Investments in Privately Held Companies

3 Months Ended

Mar. 31, 2023

Investments, All Other Investments [Abstract]

INVESTMENTS IN PRIVATELY HELD COMPANIES

INVESTMENTS IN PRIVATELY HELD COMPANIES

Linksys Holdings, Inc.

During 2021, we invested $160 million in cash for shares of the Series A Preferred Stock of privately held Linksys Holdings, Inc. (“Linksys”), representing a 50.8% ownership interest in the outstanding common stock (on an as-converted basis). Linksys provides router connectivity solutions to the consumer and small business markets.

We have concluded that our investment in Linksys is an in-substance common stock investment and that we do not hold an absolute controlling financial interest in Linksys, but that we have the ability to exercise significant influence over the operating and financial policies of Linksys. Determining that we have significant influence but not control over the operating and financial policies of Linksys required significant judgement of many factors, including but not limited to the ownership interest in Linksys, board representation, participation in policy-making processes and participation rights in certain significant financial and operating decisions of Linksys in the ordinary course of business. Therefore, we determined to account for this investment using the equity method of accounting. We record our share of Linksys’ financial results on a three-month lag basis. We determined that there was a basis difference between the cost of our investment in Linksys and the amount of underlying equity in net assets of Linksys. Our share of loss of Linksys’ financial results, as well as our share of the amortization of the basis differences, in total was $22.1 million and $8.5 million for the three months ended March 31, 2023 and 2022, respectively, and has been recorded in loss from equity method investment on the condensed consolidated statements of income. As of March 31, 2023 and December 31, 2022, the investment was included in other assets on our condensed consolidated balance sheets.

In the fourth quarter of 2022, we recorded a non-cash charge of $22.2 million related to other-than-temporary impairment (“OTTI”) recognized on our equity method investment in Linksys and our proportionate share of Linksys' financial results included a $17.5 million charge in connection with a valuation allowance established on deferred tax assets at Linksys. Due to the presence of impairment indicators, such as a series of operating losses, we evaluated our equity method investment for an OTTI during the three months ended March 31, 2023. We considered various factors in determining whether an OTTI has occurred, including the limited operating history available, our ability and intent to hold the investment until its fair value recovers, the implied revenue valuation multiples compared to guideline public companies, Linksys’ ability to achieve milestones and any notable operational and strategic changes. After the evaluation, we determined that an additional OTTI has not occurred as of March 31, 2023. However, we may be required to recognize an impairment loss in future reporting periods if and when our evaluation of the aforementioned factors indicates that the investment in Linksys is determined to be other than temporarily impaired. Such determination will be based on the prevailing facts and circumstances at that time, including the results and disclosures of Linksys.