(1.0)","","","$","7.5","","","$","17.6","","","(113.2)%","","(57.3)","%"]]
[[/GREPCENT_TABLE]]

Interest income and other income (expense), net, consists primarily of interest income of $9.3 million, $14.6 million and $20.5 million for the years ended December 31, 2021, 2020 and 2019, respectively, due to the significant financing component of licensing agreements. Interest income and other income (expense), net, also includes interest income generated from investments in high quality fixed income securities and any gains or losses from the re-measurement of our monetary assets or liabilities denominated in foreign currencies.

Interest expense for all periods disclosed consists primarily 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. Refer to Note 12, “Convertible Notes,” of Notes to Consolidated Financial Statements of this Form 10-K for additional details.

Provision for Income Taxes

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","2020 to 2021","","2019 to 2020"],["(Dollars in millions)","","2021","","2020","","2019","","Change","","Change"],["Provision for income taxes","","$","5.0","","","$","3.9","","","$","3.4","","","25.9","%","","15.1","%"],["Effective tax rate","","21.3","%","","(10.8)","%","","(4.1)","%"]]
[[/GREPCENT_TABLE]]

Our effective tax rate for the year ended December 31, 2021 differed from the U.S. statutory rate primarily due to the foreign-derived intangible income deduction and certain capitalized research expenditures, partially offset by the change in the valuation allowance against U.S. deferred tax assets. Our effective tax rate for the year ended December 31, 2020 differed from the U.S. statutory rate primarily due to the expiration of foreign tax credits, partially offset by the change in the valuation allowance against U.S. deferred tax assets. Our effective tax rate for the year ended December 31, 2019 was different from the U.S. statutory rate primarily due to the full valuation allowance on the current year tax loss.

We recorded a provision for incomes taxes of $5.0 million for the year ended December 31, 2021, which was primarily comprised of taxes on foreign earnings, the full valuation allowance on U.S. federal deferred tax assets, withholding tax expense, tax expense from the amortization of indefinite-lived intangibles and an increase in the valuation allowance on California deferred tax assets. For the year ended December 31, 2021, we paid withholding taxes of $20.4 million. We recorded a provision for incomes taxes of $3.9 million for the year ended December 31, 2020, which was primarily comprised of taxes on foreign earnings, the full valuation allowance on U.S. federal deferred tax assets, withholding tax expense, tax expense from the amortization of indefinite-lived intangibles, partially offset by a partial California deferred tax asset valuation allowance release. For the year ended December 31, 2020, we paid withholding taxes of $19.7 million. We recorded a provision for incomes taxes of $3.4 million for the year ended December 31, 2019, which was primarily comprised of taxes on foreign earnings, the full valuation allowance on U.S. federal deferred tax assets, withholding tax expense, and acquisition-related impacts. For the year ended December 31, 2019, we paid withholding taxes of $17.1 million.

We 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

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operating loss utilization for tax years 2020 through 2022, we released $0.7 million of the valuation allowance on our deferred tax asset for California research and development tax credits. In 2021, based on available evidence, we recorded a full valuation allowance on our California deferred tax assets. We continue to maintain a full valuation allowance on our California and U.S. federal deferred tax assets as we do not expect to be able to fully utilize them.

Liquidity and Capital Resources

[[GREPCENT_TABLE]]
[["(In millions)","","December 31, 2021","","December 31, 2020"],["Cash and cash equivalents","","$","107.9","","","$","129.0"],["Marketable securities","","377.7","","","373.6"],["Total cash, cash equivalents, and marketable securities","","$","485.6","","","$","502.6"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(In millions)","","2021","","2020","","2019"],["Net cash provided by operating activities","","$","209.2","","","$","185.5","","","$","128.5"],["Net cash used in investing activities","","$","(115.7)","","","$","(97.6)","","","$","(141.5)"],["Net cash used in financing activities","","$","(114.2)","","","$","(61.2)","","","$","(0.3)"]]
[[/GREPCENT_TABLE]]

Liquidity

We currently anticipate that existing cash, cash equivalents and marketable securities balances and cash flows from operations will be adequate to meet our cash needs for at least the next 12 months. Additionally, the majority of our cash and cash equivalents is in the United States. Our cash needs for the year ended December 31, 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. The 2020 Repurchase Program replaced the previous program approved by our Board in January 2015 and canceled the remaining shares outstanding as part of the previous authorization.

On November 11, 2020, we entered into the 2020 ASR Program with Deutsche Bank. The 2020 ASR Program was part of the share repurchase program previously authorized by our Board on October 29, 2020. Under the 2020 ASR Program, we pre-paid to Deutsche Bank the $50.0 million purchase price for our common stock and, in turn, we received an initial delivery of approximately 2.6 million shares of our common stock from Deutsche Bank in the fourth quarter of 2020, which were retired and recorded as a $40.0 million reduction to stockholders’ equity. The remaining $10.0 million of the initial payment was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to our stock. 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, which were retired, as the final settlement of the accelerated share repurchase program.

On June 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 on October 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. During the fourth quarter

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of 2021, the accelerated share repurchase program was completed and we received an additional 0.4 million shares of our common stock, which were retired, as the final settlement of the accelerated share repurchase program.

As of December 31, 2021, there remained an outstanding authorization to repurchase approximately 12.9 million shares of our outstanding common stock under the 2020 Repurchase Plan. Refer to “Share Repurchase Program” below.

Operating Activities

Cash provided by operating activities of $209.2 million for the year ended December 31, 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 year ended December 31, 2021 primarily included decreases in unbilled receivables, inventories, prepaids and other current assets and increases in accounts payable and deferred revenue, offset by increases 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 $185.5 million for the year ended December 31, 2020 was primarily attributable to the cash generated from customer licensing, product sales and engineering services fees. Changes in operating assets and liabilities for the year ended December 31, 2020 primarily included decreases in unbilled receivables, accounts receivable, prepaids and other current assets, and an increase in accrued salaries and benefits, offset by a decrease in income taxes payable and an increase in inventories.

Cash provided by operating activities of $128.5 million for the year ended December 31, 2019 was primarily attributable to the cash generated from customer licensing, technology and software licenses and related implementation, support and maintenance fees, product sales, and engineering services fees. Changes in operating assets and liabilities for the year ended December 31, 2019 primarily included decreases in accounts receivable, unbilled receivables and deferred revenue, offset by increases in prepaids and other current assets, inventories and accrued salaries and benefits.

Investing Activities

Cash used in investing activities of $115.7 million for the year ended December 31, 2021 consisted of purchases of available-for-sale marketable securities of $567.9 million, $97.1 million paid for the acquisitions of AnalogX and PLDA, net of total cash acquired of $8.6 million, and $13.8 million paid to acquire property, plant and equipment, offset by proceeds from the maturities and sale of available-for-sale marketable securities of $336.2 million and $227.0 million, respectively.

Cash used in investing activities of $90.4 million for the year ended December 31, 2020 consisted of purchases of available-for-sale marketable securities of $899.0 million, $29.7 million paid to acquire property, plant and equipment, and $1.1 million paid to settle a net working capital adjustment related to the divestiture of our Payments and Ticketing businesses, offset by proceeds from the maturities and sale of available-for-sale marketable securities of $817.8 million and $21.6 million, respectively.

Cash used in investing activities of $141.5 million for the year ended December 31, 2019 primarily consisted of purchases of available-for-sale marketable securities of $657.4 million, $21.9 million paid for the acquisition of Northwest Logic, net of cash acquired of $0.1 million, $45.0 million paid for the acquisition of the Secure Silicon IP and Protocols business from Verimatrix, formerly Inside Secure, and $6.5 million paid to acquire property, plant and equipment, offset by proceeds from the maturities and sale of available-for-sale marketable securities of $507.4 million and $6.8 million, respectively, and net proceeds of $76.0 million from the divestiture of our Payments and Ticketing businesses.

Financing Activities

Cash used in financing activities of $114.2 million for the year ended December 31, 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 $10.6 million in payments of taxes on restricted stock units, $12.5 million under installment payment arrangements to acquire fixed assets and $0.1 million in fees related to the 2021 ASR Program, offset by $9.0 million in proceeds from the issuance of common stock under equity incentive plans.

Cash used in financing activities of $61.2 million for the year ended December 31, 2020 was primarily due to an aggregate payment of $50.0 million to Deutsche Bank as part of the 2020 ASR Program. We also paid $13.2 million under installment payment arrangements to acquire fixed assets, $9.4 million in payments of taxes on restricted stock units and $0.1 million in fees related to the 2020 ASR Program, offset by $11.5 million in proceeds from the issuance of common stock under equity incentive plans.

Cash used in financing activities was $0.3 million for the year ended December 31, 2019 and was primarily due to $8.4 million in payments under installment payment arrangements to acquire fixed assets and $7.0 million in payments of taxes on restricted stock units, offset by $15.1 million proceeds from the issuance of common stock under equity incentive plans.

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Contractual Obligations

As of December 31, 2021, our material contractual obligations were as follows:

[[GREPCENT_TABLE]]
[["(In thousands)","","Total","","2022","","2023","","2024","","2025","","2026"],["Contractual obligations (1) (2) (3)"],["Software licenses (4)","","$","16,348","","","$","11,597","","","$","3,274","","","$","1,477","","","$","\u2014","","","$","\u2014"],["Acquisition retention bonuses (5)","","9,528","","","5,194","","","2,167","","","2,167","","","\u2014","","","\u2014"],["Convertible notes (6)","","172,500","","","\u2014","","","172,500","","","\u2014","","","\u2014","","","\u2014"],["Interest payments related to convertible notes","","3,564","","","2,372","","","1,192","","","\u2014","","","\u2014","","","\u2014"],["Total","","$","201,940","","","$","19,163","","","$","179,133","","","$","3,644","","","$","\u2014","","","$","\u2014"]]
[[/GREPCENT_TABLE]]

______________________________________

(1)    The above table does not reflect possible payments in connection with unrecognized tax benefits of approximately $20.2 million including $18.9 million recorded as a reduction of long-term deferred tax assets and $1.3 million in long-term income taxes payable, as of December 31, 2021. As noted in Note 19, “Income Taxes,” of Notes to Consolidated Financial Statements of this Form 10-K, although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, we cannot reasonably estimate the outcome at this time.

(2)    For our lease commitments as of December 31, 2021, refer to Note 10, Leases,” of Notes to Consolidated Financial Statements of this Form 10-K.

(3)    Our other contractual obligations as of December 31, 2021 were not material.

(4)    We have commitments with various software vendors for agreements generally having terms longer than one year.

(5)    In connection with the acquisitions of Northwest Logic in the third quarter of 2019 and 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.

(6)    On November 17, 2017, we entered into an Indenture with U.S. Bank, National Association, as trustee, relating to the issuance by us of $172.5 million aggregate principal amount of the 2023 Notes. Refer to Note 12, “Convertible Notes,” of Notes to Consolidated Financial Statements of this Form 10-K for additional details.

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. The 2020 Repurchase Program replaced the previous program approved by the Board in January 2015 and canceled the remaining shares outstanding as part of the previous authorization.

On November 11, 2020, we entered into the 2020 ASR Program with Deutsche Bank. The 2020 ASR Program was part of the 2020 Repurchase Program previously authorized by our Board on October 29, 2020. Under the 2020 ASR Program, we pre-paid to Deutsche Bank the $50.0 million purchase price for our common stock and, in turn, we received an initial delivery of approximately 2.6 million shares of our common stock from Deutsche Bank in the fourth quarter of 2020, which were retired and recorded as a $40.0 million reduction to stockholders’ equity. The remaining $10.0 million of the initial payment was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to our stock. 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, which were retired, as the final settlement of the accelerated share repurchase program.

On June 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 on October 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. During the fourth quarter

43

of 2021, the accelerated share repurchase program was completed and we received an additional 0.4 million shares of our common stock, which were retired, as the final settlement of the accelerated share repurchase program.

As of December 31, 2021, there remained an outstanding authorization to repurchase approximately 12.9 million shares of our outstanding common stock under the 2020 Repurchase Plan.

We record share repurchases as a reduction to stockholders’ equity. We record a portion of the purchase price of the repurchased shares as an increase to accumulated deficit when the price of the shares repurchased exceeds the average original proceeds per share received from the issuance of common stock. During the year ended December 31, 2021, the cumulative price of $95.8 million was recorded as an increase to accumulated deficit.

Warrants

In connection with the 2023 Notes, we separately entered into privately negotiated warrant transactions, whereby we sold to the Counterparties warrants (the “Warrants”) to acquire, collectively, subject to anti-dilution adjustments, approximately 9.1 million shares of our common stock at an initial strike price of approximately $23.30 per share, which represents a premium of 60% over the last reported sale price of our common stock of $14.56 on November 14, 2017. We received aggregate proceeds of approximately $23.2 million from the sale of the Warrants to the Counterparties. The Warrants are separate transactions and are not part of the 2023 Notes or Convertible Note Hedge Transactions. Holders of the 2023 Notes and Convertible Note Hedge Transactions will not have any rights with respect to the Warrants. Refer to Note 12, “Convertible Notes,” of Notes to Consolidated Financial Statements of this Form 10-K for additional details.