What changed in this filing

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Item 1. Financial Statements

2022-11-03 compared with 2022-08-04 · 156 added, 145 removed, 556 unchanged (35% of the section changed)

4 unchanged sentences

(in thousands, except per share data)

SEPTEMBER 30,

2022 DECEMBER 31,

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The accompanying notes are an integral part of these statements.

Table of Content s

INTERDIGITAL, INC.

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(in thousands, except per share data)

For the Three Months Ended June 30, For the Six Months Ended June 30,

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2022 2021 2022 2021

Patent licensing royalties $ 123,985 $ 86,205 $ 225,064 $ 166,378

Technology solutions 672 1,530 911 3,720

Total Revenue 124,657 87,735 225,975 170,098

REVENUES $ 114,764 $ 143,496 $ 340,739 $ 313,594

OPERATING EXPENSES:

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Total Operating expenses 82,927 106,719 228,817 267,977

Income (loss) from operations 49,900 ( 3,149 ) 80,085 8,840

Income from operations 31,837 36,777 111,922 45,617

INTEREST EXPENSE ( 7,659 ) ( 5,773 ) ( 19,446 ) ( 19,429 )

OTHER (EXPENSE) INCOME, NET ( 15,016 ) 3,039 ( 16,021 ) 3,763

Income (loss) before income taxes 28,612 ( 6,776 ) 52,277 ( 1,053 )

OTHER INCOME (EXPENSE), NET 912 ( 1,537 ) ( 15,109 ) 2,226

Income before income taxes 25,090 29,467 77,367 28,414

INCOME TAX PROVISION ( 3,323 ) ( 4,253 ) ( 17,312 ) ( 6,039 )

NET INCOME (LOSS) $ 20,584 $ ( 6,797 ) $ 38,288 $ ( 2,839 )

NET INCOME $ 21,767 $ 25,214 $ 60,055 $ 22,375

Net loss attributable to noncontrolling interest ( 455 ) ( 1,014 ) ( 1,230 ) ( 11,042 )

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The accompanying notes are an integral part of these statements.

Table of Content s

INTERDIGITAL, INC.

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(in thousands)

For the Three Months Ended June 30, For the Six Months Ended June 30,

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2022 2021 2022 2021

Net income (loss) $ 20,584 $ ( 6,797 ) $ 38,288 $ ( 2,839 )

Net income $ 21,767 $ 25,214 $ 60,055 $ 22,375

Unrealized loss on investments, net of tax ( 292 ) ( 67 ) ( 659 ) ( 206 )

Comprehensive income (loss) $ 20,527 $ ( 6,866 ) $ 37,921 $ ( 2,978 )

Comprehensive income $ 21,475 $ 25,147 $ 59,396 $ 22,169

Comprehensive loss attributable to noncontrolling interest ( 455 ) ( 1,014 ) ( 1,230 ) ( 11,042 )

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The accompanying notes are an integral part of these statements.

Table of Content s

INTERDIGITAL, INC.

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71,588 $ 715 $ 690,123 $ 1,414,844 $ ( 323 ) 40,746 $ ( 1,390,752 ) $ 12,060 $ 726,667

Table of Content s

Net income attributable to InterDigital, Inc.

— — — 26,228 — — — — 26,228

Net loss attributable to noncontrolling interest — — — — — — — ( 1,014 ) ( 1,014 )

Net change in unrealized loss on short-term investments — — — — ( 67 ) — — — ( 67 )

Dividends declared ($ 0.35 per share)

— — 183 ( 10,923 ) — — — — ( 10,740 )

Exercise of common stock options 23 1 1,515 — — — — — 1,516

Issuance of common stock, net 5 — ( 74 ) — — — — — ( 74 )

Amortization of unearned compensation — — 15,082 — — — — — 15,082

Repurchase of common stock — — — — — 181 ( 11,859 ) — ( 11,859 )

BALANCE, SEPTEMBER 30, 2021

71,616 $ 716 $ 706,829 $ 1,430,149 $ ( 390 ) 40,927 $ ( 1,402,611 ) $ 11,046 745,739

Common Stock Additional

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— — 153 ( 10,533 ) — — — — ( 10,380 )

Exercise of common stock options — — — — — — — — —

Issuance of common stock, net 29 1 ( 708 ) — — — — — ( 707 )

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71,912 $ 719 $ 704,370 $ 1,458,674 $ ( 938 ) 42,255 $ ( 1,484,056 ) $ 6,475 $ 685,244

Net income attributable to InterDigital, Inc.

— — — 22,222 — — — — 22,222

Net loss attributable to noncontrolling interest — — — — — — — ( 455 ) ( 455 )

Net change in unrealized gain (loss) on short-term investments — — — — ( 292 ) — — — ( 292 )

Dividends declared ($ 0.35 per share)

— — 179 ( 10,561 ) — — — — ( 10,382 )

Issuance of common stock, net 6 — ( 388 ) — — — — — ( 388 )

Amortization of unearned compensation — — 5,846 — — — — — 5,846

BALANCE, SEPTEMBER 30, 2022

71,918 $ 719 $ 710,007 $ 1,470,335 $ ( 1,230 ) 42,255 $ ( 1,484,056 ) $ 6,020 $ 701,795

The accompanying notes are an integral part of these statements.

Table of Content s

INTERDIGITAL, INC.

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(in thousands)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

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Impairment of assets 2,427 11,000

(Increase) Decrease in assets

Increase in assets:

Receivables ( 371,930 ) ( 125,649 )

Deferred charges and other assets ( 12,848 ) ( 13,464 )

Increase (Decrease) increase in liabilities:

Increase in liabilities:

Accounts payable 3,485 2,266

Accrued compensation and other expenses 964 28,735

Net cash used in operating activities ( 51,740 ) ( 37,101 )

Net cash (used in) provided by operating activities ( 70,469 ) 59,163

CASH FLOWS FROM INVESTING ACTIVITIES:

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Long-term investments — ( 1,091 )

Net cash provided by investing activities 142,715 4,483

Net cash used in investing activities ( 123,199 ) ( 12,549 )

CASH FLOWS FROM FINANCING ACTIVITIES:

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Net cash provided by (used in) financing activities 29,429 ( 54,290 )

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 131,968 ( 65,697 )

NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 164,239 ) ( 7,676 )

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD 713,224 477,663

3 unchanged sentences

The accompanying notes are an integral part of these statements.

Table of Content s

INTERDIGITAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

September 30, 2022

BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited, condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position of InterDigital, Inc.

(individually and/or collectively with its subsidiaries referred to as “InterDigital,” the “Company,” “we,” “us” or “our,” unless otherwise indicated) as of June 30, 2022, the results of our operations for the three and six months ended June 30, 2022 and 2021 and our cash flows for the six months ended June 30, 2022 and 2021.

(individually and/or collectively with its subsidiaries referred to as “InterDigital,” the “Company,” “we,” “us” or “our,” unless otherwise indicated) as of September 30, 2022, the results of our operations for the three and nine months ended September 30, 2022 and 2021 and our cash flows for the nine months ended September 30, 2022 and 2021.

The accompanying unaudited, condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, accordingly, do not include all of the detailed schedules, information and notes necessary to state fairly the financial condition, results of operations and cash flows in conformity with United States generally accepted accounting principles (“GAAP”).

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Actual results could differ from these estimates.

InterDigital has analyzed the impact of the ongoing Coronavirus pandemic (“COVID-19”) on its financial statements as of June 30, 2022.

InterDigital has analyzed the impact of the ongoing Coronavirus pandemic (“COVID-19”) on its financial statements as of September 30, 2022.

InterDigital has determined that the changes to its significant judgments and estimates as a result of COVID-19 did not have a material impact on its financial statements.

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Prior Periods' Financial Statement Revision

As previously disclosed in our 2021 Form 10-K filed with the SEC on February 17, 2022, during the fourth quarter of 2021, we determined that in our first quarter 2021 adoption of ASU 2020-06, Accounting for Convertible Debt, we incorrectly accounted for the adoption by increasing debt and decreasing retained earnings by $ 50.2 million, which resulted in a $ 10.4 million understatement of deferred taxes, $ 65.8 million understatement of retained earnings and $ 55.4 million overstatement of additional paid-in capital as of March 31, 2021.

While we concluded that this error did not result in our previously issued 2021 interim financial statements being materially misstated, we have corrected the misstatement by revising the accompanying Condensed Consolidated Statement of Shareholder’s Equity as of and for the three and six months ended March 31, 2021 and June 30, 2021, respectively.

We will prospectively revise our previously issued financial statements as of and for the interim period ended September 30, 2021 in connection with our third quarter 2022 quarterly filing on Form 10-Q.

While we concluded that this error did not result in our previously issued 2021 interim financial statements being materially misstated, we have corrected the misstatement by revising the accompanying Condensed Consolidated Statement of Shareholders’ Equity as of and for the three months ended March 31, 2021, six months June 30, 2021, and nine months ended September 30, 2021, respectively.

The accompanying annual footnotes have also been adjusted to reflect such correction.

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Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

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Beginning in third quarter 2022, the Company updated the disaggregated revenue disclosures as described further in Note 2, " Revenue ".

Supplemental Cash Flow Information

The following table presents additional supplemental cash flow information for the six months ended June 30, 2022 and 2021 (in thousands):

For the Six Months Ended June 30,

The following table presents additional supplemental cash flow information for the nine months ended September 30, 2022 and 2021 (in thousands):

For the Nine Months Ended September 30,

SUPPLEMENTAL CASH FLOW INFORMATION:

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Accrued capitalized patent costs and property and equipment purchases 3,227 3,690

Unsettled repurchase of common stock — 499

New Accounting Guidance

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We adopted this guidance as of January 1, 2022 and the adoption did not have a material impact on our consolidated financial statements.

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Disaggregated Revenue

The following table presents the disaggregation of our revenue for the three and six months ended June 30, 2022 and 2021 (in thousands):

Three months ended June 30,

2022 2021 Increase/(Decrease)

Variable patent royalty revenue $ 7,673 $ 7,323 $ 350 5 %

Fixed-fee royalty revenue 91,756 69,296 22,460 32 %

Current patent royalties a

99,429 76,619 22,810 30 %

Non-current patent royalties b

24,556 9,586 14,970 156 %

Total patent royalties 123,985 86,205 37,780 44 %

Current technology solutions revenue a

672 1,530 ( 858 ) ( 56 ) %

Total revenue $ 124,657 $ 87,735 $ 36,922 42 %

Six months ended June 30,

2022 2021 Increase/(Decrease)

Variable patent royalty revenue $ 16,718 $ 14,419 $ 2,299 16 %

Fixed-fee royalty revenue 181,599 138,592 43,007 31 %

Current patent royalties a

198,317 153,011 45,306 30 %

Non-current patent royalties b

We recently experienced significant growth in licensing our horizontal technologies from our foundational research across new vertical markets.

Accordingly, beginning third quarter 2022, we have disaggregated revenue between Smartphone and Consumer Electronics ("CE"), IoT/Auto.

We believe this better reflects both our current revenue sources and our growth opportunities across these vertical markets.

The following table presents the disaggregation of our revenue for the three and nine months ended September 30, 2022 and 2021 (in thousands):

Three months ended September 30,

2022 2021 Total Increase/(Decrease)

Recurring revenues:

Smartphone $ 87,467 $ 84,143 $ 3,324 4 %

CE, IoT/Auto 13,579 8,498 5,081 60 %

Other — 747 ( 747 ) ( 100 ) %

Total recurring revenues 101,046 93,388 7,658 8 %

Non-recurring revenues a

13,718 50,108 ( 36,390 ) ( 73 ) %

Total patent royalties 225,064 166,378 58,686 35 %

Current technology solutions revenue a

Total revenues $ 114,764 $ 143,496 ( 28,732 ) ( 20 ) %

Nine months ended September 30,

2022 2021 Total Increase/(Decrease)

Recurring revenues:

Smartphone $ 262,908 $ 223,701 $ 39,207 18 %

CE, IoT/Auto 36,455 21,951 14,504 66 %

Other 911 4,467 ( 3,556 ) ( 80 ) %

Total recurring revenues 300,274 250,119 50,155 20 %

Non-recurring revenues a

40,465 63,475 ( 23,010 ) ( 36 ) %

Total revenue $ 225,975 $ 170,098 $ 55,877 33 %

Recurring revenues are comprised of current patent royalties, inclusive of dynamic fixed-fee royalty payments, and current technology solutions revenue from the tables above.

Non-recurring revenues are comprised of non-current patent royalties, which include past patent royalties and royalties from static agreements, as well as patent sales from the tables above.

During the six months ended June 30, 2022, we recognized $ 164.0 million of revenue that had been included in deferred revenue as of the beginning of the period.

As of June 30, 2022, we had contract assets of $ 24.5 million and $ 7.8 million included within " Accounts receivable " and " Other non-current assets, net " in the condensed consolidated balance sheet, respectively.

Total revenues $ 340,739 $ 313,594 27,145 9 %

(a) Non-recurring revenues are comprised of past patent royalties and revenues from static agreements.

During the nine months ended September 30, 2022, we recognized $ 244.8 million of revenue that had been included in deferred revenue as of the beginning of the period.

As of September 30, 2022, we had contract assets of $ 402.4 million and $ 7.6 million included within " Accounts receivable " and " Other non-current assets, net " in the condensed consolidated balance sheet, respectively.

As of December 31, 2021, we had contract assets of $ 18.9 million and $ 8.3 million included within " Accounts receivable " and " Other non-current assets, net " in the condensed consolidated balance sheet, respectively.

Contracted Revenue

Based on contracts signed and committed as of June 30, 2022, we expect to recognize the following revenue from dynamic fixed-fee royalty payments over the term of such contracts (in thousands):

Based on contracts signed and committed as of September 30, 2022, we expect to recognize the following revenue from dynamic fixed-fee royalty payments over the term of such contracts (in thousands):

Remainder of 2022 $ 90,238

2026 and thereafter 5,181

Thereafter 372,778

Total Revenue $ 1,278,650

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In the six months ended June 30, 2022 and 2021, the Company had an effective tax rate of 26.8 % and ( 169.6 )%, respectively.

In the nine months ended September 30, 2022 and 2021, the Company had an effective tax rate of 22.4 % and 21.3 %, respectively.

The effective tax rate in both periods was impacted by losses in certain jurisdictions where the Company presently has recorded a valuation allowance against the related tax benefit.

Excluding this valuation allowance, our effective tax rate for the six months ended June 30, 2022 and 2021 would have been 23.2 % and 104.3 % respectively.

During both the six months ended June 30, 2022 and 2021, the Company recorded a discrete net benefit of $ 2.2 million and $ 0.6 million, respectively, primarily related to extinguishment of long-term debt and share-based compensation.

Excluding this valuation allowance, our effective tax rate for the nine months ended September 30, 2022 and 2021 would have been 18.1 % and 8.4 % respectively.

During both the nine months ended September 30, 2022 and 2021, the Company recorded discrete net benefits of $ 2.3 million and $ 0.3 million, respectively, primarily related to extinguishment of long-term debt and share-based compensation.

The effective tax rate reported in any given year will continue to be influenced by a variety of factors, including timing differences between the recognition of book and tax revenue, the level of pre-tax income or loss, the foreign vs.

domestic classification of the Company’s customers, and any discrete items that may occur.

During the six months ended June 30, 2022 and 2021, the Company paid approximately $ 3.5 million and $ 4.0 million, respectively, in foreign source creditable withholding tax.

During the nine months ended September 30, 2022 and 2021, the Company paid approximately $ 3.7 million and $ 8.9 million, respectively, in foreign source creditable withholding tax.

NET INCOME PER SHARE

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The following tables reconcile the numerator and the denominator of the basic and diluted net income per share computation (in thousands, except for per share data):

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

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Diluted $ 0.74 $ 0.83 $ 2.00 $ 1.07

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Shares of common stock issuable upon the exercise or conversion of certain securities have been excluded from our computation of EPS because the strike price or conversion rate, as applicable, of such securities was greater than the average market price of our common stock and, as a result, the effect of such exercise or conversion would have been anti-dilutive.

Set forth below are the securities and the weighted average number of shares of common stock underlying such securities that were excluded from our computation of EPS for the periods presented (in thousands):

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

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COURT PROCEEDINGS

UK Proceeding

UK Proceedings

On August 27, 2019, the Company and certain of its subsidiaries filed a claim in the UK High Court against Lenovo Group Limited and certain of its subsidiaries.

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2,485,558 valid, infringed, and essential to Release 8 of LTE.

Lenovo is appealing this decision.

Lenovo is appealing this decision which will be heard on December 14-15, 2022 before the Court of Appeal.

On January 6, 2022, the UK High Court issued its decision regarding the second technical trial finding European Patent (UK) No.

3,355,537 invalid, but essential and infringed but for the finding of invalidity.

On June 10, 2022, the Company sought permission from the Court of Appeal to appeal the second technical trial decision as legally erroneous.

On June 10, 2022, the Company sought permission from the Court of Appeal to appeal the second technical trial decision as legally erroneous, and was granted such permission on September 22, 2022.

The FRAND trial commenced on January 11, 2022 and concluded on February 11, 2022.

The third technical trial commenced on May 10, 2022 and concluded on May 18, 2022.

The fourth technical trial is scheduled to commence on October 3, 2022 and expected to be completed by October 17, 2022.

District of Delaware Patent Proceeding

The fourth technical trial commenced on October 5, 2022 and concluded on October 13, 2022.

The fifth technical trial is currently being rescheduled per the court's availability.

District of Delaware Patent Proceedings

On August 28, 2019, the Company and certain of its subsidiaries filed a complaint in the United States District Court for the District of Delaware (the “Delaware District Court”) against Lenovo Holding Company, Inc.

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and (d) attorneys’ fees and costs.

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On September 16, 2020, the Delaware District Court entered a schedule for the case, setting a patent jury trial.

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On April 25, 2022, the parties filed a stipulation to stay only the claims relating to U.S.

District of Delaware Antitrust Proceeding

The stipulation was granted.

District of Delaware Antitrust Proceedings

On April 9, 2020, Lenovo (United States) Inc.

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On June 22, 2020, the Company filed a motion to dismiss Lenovo's Sherman Act claims with prejudice, and to dismiss Lenovo's breach of contract claim with leave to re-file as a counterclaim in the Company's legal proceeding against Lenovo in the Delaware District Court discussed above.

Oral argument on the Company's motion to dismiss was held on October 27, 2020.

On March 24, 2021, the Delaware District Court ruled on the Company’s motion to dismiss.

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On February 20, 2021, the Company filed an application challenging the jurisdiction of the Beijing IP Court to take up Lenovo’s complaint.

On November 15, 2021, the Beijing IP Court denied the jurisdictional challenge, and the Company filed an appeal with the Supreme People’s Court of the People’s Republic of China (SPC) on December 14, 2021.

The appeal remains pending.

That appeal was denied by the SPC on September 5, 2022, and the case was sent back to the Beijing IP Court.

On November 26, 2021, the Company was informed that Lenovo had purportedly filed an additional complaint against the Company in the Wuhan Intermediate People’s Court (the “Wuhan Court”) seeking a determination of a global FRAND royalty rate for the period from 2024 to 2029 for the Company’s 3G, 4G, and 5G SEPs.

On April 16, 2022, the Company filed an application challenging, among other things, process of service and the jurisdiction of the Wuhan Court.

That application remains pending.

The application remains pending.

Germany Proceedings

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The Company is seeking, among other relief, injunctive relief to prevent further infringement of the asserted patents.

The Mannheim Regional Court has scheduled hearings regarding European Patent Nos.

3,267,684 and 3,624,447 for April 21, 2023 and May 2, 2023, respectively.The Munich Regional Court has not yet scheduled the remaining hearings.

Oppo, OnePlus and realme

UK Proceeding

UK Proceedings

On December 20, 2021, the Company filed a patent infringement claim in the UK High Court against Guangdong Oppo Mobile Telecommunications Corp., Ltd.

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The Company is seeking, among other relief, injunctive relief to prevent further infringement of the asserted patents.

On January 19, 2022, Oppo filed a jurisdictional challenge with the UK High Court which is scheduled for a two-day hearing starting October 25, 2022.

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India Proceeding

On January 19, 2022, Oppo filed a jurisdictional challenge with the UK High Court which the parties have agreed to adjourn pending the outcome of Oppo’s jurisdiction challenge before the UK Supreme Court in a case involving Nokia.

The first technical trial is scheduled to commence on May 8, 2023.

The second and third technical trials are scheduled to commence on June 26, 2023, and July 10, 2023, respectively.

The willingness trial is expected to commence on October 23, 2023.

The FRAND trial is scheduled to commence on February 26, 2024.

The fourth technical trial is currently stayed pending the Company’s appeal of the results of the second technical trial in the Lenovo UK Proceeding.

India Proceedings

On December 20, 2021 and December 22, 2021, the Company and certain of its subsidiaries filed patent infringement claims in the Delhi High Court in New Delhi, India against Oppo and certain of its affiliates, OnePlus and certain of its affiliates, and realme Mobile Telecommunication (India) Private Limited, alleging infringement of Indian Patent Nos.

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The Company is seeking, among other relief, injunctive relief to prevent further infringement of the asserted patents.

Germany Proceeding

Germany Proceedings

On December 20, 2021, a subsidiary of the Company filed three patent infringement claims, two in the Munich Regional Court and one in the Mannheim Regional Court, against Oppo and certain of its affiliates, OnePlus and certain of its affiliates, and realme and certain of its affiliates, alleging infringement of European Patent Nos.

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The Company is seeking, among other relief, injunctive relief to prevent further infringement of the asserted patents.

The Munich Regional Court has scheduled hearings for November 17, 2022, and December 14, 2022.

The Mannheim Regional Court has scheduled a hearing for December 16, 2022.

China Proceeding

The Munich Regional Court has scheduled hearings for December 14, 2022 and March 16, 2023.

The Mannheim Regional Court has scheduled a hearing for March 24, 2023.

China Proceedings

On January 19, 2022, the Company was informed that Oppo had purportedly filed a complaint against the Company in the Guangzhou Intellectual Property Court (the “Guangzhou IP Court”) seeking a determination of a global FRAND royalty rate for the Company’s 3G, 4G, 5G, 802.11 and HEVC SEPs.

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That application remains pending.

Spain Proceeding

Spain Proceedings

On March 1, 2022, a subsidiary of the Company filed patent infringement claims in the Barcelona Commercial Courts against Oppo and certain of its affiliates, OnePlus and certain of its affiliates , and realme and certain of its affiliates.

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We do not currently believe that these matters, even if adversely adjudicated or settled, would have a material adverse effect on our financial condition, results of operations or cash flows.

None of the preceding matters have met the requirements for accrual or disclosure of a potential range as of June 30, 2022.

None of the preceding matters have met the requirements for accrual or disclosure of a potential range as of September 30, 2022.

CASH, CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS

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Cash, cash equivalents and restricted cash currently consists of money market and demand accounts.

The following table provides a reconciliation of total cash, cash equivalents and restricted cash as of June 30, 2022, December 31, 2021 and June 30, 2021 to the captions within the condensed consolidated balance sheets and condensed consolidated statements of cash flows (in thousands):

June 30, December 31, June 30,

The following table provides a reconciliation of total cash, cash equivalents and restricted cash as of September 30, 2022, December 31, 2021 and September 30, 2021 to the captions within the condensed consolidated balance sheets and condensed consolidated statements of cash flows (in thousands):

September 30, December 31, September 30,

2022 2021 2021

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We place our cash equivalents and short-term investments only in highly rated financial instruments and in United States government instruments.

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Our accounts receivable and contract assets are derived principally from patent license and technology solutions agreements.

As of June 30, 2022 three licensees comprised 84 % and as of December 31, 2021 four licensees comprised 66 % of our net accounts receivable balance.

As of September 30, 2022, one licensee comprised 89 % and as of December 31, 2021, four licensees comprised 66 % of our net accounts receivable balance.

We perform ongoing credit evaluations of our licensees, who generally include large, multinational, wireless telecommunications equipment manufacturers.

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We use quoted market prices for similar assets to estimate the fair value of our Level 2 investments.

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Recurring Fair Value Measurements

Our financial assets are generally included within short-term investments on our condensed consolidated balance sheets, unless otherwise indicated.

Our financial assets and liabilities that are accounted for at fair value on a recurring basis are presented in the tables below as of June 30, 2022 and December 31, 2021 (in thousands):

Fair Value as of June 30, 2022

Our financial assets and liabilities that are accounted for at fair value on a recurring basis are presented in the tables below as of September 30, 2022 and December 31, 2021 (in thousands):

Fair Value as of September 30, 2022

Level 1 Level 2 Level 3 Total

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government securities — 130,093 — 130,093

Corporate bonds, asset backed and other securities — 13,895 — 13,895

Corporate bonds, asset backed and other securities (c)

— 96,040 — 96,040

Total $ 496,338 $ 376,419 $ — $ 872,757

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(a) Primarily included within cash and cash equivalents.

(b) As of June 30, 2022 and December 31, 2021, $ 0.0 million and $ 7.5 million, respectively, of commercial paper was included within cash and cash equivalents.

(b) As of September 30, 2022 and December 31, 2021, $ 42.4 million and $ 7.5 million, respectively, of commercial paper was included within cash and cash equivalents.

(c) As of September 30, 2022, $ 10.3 million of corporate bonds, asset backed and other securities was included within cash and cash equivalents.

Non-Recurring Fair Value Measurements

Investments in Other Entities

During the second quarter 2022 and 2021, we recognized $ 1.6 million and $ 1.0 million, respectively, of gains resulting from observable price changes of our long-term strategic investments, which were included within “Other (expense) income, net” in the condensed consolidated statement of income.

During the second quarter 2022 and 2021, we recognized $ 1.6 million and $ 1.0 million, respectively, of gains resulting from observable price changes of our long-term strategic investments, which were included within “Other income (expense), net” in the condensed consolidated statement of income.

During second quarter 2021, a non-controlled subsidiary that we consolidate for financial statement purposes approved a plan to sell certain patent assets, which were classified as held-for sale.

These patents held for sale are recorded at fair value on June 30, 2022 and are included within " Prepaid and other current assets " in the condensed consolidated balance sheet.

We determined the fair value based upon evaluation of market conditions and recognized an $ 11.0 million patent impairment during the second quarter 2021.

We determined the fair value based upon evaluation of market conditions and recognized an $ 11.0 million patent impairment during the second quarter 2021 and a $ 2.2 million impairment during the fourth quarter 2021.

These patents held for sale are recorded at fair value on September 30, 2022 and are included within " Prepaid and other current assets " in the condensed consolidated balance sheet.

During fourth quarter 2021, we renewed our multi-year, worldwide, non-exclusive patent license agreement with Sony Corporation of America ("Sony").

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The value is amortized as a non-cash expense over the patents' estimated useful lives.

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Fair Value of Long-Term Debt

Convertible Notes

The principal amount, carrying value and related estimated fair value of the Company's Convertible Notes reported in the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021 was as follows (in thousands).

The principal amount, carrying value and related estimated fair value of the Company's Convertible Notes reported as of September 30, 2022 and December 31, 2021 was as follows (in thousands).

The aggregate fair value of the principal amount of the Convertible Notes is a Level 2 fair value measurement.

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Amount Carrying

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Technicolor Patent Acquisition Long-term Debt

The carrying value and related estimated fair value of the Technicolor Patent Acquisition long-term debt reported in the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021 was as follows (in thousands).

The carrying value and related estimated fair value of the Technicolor Patent Acquisition long-term debt reported as of September 30, 2022 and December 31, 2021 was as follows (in thousands).

The aggregate fair value of the Technicolor Patent Acquisition long-term debt is a Level 3 fair value measurement.

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Value Carrying

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The conversion rate, and thus the conversion price, may be adjusted under certain circumstances, including in connection with conversions made following fundamental changes and under other circumstances as set forth in the indenture governing the 2027 Notes.

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Prior to 5:00 p.m., New York City time, on the business day immediately preceding March 1, 2027, the notes will be convertible only under the following circumstances:

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These costs are being amortized as interest expense over the term of the debt using the effective interest method.

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2024 Notes, and Related Note Hedge and Warrant Transactions

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We specifically negotiated the repurchase of the 2024 Notes with investors who concurrently purchased the 2027 Notes, such that their purchase of the 2027 Notes funded our repurchase of the 2024 Notes.

As a result of the partial repurchase of the 2024 Notes, $ 126.2 million in aggregate principal amount of the 2024 Notes remained outstanding as of June 30, 2022.

As a result of the partial repurchase of the 2024 Notes, $ 126.2 million in aggregate principal amount of the 2024 Notes remained outstanding as of September 30, 2022.

Additionally, in connection with the partial repurchase of the 2024 Notes, the Company entered into partial unwind agreements that amend the terms of the 2024 Note Hedge Transactions to reduce the number of options corresponding to the principal amount of the repurchased 2024 Notes.

The unwind agreements also reduce the number of warrants exercisable under the 2024 Warrant Transactions.

As a result of the partial unwind transactions, approximately 1.6 million shares of common stock in the aggregate were covered under each of the 2024 Note Hedge Transactions and the 2024 Warrant Transactions as of June 30, 2022.

As of June 30, 2022, the warrants under the 2024 Warrant Transactions had a strike price of approximately $ 109.43 per share, as adjusted.

As of September 30, 2022, the warrants under the 2024 Warrant Transactions had a strike price of approximately $ 109.43 per share, as adjusted.

Proceeds received from the unwind of the 2024 Note Hedge Transactions were $ 11.9 million, and consideration paid for the unwind of the 2024 Warrant Transactions was $ 3.8 million, resulting in net proceeds received of $ 8.0 million for the combined unwind transactions.

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Additionally, the repurchase of the 2024 Notes and issuance of the 2027 Notes were deemed to have substantially different terms on the basis that the fair value of the conversion feature increased by more than 10% of the carrying value of the 2024 Notes, and therefore, the repurchase of the 2024 Notes was accounted for as a debt extinguishment.

We recognized a $ 11.2 million loss on extinguishment of debt during second quarter 2022 in connection with this repurchase, which is included within "Other (expense) income, net" in the condensed consolidated statement of income.

We recognized a $ 11.2 million loss on extinguishment of debt during second quarter 2022 in connection with this repurchase, which is included within "Other income (expense), net" in the condensed consolidated statement of income.

The loss on extinguishment represents the difference between the fair value of consideration paid to reacquire the 2024 Notes and the carrying amount of the debt, including any unamortized debt issuance costs attributable to the 2024 Notes redeemed.

The remaining unamortized debt issuance costs of $ 1.2 million will continue to be amortized throughout the remaining life of the 2024 Notes.

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The following table reflects the carrying value of our Convertible Notes long-term debt as of June 30, 2022 and December 31, 2021 (in thousands):

June 30, 2022 December 31, 2021

The following table reflects the carrying value of our Convertible Notes long-term debt as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022 December 31, 2021

2027 Notes 2024 Notes Total 2024 Notes

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Net carrying amount of the Convertible Notes $ 450,652 $ 125,203 $ 575,855 $ 395,632

The following table presents the amount of interest cost recognized, which is included within " Interest Expense" in our condensed consolidated statements of income, for the three and six months ended June 30, 2022 and 2021 relating to the contractual interest coupon and the amortization of deferred financing costs of the Convertible Notes (in thousands):

Three months ended June 30,

The following table presents the amount of interest cost recognized, which is included within " Interest Expense" in our condensed consolidated statements of income, for the three and nine months ended September 30, 2022 and 2021 relating to the contractual interest coupon and the amortization of deferred financing costs of the Convertible Notes (in thousands):

Three months ended September 30,

2027 Notes 2024 Notes Total 2024 Notes

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Total $ 4,447 $ 769 $ 5,216 $ 2,411

Six months ended June 30,

Nine months ended September 30,

2027 Notes 2024 Notes Total 2024 Notes

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This initial fair value measurement was based on the perspective of a market participant and included significant unobservable inputs which are classified as Level 3 inputs within the fair value hierarchy.

The fair value of the long-term debt as of June 30, 2022 and December 31, 2021 is disclosed within Note 6, " Cash, Concentration of Credit Risk and Fair Value of Financial Instruments.

The fair value of the long-term debt as of September 30, 2022 and December 31, 2021 is disclosed within Note 6, " Cash, Concentration of Credit Risk and Fair Value of Financial Instruments.

" Our repayment obligations are contingent upon future royalty revenues generated from the Madison Arrangement and there are no minimum or maximum payments under the arrangement.

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Under ASC 470, amounts recorded as debt are amortized under the interest method.

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This rate represents the discount rate that equates the estimated future cash flows with the fair value of the debt as of the acquisition date, and is used to compute the amount of interest to be recognized each period based on the estimated life of the future revenue streams.

During the three and six months ended June 30, 2022, we recognized $ 1.0 million and $ 1.9 million, respectively, of interest expense related to this debt, compared to $ 0.8 million and $ 1.6 million during the three and six months ended June 30, 2021, respectively.

During the three and nine months ended September 30, 2022, we recognized $ 1.0 million and $ 2.9 million, respectively, of interest expense related to this debt, compared to $ 0.4 million and $ 2.0 million during the three and nine months ended September 30, 2021, respectively.

This was included within “ Interest Expense ” in the condensed consolidated statements of income.

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Under the revenue-sharing arrangement, Technicolor receives 42.5 % of future cash receipts from new licensing efforts from the Madison Arrangement only, subject to certain conditions and hurdles.

As of June 30, 2022, the contingent consideration liability from the revenue-sharing arrangement was deemed not probable and is therefore not reflected within the consolidated financial statements.

As of September 30, 2022, the contingent consideration liability from the revenue-sharing arrangement was deemed not probable and is therefore not reflected within the consolidated financial statements.

VARIABLE INTEREST ENTITIES

As further discussed below, we are the primary beneficiary of three variable interest entities.

As of June 30, 2022, the combined book values of the assets and liabilities associated with these variable interest entities included in our condensed consolidated balance sheet were $ 19.7 million and $ 0.5 million, respectively.

Assets included $ 6.5 million of cash and cash equivalents, $ 4.0 million of accounts receivable and prepaid and other current assets, and $ 9.1 million of patents, net.

As of September 30, 2022, the combined book values of the assets and liabilities associated with these variable interest entities included in our condensed consolidated balance sheet were $ 17.9 million and $ 0.6 million, respectively.

Assets included $ 4.7 million of cash and cash equivalents, $ 4.0 million of prepaid and other current assets, and $ 9.1 million of patents, net.

As of December 31, 2021, the combined book values of the assets and liabilities associated with these variable interest entities included in our condensed consolidated balance sheet were $ 27.1 million and $ 2.5 million, respectively.

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Based on our provision of research and platform development services to Convida Wireless, we have determined that we remain the primary beneficiary for accounting purposes and will continue to consolidate Convida Wireless.

For the three and six months ended June 30, 2022, we allocated approximately $ 0.5 million and $ 0.8 million, respectively, of Convida Wireless's net loss to noncontrolling interests held by other parties and for the three and six months ended June 30, 2021, we allocated $ 6.2 million and $ 7.7 million, respectively.

For the three and nine months ended September 30, 2022, we allocated approximately $ 0.5 million and $ 1.2 million, respectively, of Convida Wireless's net loss to noncontrolling interests held by other parties and for the three and nine months ended September 30, 2021, we allocated $ 1.0 million and $ 8.7 million, respectively.

On January 31, 2019, we launched the Company’s Chordant™ business as a standalone company.

Chordant is a variable interest entity, and we have determined that we are the primary beneficiary for accounting purposes and consolidate Chordant.

For each of the three and six months ended June 30, 2022, we allocated $ 0.0 million of Chordant's net loss to noncontrolling interests held by other parties, and for the three and six months ended June 30, 2021, we allocated $ 2.2 million and $ 2.3 million, respectively.

For each of the three and nine months ended September 30, 2022, we allocated $ 0.0 million of Chordant's net loss to noncontrolling interests held by other parties, and for the three and nine months ended September 30, 2021, we allocated $ 0.0 million and $ 2.3 million, respectively.

Chordant ceased operations during 2021.

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Based on the terms of the trust agreement, we determined that we were the primary beneficiary for accounting purposes and included the Trust in our consolidated financial statements up to the date of dissolution.

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OTHER (EXPENSE) INCOME, NET

The amounts included in " Other (expense) income, net " in the condensed consolidated statements of income for the three and six months ended June 30, 2022 and 2021 were as follows (in thousands):

Three months ended June 30, Six months ended June 30,

OTHER INCOME (EXPENSE), NET

The amounts included in " Other income (expense), net " in the condensed consolidated statements of income for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

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Other ( 3,509 ) ( 1,922 ) ( 8,846 ) 842

Other (expense) income, net $ ( 15,016 ) $ 3,039 $ ( 16,021 ) $ 3,763

The change in Other (expense) income, net for the three and six months ended June 30, 2022 and 2021 was $ 18.1 million and $ 19.8 million, respectively.

The changes between both the three months ended June 30, 2022 and 2021 and the six months ended June 30, 2022 and 2021 were primarily due to the $ 11.2 million loss on extinguishment of the 2024 Notes, as described further in Note 7, " Obligations ", and due to a foreign currency translation loss in the three and six months ended June 30, 2022 arising from euro translation of our foreign subsidiaries.

Other income (expense), net $ 912 $ ( 1,537 ) $ ( 15,109 ) $ 2,226

Interest and investment income increased $ 4.0 million and $ 3.5 million during the three and nine months ended September 30, 2022, respectively, compared to same periods in 2021 primarily due to market conditions driving higher yields on the Company's short-term investments.

The $ 11.2 million loss on extinguishment of long-term debt was related to the partial repurchase of the 2024 Notes, as described further in Note 7, " Obligations ".

The change in Other was primarily due to a foreign currency translation loss arising from euro translation of our foreign subsidiaries.

Additionally, Other included gains resulting from observable price changes of our long-term strategic investments, which were $ 1.6 million recognized in second quarter 2022 and $ 1.0 million recognized in second quarter 2021, and a $ 1.9 million gain on a contract termination recognized in first quarter 2021.

The amounts included in " Prepaid and other current assets " in the consolidated balance sheet as of June 30, 2022 and December 31, 2021 were as follows (in thousands):

June 30, 2022 December 31, 2021

The amounts included in " Prepaid and other current assets " in the consolidated balance sheet as of September 30, 2022 and December 31, 2021 were as follows (in thousands):

September 30, 2022 December 31, 2021

Tax receivables $ 64,103 $ 57,127

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Total Prepaid and other current assets $ 86,028 $ 77,545

The amounts included in " Other non-current assets, net " in the consolidated balance sheet as of June 30, 2022 and December 31, 2021 were as follows (in thousands):

June 30, 2022 December 31, 2021

The amounts included in " Other non-current assets, net " in the consolidated balance sheet as of September 30, 2022 and December 31, 2021 were as follows (in thousands):

September 30, 2022 December 31, 2021

Tax receivables $ 24,892 $ 30,026

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All notices of termination have been issued to the impacted employees.

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During 2021, Chordant ceased operations.

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The Company may also incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, the reduction in force or other restructuring activities.

As of June 30, 2022, the Company's restructuring liability was $ 8.8 million, of which $ 0.6 million was included in " Accounts payable ", $ 0.9 million was included in " Accrued compensation and related expenses ", and $ 7.3 million was included in " Other accrued expenses " on our condensed consolidated balance sheet.

As of September 30, 2022, the Company's restructuring liability was $ 5.5 million, which was included in " Other accrued expenses " on our condensed consolidated balance sheet.

As of December 31, 2021, the Company's restructuring liability was $ 18.3 million, of which $ 12.5 million was included in " Other accrued expenses " and $ 5.8 million was included in " Other long-term liabilities " on our condensed consolidated balance sheet.

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Balance as of June 30, 2022 $ 8,818

The restructuring expenses included in " Restructuring activities " in the condensed consolidated statements of income for the three and six months ended June 30, 2022 and 2021 were as follows (in thousands):

Three months ended June 30, Six months ended June 30,

Cash payments ( 2,775 )

Other ( 499 )

Balance as of September 30, 2022 $ 5,544

The restructuring expenses included in " Restructuring activities " in the condensed consolidated statements of income for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

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Total $ — $ 7,045 $ 3,280 $ 20,290

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements