RAMBUS INC

1. Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of Rambus Inc. (“Rambus” or the “Company”) and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in the accompanying Unaudited Condensed Consolidated Financial Statements.

In the opinion of management, the Unaudited Condensed Consolidated Financial Statements include all adjustments (consisting only of normal recurring items) necessary to state fairly the financial position and results of operations for each interim period presented. Interim results are not necessarily indicative of results for a full year.

Financial Statement Preparation

The Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information. Certain information and note disclosures included in the financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been omitted in these interim statements pursuant to such SEC rules and regulations. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto in Form 10-K for the year ended December 31, 2023.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain prior-year balances were reclassified to conform to the current year’s presentation. None of these reclassifications had an impact on reported net income or cash flows for any of the periods presented.

Significant Accounting Policies

There were no material changes to Rambus’s significant accounting policies disclosed in Note 2, “Summary of Significant Accounting Policies,” of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

2. Recent Accounting Pronouncements

Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This guidance requires disclosure of incremental segment information on an annual and interim basis, primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker. In addition, this ASU requires that all existing annual disclosures about segment profit or loss must be provided on an interim basis and clarifies that single reportable segment entities are subject to the disclosure requirement under Topic 280 in its entirety. This ASU is effective for annual reporting periods beginning after December 15, 2023, and interim reporting periods within annual reporting periods beginning after December 15, 2024. Early adoption is permitted. The amendments in this ASU should be applied on a retrospective basis. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This guidance requires additional disclosures related to rate reconciliation, income taxes paid and other disclosures. For each annual period presented, public business entities are required to 1) disclose specific categories in the rate reconciliation and 2) provide additional information for reconciling items that meet a quantitative threshold. In addition, this ASU requires all reporting entities to disclose on an annual basis the amount of income taxes paid disaggregated by federal, state and foreign taxes, as well as the amount of income taxes paid disaggregated by individual jurisdictions which meet a quantitative threshold. This ASU is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments in this ASU should be applied on a prospective basis, with retrospective application permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

3. Revenue Recognition

Contract Balances

The contract assets are primarily related to the Company’s fixed fee intellectual property (“IP”) licensing arrangements and rights to consideration for performance obligations delivered but not billed as of September 30, 2024.

The Company’s contract balances were as follows:

During the nine months ended September 30, 2024, the Company recognized $16.4 million of revenue that was included in deferred revenue as of December 31, 2023. During the nine months ended September 30, 2023, the Company recognized $19.3 million of revenue that was included in deferred revenue as of December 31, 2022.

Remaining Performance Obligations

Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted but unsatisfied performance obligations were approximately $28.2 million as of September 30, 2024, which the Company primarily expects to recognize over the next 2 years.

4. Earnings Per Share

Basic earnings per share is calculated by dividing the net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing the earnings by the weighted-average number of common shares and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of incremental common shares issuable upon exercise of stock options, employee stock purchases, and restricted stock and restricted stock units and shares issuable upon the conversion of convertible notes. The dilutive effect of outstanding shares is reflected in diluted earnings per share by application of the treasury stock method, or the if-converted method for the in-the-money conversion feature of the Company’s 2023 Notes (“the 2023 Notes”). This method includes consideration of the amounts to be paid by the employees, the amount of excess tax benefits that would be recognized in equity if the instrument was exercised and the amount of unrecognized stock-based compensation related to future services. No potential dilutive common shares are included in the computation of any diluted per share amount when a net loss is reported.

The following table sets forth the computation of basic and diluted net income per share:

5. Intangible Assets and Goodwill

Goodwill

The following tables present goodwill information for the nine months ended September 30, 2024:

Intangible Assets, Net

The components of the Company’s intangible assets as of September 30, 2024 and December 31, 2023 were as follows:

Amortization expense for intangible assets for the three and nine months ended September 30, 2024 was $2.9 million and $9.4 million, respectively. Amortization expense for intangible assets for the three and nine months ended September 30, 2023 was $3.6 million and $11.5 million, respectively.

The estimated future amortization of intangible assets as of September 30, 2024 was as follows (in thousands):

6. Segments and Major Customers

Operating segments are based upon the Company’s internal organization structure, the manner in which its operations are managed, the criteria used by its Chief Operating Decision Maker (“CODM”) to evaluate segment performance and availability of separate financial information regularly reviewed for resource allocation and performance assessment.

The Company has determined its CODM to be the Chief Executive Officer (“CEO”). The CEO reviews financial information presented on a consolidated basis for purposes of managing the business, allocating resources, making operating decisions and assessing financial performance. On this basis, the Company is organized and operates as a single segment within the semiconductor space. As of September 30, 2024, the Company has a single operating and reportable segment.

Accounts receivable from the Company’s major customers representing 10% or more of total accounts receivable at September 30, 2024 and December 31, 2023, respectively, was as follows:

• Customer accounted for less than 10% of total accounts receivable in the period.

Revenue from the Company’s major customers representing 10% or more of total revenue for the three and nine months ended September 30, 2024 and 2023, respectively, was as follows:

• Customer accounted for less than 10% of total revenue in the period.

Revenue from customers in the geographic regions based on the location of contracting parties was as follows:

7. Marketable Securities

Rambus invests its excess cash and cash equivalents primarily in U.S. government-sponsored obligations, corporate bonds, commercial paper and notes, time deposits and money market funds that mature within three years.

All cash equivalents and marketable securities are classified as available-for-sale. Total cash, cash equivalents and marketable securities are summarized as follows:

Available-for-sale securities are reported at fair value on the balance sheets and classified along with cash as follows:

The Company continues to invest in highly rated and highly liquid debt securities. The Company holds all of its marketable securities as available-for-sale, marks them to market, and regularly reviews its portfolio to ensure adherence to its investment policy and to monitor individual investments for risk analysis, proper valuation, and impairment.

The estimated fair value and gross unrealized losses of cash equivalents and marketable securities classified by the length of time that the securities have been in a continuous unrealized loss position at September 30, 2024 and December 31, 2023 are as follows:

The gross unrealized losses at September 30, 2024 and December 31, 2023 were not material in relation to the Company’s total available-for-sale portfolio. The gross unrealized losses can be primarily attributed to a combination of market conditions as well as the demand for and duration of the U.S. government-sponsored obligations and corporate bonds, commercial paper and notes. The Company reasonably believes that there is no need to sell these investments and that it can recover the amortized cost of these investments. The Company has found no evidence of impairment due to credit losses in its portfolio. Therefore, these unrealized losses were recorded in other comprehensive income (loss). The Company cannot provide any assurance that its portfolio of cash, cash equivalents and marketable securities will not be impacted by adverse conditions in the financial markets, which may require the Company in the future to record an impairment charge for credit losses which could adversely impact its financial results.

The contractual maturities of cash equivalents (excluding money market funds which have no maturity) and marketable securities are summarized as follows:

Refer to Note 8, “Fair Value of Financial Instruments,” for a discussion regarding the fair value of the Company’s cash equivalents and marketable securities.

8. Fair Value of Financial Instruments

The following table presents the financial instruments and liabilities that are carried at fair value and summarizes their valuation by the respective pricing levels as of September 30, 2024 and December 31, 2023:

The Company’s liabilities related to earn-out liability were classified within Level 3 of the fair value hierarchy because the fair value was determined using significant unobservable inputs. The following table presents additional information about liabilities measured at fair value for which the Company utilizes Level 3 inputs to determine fair value, as of September 30, 2024 and 2023.

For the three and nine months ended September 30, 2024 and 2023, the changes in the fair value of the earn-out liability related to the 2021 acquisition of PLDA, which was subject to certain revenue targets of the acquired business for a period of three years from the date of acquisition, and which is settled annually in shares of the Company’s common stock based on the fair value of that common stock fixed at the time the Company acquired PLDA. The fair value of the earn-out liability was remeasured each quarter, depending on the acquired business’s revenue performance relative to target over the applicable period, and adjusted to reflect changes in the per share value of the Company’s common stock. The Company classified its liability for the contingent earn-out liability related to the PLDA acquisition within Level 3 of the fair value hierarchy because the fair value calculation included significant unobservable inputs, such as revenue forecast, revenue volatility, equity volatility and weighted-average cost of capital. During the three and nine months ended September 30, 2024, the Company remeasured the fair value of the earn-out liability, which resulted in reductions of $4.5 million and $5.0 million, respectively, in the Company’s Unaudited Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2023, the Company remeasured the fair value of the earn-out liability, which resulted in a reduction of $5.7 million and additional expenses of $8.1 million, respectively, in the Company’s Unaudited Condensed Consolidated Statements of Operations. The final earn-out was achieved as of September 30, 2024 and is expected to be fully paid during the fourth quarter of 2024.

The Company monitors its investments for impairment and records appropriate reductions in carrying value when necessary. The Company monitors its investments for impairment by considering current factors, including the economic environment, market conditions, operational performance and other specific factors relating to the business underlying the investment, reductions in carrying values when necessary and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery in the market. Any impairment is reported under “Interest and other income (expense), net” in the Unaudited Condensed Consolidated Statements of Operations.

In 2018, the Company made an investment in a non-marketable equity security of a private company. This equity investment was accounted for under the equity method of accounting, and the Company accounted for its equity method share of the income (loss) on a quarterly basis. During the fourth quarter of 2023, the Company sold its 25.0% ownership share in the equity investment for approximately $25.0 million, which represented a gross gain on this transaction for the same amount. The gross gain was offset by transaction costs of approximately $1.1 million, resulting in a net gain of approximately $23.9 million, which was included in the Company’s Consolidated Statement of Operations for the year ended December 31, 2023. Subsequently, the Company received proceeds, net of tax, of approximately $22.8 million from this transaction during the first quarter of 2024.

During the three and nine months ended September 30, 2024 and 2023, there were no transfers of financial instruments between different categories of fair value.

9. Leases

The Company leases office space, domestically and internationally, under operating leases. The Company’s leases have remaining lease terms generally betweenone year andsix years. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities and long-term operating lease liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheets. The Company does not have any finance leases.

The table below reconciles the undiscounted cash flows for the first five years and total of the remaining years to the operating lease liabilities recorded on the Unaudited Condensed Consolidated Balance Sheet as of September 30, 2024 (in thousands):

As of September 30, 2024, the weighted-average remaining lease term for the Company’s operating leases was 5.4 years and the weighted-average discount rate used to determine the present value of the Company’s operating leases was 7.3%.

Operating lease costs included in research and development and selling, general and administrative costs on the Unaudited Condensed Consolidated Statements of Operations were $1.4 million and $1.3 million for the three months ended September 30, 2024 and 2023, respectively. Operating lease costs included in research and development and selling, general and administrative costs on the Unaudited Condensed Consolidated Statements of Operations were $4.0 million and $4.7 million for the nine months ended September 30, 2024 and 2023, respectively.

Cash paid for amounts included in the measurement of operating lease liabilities were $4.5 million and $5.2 million for the nine months ended September 30, 2024 and 2023, respectively.

10. Convertible Notes

The Company did not have any convertible notes outstanding as of September 30, 2024 and December 31, 2023.

During the first quarter of 2023, the holders of the remaining $10.4 million aggregate principal amount of the 2023 Notes elected to convert the notes pursuant to the original terms of the conversion feature. Accordingly, upon maturity, the Company paid $10.4 million in cash to settle the aggregate principal amount of the 2023 Notes and delivered approximately 0.3 million shares of the Company's common stock to settle the conversion spread.

In connection with the settlement of the conversion of the remaining 2023 Notes, the Company received 0.3 million shares of the Company’s common stock for the retirement of the remaining convertible senior note hedges and paid $10.7 million in cash for the retirement of the remaining warrants during the first quarter of 2023. Additionally, the retirement of the remaining warrants was subject to derivative accounting, resulting in a loss on fair value adjustment of derivatives of $0.2 million for the nine months ended September 30, 2023.

Interest expense related to the convertible notes for the nine months ended September 30, 2023 was immaterial.

11. Commitments and Contingencies

As of September 30, 2024, the Company’s material contractual obligations were as follows:

(1) The above table does not reflect possible payments in connection with unrecognized tax benefits of approximately $126.9 million, including $25.6 million recorded as a reduction of long-term deferred tax assets and $101.3 million in long-term income taxes payable as of September 30, 2024. As noted below in Note 14, “Income Taxes,” although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the timing of the outcome at this time.

(2) For the Company’s lease commitments as of September 30, 2024, refer to Note 9, “Leases.”

(3) The Company has commitments with various software vendors for agreements generally having terms longer thanone year.

(4) In connection with the acquisitions of Hardent in the second quarter of 2022 and PLDA in the third quarter of 2021, the Company is obligated to pay retention bonuses to certain employees subject to certain eligibility and acceleration provisions, including the condition of employment.

From time to time, the Company indemnifies certain customers as a necessary means of doing business. Indemnification covers customers for losses suffered or incurred by them as a result of any patent, copyright, or other IP infringement or any other claim by any third party arising as a result of the applicable agreement with the Company. The Company generally attempts to limit the maximum amount of indemnification that the Company could be required to make under these agreements to the amount of fees received by the Company, however, this may not always be possible. The fair value of the liability as of September 30, 2024 and December 31, 2023, respectively, was not material.

12. Equity Incentive Plans and Stock-Based Compensation

A summary of shares available for grant under the Company’s plans is as follows:

(1) For purposes of determining the number of shares available for grant under the 2015 Plan against the maximum number of shares authorized, each restricted stock unit granted prior to April 27, 2023 reduces the number of shares available for grant by 1.5 shares and each restricted stock unit forfeited increases shares available for grant by 1.5 shares. Each restricted stock unit granted on or after April 27, 2023 reduces the number of shares available for grant by 1.0 share and each restricted stock unit forfeited increases shares available for grant by 1.0 share.

(2)Amount includes approximately 0.1 million shares that have been reserved for potential future issuance related to certain performance unit awards granted in the second quarter of 2024 and discussed under the section titled “Nonvested Equity Stock and Stock Units” below.

General Stock Option Information

The following table summarizes stock option activity under the Company’s equity incentive plans for the nine months ended September 30, 2024 and information regarding stock options outstanding, exercisable, and vested and expected to vest as of September 30, 2024.

Employee Stock Purchase Plan

Under the 2015 Employee Stock Purchase Plan (“2015 ESPP”) the Company issued 69,828 shares at a price of $44.84 and 120,569 shares at a price of $27.91 per share during the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, approximately 2.3 million shares under the 2015 ESPP remained available for issuance.

Stock-Based Compensation

For the nine months ended September 30, 2024 and 2023, the Company maintained stock plans covering a broad range of potential equity grants, including stock options, nonvested equity stock and equity stock units and performance-based instruments. In addition, the Company sponsors the 2015 ESPP, whereby eligible employees are entitled to purchase common stock semi-annually, by means of limited payroll deductions, at a 15% discount from the fair market value of the common stock as of specific dates.

Stock Options

There were no stock options granted during the nine months ended September 30, 2024 and 2023, respectively. All compensation cost net of expected forfeitures, related to unvested stock-based compensation arrangements granted under the stock option plans had been fully recognized as of December 31, 2023. There was no stock-based compensation expense related to stock options for the nine months ended September 30, 2024. Stock-based compensation expense related to stock options was immaterial for the nine months ended September 30, 2023.

Employee Stock Purchase Plan

For the three and nine months ended September 30, 2024 the Company recorded stock-based compensation expense related to the 2015 ESPP of $0.4 million and $1.4 million, respectively. For the three and nine months ended September 30, 2023, the Company recorded stock-based compensation expense related to the 2015 ESPP of $0.5 million and $1.5 million, respectively. As of September 30, 2024, there was $0.1 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under the 2015 ESPP. That cost is expected to be recognized overone month.

Nonvested Equity Stock and Stock Units

The Company grants nonvested equity stock units to officers, employees and directors. During the three and nine months ended September 30, 2024, the Company granted nonvested equity stock units totaling approximately 0.1 million and 1.0 million shares, respectively. During the three months ended September 30, 2023, the Company granted an immaterial amount of nonvested equity stock units. During the nine months ended September 30, 2023, the Company granted nonvested equity stock units totaling approximately 1.2 million shares. These awards have a service condition, generally a service period offour years, except in the case of grants to directors, for which the service period isone year. For the three and nine months ended September 30, 2024, the nonvested equity stock units granted were valued at the date of grant giving them a fair value of approximately $4.1 million and $59.8 million, respectively. For the three and nine months ended September 30, 2023, the nonvested equity stock units granted were valued at the date of grant giving them a fair value of approximately $2.1 million and $57.3 million, respectively. During the second quarter of 2024, as part of its updated annual grant process, the Company granted performance unit awards to certain company executive officers with vesting subject to the achievement of certain performance and/or market conditions. During the first quarter of 2023, as part of its previous annual grant process, the Company granted performance unit awards to certain company executive officers with vesting subject to the achievement of certain performance and/or market conditions. The ultimate number of performance units that can be earned can range from 0% to 200% of target depending on performance relative to target over the applicable period. The shares earned will vest on the third or fourth anniversary of the date of grant. The Company’s shares available for grant have been reduced to reflect the shares that could be earned at the maximum target.

For the three and nine months ended September 30, 2024, the Company recorded stock-based compensation expense of approximately $11.6 million and $31.8 million, respectively, related to all outstanding nonvested equity stock grants. For the three and nine months ended September 30, 2023, the Company recorded stock-based compensation expense of approximately $9.5 million and $32.9 million, respectively, related to all outstanding nonvested equity stock grants.

Unrecognized stock-based compensation related to all nonvested equity stock grants, net of estimated forfeitures, was approximately $81.2 million as of September 30, 2024. This amount is expected to be recognized over a weighted-average period of 2.0 years.

The following table reflects the activity related to nonvested equity stock and stock units for the nine months ended September 30, 2024:

13. Stockholders’ Equity

On October 29, 2020, the Company’s board of directors (the “Board”) approved a share repurchase program authorizing the repurchase of up to an aggregate of 20.0 million shares (the “2020 Repurchase Program”). Share repurchases under the 2020 Repurchase Program may be made through the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules and regulations. There is no expiration date applicable to the 2020 Repurchase Program. During the nine months ended September 30, 2024, the Company repurchased shares of its common stock under the 2020 Repurchase Program as discussed below.

On February 29, 2024, the Company entered into an accelerated share repurchase program with Royal Bank of Canada (“RBC”) (the “2024 ASR Program”). The 2024 ASR Program was part of the 2020 Repurchase Program. Under the 2024 ASR Program, the Company pre-paid to RBC the $50.0 million purchase price for its common stock and, in turn, the Company received an initial delivery of approximately 0.7 million shares of its common stock from RBC on March 1, 2024, which were retired and recorded as a $40.0 million reduction to stockholders’ equity. The remaining $10.0 million of the initial payment was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to the Company’s stock. On March 18, 2024, the accelerated share repurchase program was completed and the Company received an additional 0.1 million shares of its common stock, which were retired, as the final settlement of the 2024 ASR Program.

On November 2, 2023, the Company entered into a share repurchase plan (the “Buying Plan”) with RBC Capital Markets, LLC (“RBCCM”). The Buying Plan was part of the 2020 Repurchase Program. Under the Buying Plan, RBCCM commenced purchases for a 12-month period starting on November 2, 2023 and ending on November 1, 2024, with a provision to terminate sooner pursuant to the Buying Plan (the “Repurchase Period”). During the first quarter of 2024, the Buying Plan was amended and as a result, no purchases were made from the Buying Plan during the period from March 1, 2024 to March 28, 2024, while the 2024 ASR Program was in effect. During the third quarter of 2024, the Buying Plan was further amended to allow RBCCM to purchase an aggregate amount of $100.0 million of the Company’s common stock during the Repurchase Period, not to exceed $50.0 million in a quarter. The execution of share repurchases is dependent on the Company’s stock price reaching certain levels. During the nine months ended September 30, 2024, the Company repurchased approximately 1.4 million shares for approximately $63.1 million as part of the Buying Plan, which were retired and recorded as a reduction to stockholders’ equity.

On August 10, 2023, the Company entered into an accelerated share repurchase program with RBC (the “2023 ASR Program”). The 2023 ASR Program was part of the 2020 Repurchase Program. Under the 2023 ASR Program, the Company pre-paid to RBC the $100.0 million purchase price for its common stock and, in turn, the Company received an initial delivery of approximately 1.6 million shares of its common stock from RBC on August 11, 2023, which were retired and recorded as an $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 the Company’s stock. On September 22, 2023, the accelerated share repurchase program was completed and the Company received an additional 0.2 million shares of its common stock, which were retired, as the final settlement of the 2023 ASR Program.

Effective January 1, 2023, the Company’s share repurchases are subject to a 1% excise tax as a result of the Inflation Reduction Act of 2022. As of September 30, 2024, the Company recorded an immaterial excise tax liability on its accompanying Unaudited Condensed Consolidated Balance Sheet.

As of September 30, 2024, there remained an outstanding authorization to repurchase approximately 5.7 million shares of the Company’s outstanding common stock under the 2020 Repurchase Program.

The Company records share repurchases as a reduction to stockholders’ equity. The Company records a portion of the purchase price of the repurchased shares as an increase to accumulated deficit when the price of the shares repurchased exceeds the average original proceeds per share received from the issuance of common stock in accordance with its accounting policy.

14. Income Taxes

The Company recorded a provision for income taxes of $10.4 million and $4.0 million for the three months ended September 30, 2024 and 2023, respectively, and a provision for (benefit from) income taxes of $20.1 million and $(151.1) million for the nine months ended September 30, 2024 and 2023, respectively. The provision for income taxes for the three and nine months ended September 30, 2024 was primarily driven by the statutory tax expense for domestic and foreign jurisdictions for 2024, offset by tax benefits from excess stock-based compensation deductions. The provision for income taxes for the three months ended September 30, 2023 was primarily driven by foreign withholding taxes and adjustments to the valuation allowance release on U.S. deferred tax assets due to a change in forecasted taxable income and expense, offset by tax benefits from excess stock-based compensation deductions. The benefit from income taxes for the nine months ended September 30, 2023 was primarily driven by the valuation allowance release on U.S. deferred tax assets, as well as tax benefits from excess stock-based compensation deductions, offset by foreign withholding taxes.

During the three months ended September 30, 2024 and 2023, the Company paid foreign withholding taxes of $5.1 million and $5.4 million, respectively. During the nine months ended September 30, 2024 and 2023, the Company paid foreign withholding taxes of $15.5 million and $15.8 million, respectively.

The Company periodically evaluates the realizability of its net deferred tax assets based on all available evidence, both positive and negative. The realizability of the Company’s net deferred tax assets is dependent on its ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets.

During the second quarter of 2023, based on all available positive and negative evidence, the Company determined that it was appropriate to release the valuation allowance on the majority of the Company’s U.S. federal and state deferred tax assets.

During the third quarter of 2023, the Company further adjusted its valuation allowance release as a result of a change in forecasted income and tax expense, primarily due to the sale of intangible assets as part of the PHY IP group divestiture. During the second quarter of 2023, the Company reached a cumulative income position over the previous three years. The cumulative three-year income is considered positive evidence, which is considered objective and verifiable, and thus received significant weighting. Additional positive evidence considered by the Company in its assessment included recent utilization of tax attribute carryforwards and future forecasts of continued profitability in the United States. Upon considering the relative impact of all evidence during the second quarter of 2023, both negative and positive, and the weight accorded to each, the Company concluded that it was more likely than not that the majority of its deferred tax assets would be realizable, with the exception of primarily its California research and development credits that have not met the “more likely than not” realization threshold criteria. As a result, the Company released the related valuation allowance against the majority of its federal and state deferred tax assets.

The Company has U.S. federal deferred tax assets related to research and development credits, foreign tax credits and other tax attributes that can be used to offset U.S. federal taxable income in future periods. These credit carryforwards will expire if they are not used within certain time periods. It is possible that some or all of these attributes could ultimately expire unused.

The Company maintains liabilities for uncertain tax positions within its long-term income taxes payable accounts and as a reduction to existing deferred tax assets to the extent tax attributes are available to offset such liabilities. These liabilities involve judgment and estimation and are monitored by management based on the best information available, including changes in tax regulations, the outcome of relevant court cases and other information.

As of December 31, 2023, the Company had $185.7 million of unrecognized tax benefits, including $31.7 million recorded as a reduction of long-term deferred tax assets, $75.0 million recorded as a reduction of other assets associated with refundable withholding taxes previously withheld from licensees in South Korea, and $78.9 million recorded to long-term income taxes payable. As of September 30, 2024, the Company had approximately $201.9 million of unrecognized tax benefits, including $25.6 million recorded as a reduction of long-term deferred tax assets, $75.0 million recorded as a reduction of other assets associated with refundable withholding taxes previously withheld from licensees in South Korea, and $101.3 million recorded in long-term income taxes payable. As a result of recent court rulings in South Korea, the Company has determined that it may be entitled to refund claims for foreign taxes previously withheld from licensees in South Korea. If the Company is successful in recovering the $177.8 million of refundable withholding taxes from South Korea, the refund will result in an offsetting reduction in U.S. foreign tax credits. The Company recognizes there are numerous risks and uncertainties associated with the ultimate collection of this refund. The Company previously maintained an offsetting reserve for the entire amount of refundable withholding taxes previously withheld in South Korea. During the year ended December 31, 2023, the Company concluded it is more likely than not it will recover withholding taxes withheld during the past five years and accordingly filed a claim in October 2023 for refund of certain refundable withholding taxes, and recorded an income taxes receivable of $82.7 million with an offsetting long-term income taxes payable of $72.6 million and a reduction in long-term deferred tax assets of $10.1 million for the reduction in U.S. foreign tax credits. The Company has recorded a receivable for the portion of withholding taxes paid subsequent to the third quarter of 2023 for which it intends to file a future refund claim. For the periods prior to the fourth quarter of 2018, the Company has not recorded a receivable because the Company does not believe recovery of those taxes would be more likely than not if a refund claim were submitted. The Company continues to evaluate the potential for recovery of these taxes and has therefore established an offsetting reserve for the entire amount of potentially refundable withholding taxes previously withheld in South Korea, for which a claim for refund has not been submitted.

Although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the outcome at this time.

Additionally, the Company’s future effective tax rates could be adversely affected by earnings being higher than anticipated in countries where the Company has higher statutory rates or lower than anticipated in countries where it has lower statutory rates, by changes in valuation of its deferred tax assets and liabilities or by changes in tax laws or interpretations of those laws.

15. Litigation and Asserted Claims

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

The Company records a contingent liability when it is probable that a loss has been incurred and the amount is reasonably estimable in accordance with accounting for contingencies.

16. Restructuring and Other Charges

2023 Restructuring Plan

In June 2023, the Company initiated a restructuring program to reduce overall expenses, which was expected to improve future profitability by reducing the Company’s overall spending (the “2023 Restructuring Plan”). In connection with this restructuring program, the Company initiated a plan resulting in a reduction of 42 employees. During the nine months ended September 30, 2023, the Company recorded charges of approximately $9.4 million to “Restructuring and other charges (recoveries)” in its Unaudited Condensed Consolidated Statement of Operations, related to the reduction in workforce, as well as write-downs of obligations related to certain IP development costs and software licenses for engineering development tools. The 2023 Restructuring Plan was materially completed in the fourth quarter of 2023.

During the nine months ended September 30, 2024, the Company did not initiate any restructuring programs.

17. Divestiture

2023 Divestiture

In July 2023, the Company entered into an asset purchase agreement (the “Purchase Agreement”) with Cadence Design Systems, Inc. (the “Purchaser”), pursuant to which the Company agreed to sell certain assets and the Purchaser agreed to assume certain liabilities from the Company, in each case with respect to the Company’s PHY IP group, for $110.0 million in cash, subject to certain adjustments and certain closing conditions (the “Transaction”). The decision to sell this portion of our business reflects the evolution of the Company’s core semiconductor business to focus on the development of digital IP and chips, including novel memory solutions for high-performance computing, to support the continued advancement of the data center and artificial intelligence.

The Transaction was completed on September 6, 2023 and resulted in net proceeds of approximately $106.3 million, which consisted of the initial selling price of $110.0 million, offset by approximately $3.7 million related to certain purchase price adjustments. The Company recognized a net gain on divestiture of the PHY IP group in the Unaudited Condensed Consolidated Statements of Operations of approximately $90.8 million during the three and nine months ended September 30, 2023. Transaction costs of approximately $1.4 million were included in the net gain of $90.8 million.

The divestiture of the PHY IP group did not represent a strategic shift that would have a major effect on the Company’s consolidated results of operations, and therefore its results of operations were not reported as discontinued operations.

Concurrent with the Transaction, the Company also recorded a charge of approximately $10.0 million in the Company’s Unaudited Condensed Consolidated Statements of Operations. The charge was primarily related to the accelerated amortization of software licenses that were not part of the PHY IP disposal group.