Xperi Inc. (XPER) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to promote understanding of the results of operations and financial condition and should be read in conjunction with our consolidated financial statements and notes thereto. This discussion may contain forward-looking statements that reflect the plans, estimates and beliefs of Xperi. The words “expects,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “could,” “would,” “may,” “will,” “intends,” “potentially,” “projects,” “targets,” or other words of similar meaning and similar expressions, among others, generally identify “forward-looking statements,” which speak only as of the date the statements were made. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth under Item 1A, “Risk Factors” and elsewhere in this report. We disclaim and do not undertake any obligation to update or revise any forward-looking statement, except as required by applicable law.

This section of Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 1, 2024, which is available free of charge on the SEC’s website at www.sec.gov and our Investor Relations website at investor.xperi.com.

Business Overview

We are a leading consumer and entertainment technology company. We believe we create extraordinary experiences at home and on the go for millions of consumers around the world, enabling our unique audiences to connect with content in a more intelligent, immersive, and personal way. Powering smart devices, connected cars, entertainment experiences and more, we bring together ecosystems designed to reach highly-engaged consumers, allowing us and our ecosystem partners to uncover significant new business opportunities, now and in the future. Our technologies are integrated into consumer devices and a variety of media platforms worldwide, driving increased value for our partners, customers, and consumers. We operate in one reportable business segment and group our revenue into four categories: Pay-TV, Consumer Electronics, Connected Car and Media Platform. Headquartered in Silicon Valley with operations around the world, we have approximately 1,680 employees and more than 35 years of operating experience.

Divestitures

In December 2023, we entered into a definitive agreement with Tobii AB (“Tobii”), an eye tracking and attention computing company, pursuant to which we agreed to sell our AutoSense in-cabin safety business and related imaging solutions (the “AutoSense Divestiture”). The AutoSense Divestiture was completed in January 2024 and has streamlined our business and further enhanced our focus on entertainment markets.

In August 2024, we entered into an Asset Purchase Agreement with Amazon.com Services LLC to sell substantially all of the assets and certain liabilities of Perceive Corporation (later known as Xperi Pylon Corporation and subsequently dissolved in December 2024), a subsidiary focused on edge inference hardware and software technologies, for a gross amount of $80.0 million in cash, including a holdback of $12.0 million to be held for 18 months after the closing of the transaction (the “Perceive Transaction”) to secure our and Perceive Corporation’s indemnification obligations. The Perceive Transaction was completed on October 2, 2024 and we are now fully focused on entertainment-based solutions to grow our independent media platform and licensing businesses.

50

Results of Operations

The following table presents our historical operating results for the periods indicated as a percentage of revenue:

Comparison of Fiscal Years Ended December 31, 2024 and 2023

Revenue

We derive the majority of our revenue from licensing our technology and solutions to customers. For our revenue recognition policy including descriptions of revenue-generating activities, refer to Note 3—Revenue of the Notes to Consolidated Financial Statements.

The following table sets forth our revenue by year:

The $27.6 million or 5% decrease in revenue for the year ended December 31, 2024, compared to the prior year, was primarily attributable to a decline of $50.4 million in Consumer Electronics due to the AutoSense Divestiture, revenue related to minimum guarantee (“MG”) contracts from prior year where revenue is taken at the time of contract execution, and market-based softness of certain end products. Additionally, we had a decrease of $8.6 million in Media Platform revenue driven principally by lower advertising revenue associated with third-party connected TV inventory as well as revenue related to MG contracts from prior year from our middleware solutions platform where revenue is taken at the time of contract execution. These decreases were partially offset by an increase of $16.3 million in Connected Car revenue as a result of higher revenue in Audio Solutions, HD Radio and AutoStage partially offset by the impact of the AutoSense Divestiture. Additionally, there was an increase of $15.0 million in Pay-TV revenue driven largely by higher MG revenue in core guide products and continued growth in IPTV Solutions revenue.

51

Operating Expenses

Cost of Revenue, Excluding Depreciation and Amortization of Intangible Assets

Cost of revenue, excluding depreciation and amortization of intangible assets, consists primarily of employee-related costs, royalties paid to third parties, hardware product-related costs, content and data costs, hosting fees, maintenance costs and an allocation of facilities costs, as well as service center and other expenses related to providing our offerings, and non-recurring engineering (“NRE”) services.

Cost of revenue, excluding depreciation and amortization of intangible assets, for the year ended December 31, 2024 was $113.8 million, as compared to $118.6 million for the year ended December 31, 2023, a decrease of $4.8 million, or 4%. This decrease was primarily attributable to lower costs incurred in connection with a decrease in advertising revenue.

Research and Development

Research, development and other related costs (“R&D expense”) consist primarily of employee-related costs, stock-based compensation expense, engineering consulting expenses associated with new product and technology development, product commercialization, quality assurance and testing costs, as well as other costs related to patent applications and examinations, materials, supplies, and an allocation of facilities costs. Other than certain software development costs that are capitalized, all research and development costs are expensed as incurred.

R&D expense for the year ended December 31, 2024 was $191.4 million as compared to $222.8 million for the year ended December 31, 2023, a decrease of $31.4 million, or 14%. The decrease was primarily driven by lower research and development spend in the AutoSense in-cabin safety business and related imaging solutions following the AutoSense Divestiture, a reduction in expenses related to the Perceive business which was sold via the Perceive Transaction in the fourth quarter of 2024 and decreases in stock-based compensation and bonus expenses. These decreases were partially offset by certain one-time compensation and retention expenses associated with the Perceive Transaction and severance charges incurred in 2024.

Selling, General and Administrative

Selling expenses consist primarily of compensation and related costs (including stock-based compensation expense) for sales and marketing personnel engaged in sales and licensee support, marketing programs, public relations, promotional materials, travel, and trade shows. General and administrative expenses consist primarily of compensation and related costs (including stock-based compensation expense) for management, information technology, finance and legal personnel, legal fees and related expenses, facilities costs, and professional services. Our general and administrative expenses, other than facilities-related expenses and fringe benefits, are not allocated to other expense line items.

Selling, general and administrative expenses for the year ended December 31, 2024 were $218.1 million as compared to $233.4 million for the year ended December 31, 2023, a decrease of $15.3 million, or 7%. The decrease was primarily attributable to reduced employee headcount as well as decreases in stock-based compensation and bonus expenses, partially offset by an increase in certain one-time transaction costs primarily related to the AutoSense Divestiture and the Perceive Transaction in 2024.

52

Depreciation Expense

We recognized depreciation expense for certain equipment, capitalized internal-use software, leasehold improvements, and buildings and improvements. Depreciation expense was $12.6 million for the year ended December 31, 2024, as compared to $16.6 million for the year ended December 31, 2023, a decrease of $4.0 million, or 24%. The decrease was primarily due to certain fixed assets becoming fully depreciated over the past 12 months.

Amortization Expense

We recognized amortization expense for certain intangible assets we acquired in business combinations that are recognized separately from goodwill. Amortization expense for the year ended December 31, 2024 was $43.4 million, as compared to $57.8 million for the year ended December 31, 2023, a decrease of $14.4 million, or 25%. The decrease was primarily due to certain intangible assets becoming fully amortized over the past 12 months.

As a result of previous mergers and acquisitions, we anticipate that amortization expenses will continue to be a significant expense over the next several years. See Note 8—Goodwill impairment and Intangible Assets, Net of the Notes to Consolidated Financial Statements for additional detail.

Stock-based Compensation Expense

The following table sets forth our stock-based compensation (“SBC”) expense for the years ended December 31, 2024 and 2023 (in thousands):

We recognized stock-based compensation expense from restricted stock units and purchases made under our employee stock purchase plan (“ESPP”). The decrease in SBC expense for the year ended December 31, 2024, when compared to the prior year, was primarily driven by lower expense for performance-based restricted stock units and reduced employee headcount in 2024.

Impairment of Long-Lived Assets

As a result of optimizing our global real estate footprint and subleasing certain building and offices following the Spin-Off (as defined in Note 1—The Company and Description of Business), we recorded non-cash impairment charges of $1.5 million and $1.7 million to reduce the carrying amount of certain operating lease right-of-use (“ROU”) assets and property and equipment, including related leasehold improvements, during 2024 and 2023, respectively. We determined that we may not be able to fully recover the carrying amount of the leased building and offices due to how they were being used, a significant decrease in the expected market price of the ROU assets and expected delays in subleasing the space based on the condition of the commercial real estate leasing market.

Interest and Other Income, Net

Interest and other income, net, was lower in 2024 as compared to the prior year principally due to a one-time, non-cash loss of $4.8 million resulting from deconsolidation of the Perceive subsidiary in 2024, partially offset by an increase in accrued and accreted interest income of approximately $3.0 million on the Tobii Note and Deferred Consideration (as defined in Note 7—Acquisitions And Divestitures) from the AutoSense Divestiture.

53

Interest Expense—Debt

The interest expense on debt incurred in connection with the Vewd Acquisition (discussed below in Liquidity and Capital Resources) remained constant in 2024 when compared to 2023.

Gain on Divestiture

NM - not meaningful

As disclosed in Note 7—Acquisitions and Divestitures, we completed the AutoSense Divestiture on January 31, 2024 and streamlined our business, further enhancing our focus on entertainment markets. Upon the completion of the AutoSense Divestiture, we recognized a pre-tax gain of $22.9 million in 2024. On October 2, 2024, we closed the Perceive Transaction by selling substantially all the assets and certain liabilities of Perceive. As a result of completing the Perceive Transaction, we recorded a pre-tax gain of $77.9 million in 2024.

We did not recognize any gain on divestiture in the year ended December 31, 2023.

Provision for Income Taxes

For the year ended December 31, 2024, we recorded an income tax expense of $12.4 million on a pretax income of $11.6 million, which resulted in an effective tax rate of 107.5%. The income tax expense of $12.4 million was primarily related to foreign withholding taxes of $10.9 million and U.S. federal income taxes of $3.7 million, partially offset by a tax benefit of $1.3 million from the release of valuation allowance of a foreign subsidiary.

For the year ended December 31, 2023, we recorded an income tax expense of $10.0 million on a pretax loss of $129.6 million, which resulted in an effective tax rate of (7.7)%. The income tax expense of $10.0 million was primarily related to foreign withholding taxes of $10.5 million, U.S. federal income taxes of $1.4 million, and foreign income tax expense of $8.3 million, partially offset by a tax benefit from an internal sale of intangible assets of $10.3 million.

At December 31, 2024, our 2020 through 2024 tax years are generally open to examination. In the United States, any net operating losses or credits that were generated in prior years but not yet fully utilized in a year that is closed under the statute of limitations may also be subject to examination.

The need for a valuation allowance requires an assessment of both positive and negative evidence when determining whether it is more-likely-than-not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction-by-jurisdiction basis. In making such assessment, significant weight is given to evidence that can be objectively verified. After considering both positive and negative evidence to assess the recoverability of our net deferred tax assets, we determined that it was unlikely that we would realize a portion of our federal, certain state and certain foreign deferred tax assets. We intend to continue maintaining a valuation allowance on our federal deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Release of the valuation allowance would result in the recognition of certain federal deferred tax assets and a decrease to income tax expense for the period the release is recorded. The exact timing and amount of the valuation allowance release depends on the level of profitability that we are able to achieve.

54

Liquidity and Capital Resources

The following table presents selected financial information related to our liquidity and significant sources and uses of cash and cash equivalents as of December 31, 2024 and 2023 and for the years ended December 31, 2024 and 2023:

(1)
Included $12.3 million of cash and cash equivalents classified as held for sale at December 31, 2023.

(2)
The current ratio is a liquidity ratio that measures our ability to pay short-term obligations or those due within one year. The ratio is calculated by dividing current assets by current liabilities.

Our primary liquidity and capital resources are our cash and cash equivalents on hand. Cash and cash equivalents were $130.6 million at December 31, 2024, a decrease of $23.8 million from $154.4 million, including $12.3 million classified as held for sale in connection with the AutoSense Divestiture, as of December 31, 2023. This decrease resulted primarily from cash used in operations of $55.3 million, $20.0 million in repurchases of common stock, $7.2 million in payments of withholding taxes on net share settlement of equity awards and $16.8 million of capital expenditures, including capitalized internal-use software costs, partially offset by $67.8 million in net proceeds received from divestitures, and $7.9 million in proceeds from the issuance of common stock under the ESPP.

Our material cash requirements include the following contractual and other obligations.

Leases

We have lease arrangements for office and research facilities, data centers and office equipment. As of December 31, 2024, fixed lease payment obligations amounted to $38.5 million, with $16.9 million payable within 12 months. See Note 10—Leases of the Notes to Consolidated Financial Statements for additional information on lease obligations and maturities.

Short-Term Debt

As of December 31, 2024, we had outstanding short-term debt in an aggregate principal amount of $50.0 million, which is due on July 1, 2025. We may, at any time and on any one or more occasions, prepay all or any portion of the outstanding principal amount, plus accrued and unpaid interest, if any, without premium or penalty. On February 21, 2025, we voluntarily made a full principal payment of $50.0 million plus accrued interest by using a combination of cash on hand and a new long-term financing facility through the securitization of our accounts receivable as described below.

Purchase Obligations

Our purchase obligations primarily consist of noncancelable obligations related to advertising, engineering services and internet and telecommunications services. As of December 31, 2024, we had purchase obligations of $137.9 million, with $47.9 million payable within 12 months. These purchase obligations represent commitments under enforceable and legally binding agreements, and do not represent the entire anticipated purchases in the future. See Note 11—Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information on our purchase obligations.

55

Income Tax Payable

As of December 31, 2024, we had accrued $1.3 million of unrecognized tax benefits in long-term income taxes payable related to uncertain tax positions, which included $0.1 million of accrued interest and penalties. At this time, we are unable to reasonably estimate the timing of the long-term payments or the amount by which the liability will increase or decrease over time.

Stock Repurchase Program

In April 2024, our Board of Directors (the “Board”) authorized the repurchase of up to $100.0 million of our common stock (the “Program”). Under the Program, we may make repurchases, from time to time, through open market purchases, block trades, privately negotiated transactions, accelerated share repurchase transactions, or other means. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases under the Program. As of December 31, 2024, we have repurchased a total of approximately 2.2 million shares of common stock, since inception of the Program, at an average price of $9.23 per share for a total cost of $20.0 million. As of December 31, 2024, the total remaining amount available for repurchase was $80.0 million. We may continue to execute authorized repurchases from time to time under the Program. There is no guarantee that such repurchases under the Program will enhance the value of our common stock.

Cash Flows

Cash Flows from Operating Activities

Net cash used in operations was $55.3 million for the year ended December 31, 2024, primarily due to our net loss of $0.9 million being further adjusted by $71.8 million of changes in operating assets and liabilities driven principally by an increase of $46.3 million in unbilled contracts receivable, and $100.8 million of a non-cash gain recognized from the AutoSense Divestiture and the Perceive Transaction. These changes were partially offset by material non-cash items such as stock-based compensation expense of $60.5 million, amortization of intangible assets of $43.4 million, and depreciation expense of $12.6 million.

Net cash provided by operations was $0.1 million for the year ended December 31, 2023, primarily due to our net loss of $139.7 million and a decrease in deferred income taxes of $8.6 million, offset by non-cash items such as depreciation expense of $16.6 million, amortization of intangible assets of $57.8 million, stock-based compensation expense of $69.5 million, impairment of long-lived assets of $1.7 million, and $2.0 million of changes in operating assets and liabilities.

Cash Flows from Investing Activities

Net cash provided by investing activities was $50.8 million for the year ended December 31, 2024, primarily due to net proceeds from divestitures of $67.8 million, partially offset by capital expenditures of $16.8 million, including capitalized internal-use software.

Net cash used in investing activities was $12.9 million for the year ended December 31, 2023, which was primarily related to capital expenditures, including capitalized internal-use software.

Capital Expenditures

Our capital expenditures for property and equipment consist primarily of purchases of computer hardware and software, capitalized internal-use software, information systems, and production and test equipment. We expect capital expenditures in 2025 to be approximately $20.0 million. These expenditures are expected to be paid with existing cash and cash equivalents. There can be no assurance that current expectations will be realized, and plans are subject to change upon further review of our capital expenditure needs.

Cash Flows from Financing Activities

Net cash used in financing activities was $19.4 million for the year ended December 31, 2024, due to $20.0 million in repurchases of common stock under the Program and $7.2 million in payment of withholding taxes related to net share settlement of equity awards, partially offset by $7.9 million in proceeds from the issuance of common stock under the ESPP.

56

Net cash provided by financing activities was $7.1 million for the year ended December 31, 2023, primarily due to $11.9 million in proceeds from the issuance of common stock under the ESPP, offset by $4.9 million in payment of withholding taxes related to net share settlement of equity awards.

Short-Term Debt

In connection with the acquisition of Vewd Software Holdings Limited (“Vewd”) on July 1, 2022, we issued a senior unsecured promissory note (the “Promissory Note”) to the sellers of Vewd in the principal amount of $50.0 million, all of which was outstanding at December 31, 2024. Indebtedness outstanding under the Promissory Note bears an interest rate of 6.00% per annum, subject to potential adjustments as described in Note 9—Debt to the Consolidated Financial Statements included in this Form 10-K. The Promissory Note matures on July 1, 2025. We may, at any time and on any one or more occasions, prepay all or any portion of the outstanding principal amount, plus accrued and unpaid interest, if any, under the Promissory Note without premium or penalty. On February 21, 2025, we voluntarily made a full principal payment of $50.0 million plus accrued interest by using a combination of cash on hand and a new long-term financing facility through the securitization of our accounts receivable as described below.

On February 21, 2025, we and Xperi SPV LLC (“Xperi SPV”), a wholly-owned special purpose subsidiary, entered into a Receivables Financing Agreement (the “RFA”) with PNC Bank, National Association (“PNC”), and PNC Capital Markets LLC, and a Sale and Contribution Agreement (the “SCA,” and, together with the RFA, the “RF Agreements”) among us, Xperi SPV and certain of our other wholly-owned subsidiaries to establish an accounts receivable securitization program (the “AR Facility”). Interest is payable on a monthly basis. The AR Facility is scheduled to terminate on February 21, 2028, unless terminated earlier pursuant to its terms. For a detailed description of the AR Facility, refer to Note 18— Subsequent Event.

Upon entering into the RF Agreements on February 21, 2025, we borrowed $40.0 million under the AR Facility. The RF Agreements contain various covenants that we believe are usual and customary. The interest payments on the AR Facility debt, exclusive of the debt issuance costs and related amortization, are expected to be approximately $2.5 million in 2025 and may vary with changes in interest rates.

Liquidity

We believe our current cash and cash equivalents will be sufficient to meet our needs for at least the next 12 months from the issuance date of the Consolidated Financial Statements included in this Form 10-K. As we assess growth strategies, we may need to supplement our cash and cash equivalents with outside sources. As part of our liquidity strategy, we will continue to monitor our earnings and cash flow as well as our ability to access the capital markets as needed.

Poor financial results, unanticipated expenses, unanticipated acquisitions of technologies or businesses or unanticipated strategic investments could give rise to additional financing requirements sooner than we expect. Equity or debt financing may not be available when needed or, if available, equity or debt financing may not be on terms satisfactory to us.

We may supplement our short-term liquidity needs with access to capital markets, if necessary, and strategic cost savings initiatives. Our access to capital markets may be constrained and our cost of borrowing may increase under certain business and market conditions, and our liquidity is subject to various risks including the risks identified in “Risk Factors” included in Part I, Item 1A of this Form 10-K.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These financial statements have been prepared in conformity with GAAP in the United States which 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. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. We evaluate our estimates based on our historical experience and various other assumptions that are believed to be reasonable under the circumstances. These estimates relate to revenue recognition, the assessment of recoverability of intangible assets, business combinations, recognition and measurement of deferred income tax assets and liabilities, and the assessment of unrecognized tax benefits. Actual results could differ from those estimates, and material effects on our operating results and financial position may result.

57

We believe the following accounting estimates are most critical to understanding our consolidated financial statements. See Note 2—Summary of Significant Accounting Policies and Note 3—Revenue of the Notes to Consolidated Financial Statements for a full description of our accounting policies.

Revenue recognition

We derive the majority of our revenue from the licensing of our technologies to customers. Generally, revenue is recognized upon transfer of control of promised products, services, or licensing of our technologies to customers in an amount that reflects the consideration that we expect to receive in exchange for those products, services and licensing of the technologies. The primary judgments include estimating licensees’ quarterly royalties prior to receiving the royalty reports, estimating variable consideration, identifying the performance obligations in the contract, determining stand-alone selling price and the transaction price, and allocating consideration in an arrangement with multiple performance obligations.

We generally recognize royalty revenue from per-unit or per-subscriber licenses based on units shipped or manufactured, or number of subscribers. Revenue is recognized in the period in which the customer’s sales, production or usage are estimated to have occurred. This may result in an adjustment to revenue when actual sales, production or usage are subsequently reported by the customer, generally in the month or quarter following sales, production or usage. Estimating customers’ quarterly royalties and license fees prior to receiving the customer reports requires us to make significant assumptions and judgments related to forecasted trends and growth rates used to estimate quantities shipped or manufactured by customers or the number of subscribers, which could have a material impact on the amount of revenue we report on a quarterly basis.

Business combinations

The valuation of assets acquired and liabilities assumed in an acquisition under Accounting Standard Codification Topic 805, Business Combinations (“ASC 805”) requires management to make significant estimates and assumptions. Critical estimates in determining the fair value of certain intangible assets include, but are not limited to: future expected cash flows from customer contracts, customer lists, and acquired developed technologies and patents; competitive trends and market comparables; brand awareness and market position, as well as assumptions about the period of time the brand will continue to be used in our product portfolio; and discount rates. For additional information, refer to Note 7—Acquisitions and Divestitures of the Notes to Consolidated Financial Statements.

Impairment of intangible assets

Identified finite-lived intangible assets consist of acquired patents, existing technology, customer relationships, trademarks and trade names, non-compete agreements resulting from acquisitions, and acquired patents under asset purchase agreements. Our identified intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from 1 to 10 years. We make judgments about the recoverability of finite-lived intangible assets whenever facts and circumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, we assess recoverability by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than originally estimated, we would accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life.

For identified indefinite-lived intangible assets resulting from acquisitions, we evaluate their carrying value on an annual basis, and an impairment charge would be recognized to the extent that the carrying amount of such assets exceeds their estimated fair value.

Accounting for income taxes

We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments are used in the calculation of tax credits, tax benefits and deductions, and in the calculation of tax assets and liabilities. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period.

We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not more-likely-than-not, we must increase our provision for income taxes by recording a valuation allowance against our deferred tax assets. Should there be a change in our ability to recover our deferred tax assets, our provision for income taxes would fluctuate in the period of the change.

58

We account for uncertain tax positions in accordance with authoritative guidance related to income taxes. The calculation of our unrecognized tax benefits involves dealing with uncertainties in the application of complex tax regulations. As such, we are required to make many subjective assumptions and judgments regarding our income tax exposures. We record unrecognized tax benefits for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional tax liabilities are more-likely-than-not assuming the tax authorities have full knowledge of all relevant information. If we ultimately determine that the tax liabilities are unnecessary, we reverse the liabilities and recognize a tax benefit during the period in which it occurs. This may occur for a variety of reasons, such as the expiration of the statute of limitations on a particular tax return or the completion of an examination by the relevant tax authority. We record an additional charge in our provision for taxes in the period in which we determine that the recorded unrecognized tax benefits are less than the expected ultimate settlement.

Our policy is to classify accrued interest and penalties related to the accrued liability for unrecognized tax benefits in the provision for income taxes. For the years ended December 31, 2024 and 2023, we recognized interest and penalties related to unrecognized tax benefits of an immaterial amount and $0.3 million, respectively. See Note 14—Income Taxes of the Notes to Consolidated Financial Statements for additional detail.

Recent Accounting Pronouncements

See Note 2—Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements including the respective expected dates of adoption.

59