InterDigital, Inc. 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . OVERVIEW The following discussion should be read in conjunction with the unaudited, condensed consolidated financial statements and notes thereto contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, in addition to our 2021 Form 10-K, other reports filed with the SEC and the Statement Pursuant to the Private Securities Litigation Reform Act of 1995 — Forward-Looking Statements below. Throughout the following discussion and elsewhere in this Form 10-Q, we refer to “non-recurring revenues.” Non-recurring revenues are comprised of past patent royalties and revenues from static agreements. New Revenue Agreement On September 30, 2022, we renewed a patent license agreement with Apple Inc. The Company expects to recognize approximately $134.0 million in revenue each year over the seven-year term of the license, which commenced on October 1, 2022. Cash & Short-term Investments As of September 30, 2022, we had $872.8 million of cash, cash equivalents, restricted cash and short-term investments and an additional $1.1 billion of cash payments due under contracted fixed price agreements, including $365.1 million recorded in our $403.0 million accounts receivable balance. The remaining accounts receivable is primarily related to variable patent royalty revenue. Over 90% of our revenue comes from fixed price agreements. Such agreements often have prescribed payment schedules that are uneven and sometimes front-loaded, resulting in timing differences between when we collect the cash payments and recognize the related revenue. Our accounts receivable balance of $403.0 million, as of September 30, 2022, includes an expected, partial, upfront payment associated with a recent license renewal. The following table reconciles the timing differences between cash receipts and recognized revenue during the three and nine months ended September 30, 2022 and 2021, including the resulting operating cash flow (in thousands): Three months ended September 30, Nine months ended September 30, Cash vs. Non-cash revenue: 2022 2021 2022 2021 Fixed fee cash receipts (a) $ 26,662 $ 143,050 $ 73,804 $ 193,412 Other cash receipts (b) 6,403 7,739 31,615 36,223 Change in deferred revenue (274,034) (150,703) (146,334) (64,044) Change in receivables 354,242 129,655 371,930 125,649 Other 1,491 13,755 9,724 22,354 Total Revenue $ 114,764 $ 143,496 $ 340,739 $ 313,594 Net cash used in operating activities $ (18,729) $ 96,264 $ (70,469) $ 59,163 (a) Fixed fee cash receipts are comprised of cash receipts from Dynamic Fixed-Fee Agreement royalties, including the associated past patent royalties (b) Other cash receipts are primarily comprised of cash receipts related to our variable patent royalty revenue and non-recurring revenues. 25 Table of Contents When we collect payments on a front-loaded basis, we recognize a deferred revenue liability equal to the cash received and accounts receivable recorded which relate to revenue expected to be recognized in future periods. That liability is then reduced as we recognize revenue over the balance of the agreement. The following table shows the projected amortization of our current and long term deferred revenue as of September 30, 2022 (in thousands): Deferred Revenue Remainder of 2022 $ 81,892 2023 171,922 2024 121,824 2025 106,224 2026 1,011 Thereafter 4,697 Total Revenue $ 487,570 Revenue Third quarter 2022 recurring revenue was $101.0 million, compared to recurring revenue of $93.4 million in third quarter 2021, a 8% year-over-year increase. In third quarter 2022, revenues (in descending order) from Apple, Samsung, Xiaomi, and Huawei each comprised 10% or more of our consolidated revenues. Refer to " Results of Operations --Third Quarter 2022 Compared to Third Quarter 2021 " for further discussion of our 2022 revenue. Restructuring Activities On June 10, 2021, we announced that, as a result of a strategic review of our research and innovation priorities, we commenced the process of a collective economic layoff in which we proposed a reduction in force of our research and innovation unit. Additionally, in October 2021, we expanded our restructuring efforts to include general and administrative functions largely centered in the U.S. All impacted employees have been provided notification of termination. The Company does not anticipate further significant restructuring charges, however these charges are estimated based on information available at the time such charges are recorded. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts incurred for such activities may differ from amounts initially estimated. Impact of COVID-19 Pandemic The COVID-19 pandemic continues to significantly impact the United States and the rest of the world. Though the COVID-19 pandemic and the measures taken to reduce its transmission, such as the imposition of social distancing and orders to work-from-home and shelter-in-place, have altered our business environment and overall working conditions, we continue to believe that our strategic strengths, including talent, our strong balance sheet, stable revenue base, and the strength of our patent portfolio, will allow us to weather a rapidly changing marketplace. While the environment in which we conduct our business and our overall working conditions have changed as a result of the COVID-19 pandemic, we experienced a limited impact on our operations and financial position during third quarter 2022. Fixed-fee royalties accounted for 89% of our recurring revenues in fiscal year 2021. These fixed-fee revenues are not directly affected by our related licensees’ success in the market or the general economic climate. To that end, in third quarter 2022, we did not experience a significant impact on our contracted revenue due to COVID-19. Meanwhile, we have taken steps to protect the health and safety of our employees and their families, with the majority of our workforce continuing to work remotely or on a hybrid basis. We returned to in-person work as of April 2022 and all of our locations are open. Despite any remote working conditions, our business activities have continued to operate with minimal interruption, and we expect them to continue to operate efficiently. Although we have resumed work-related travel, a portion of our licensing negotiations, investor presentations and participation in standards organizations and industry events have been virtually. Between March 12, 2020, when we began to work almost entirely remotely, and September 30, 2022, we successfully concluded twenty-two new patent license agreements that we estimate will result in revenues exceeding $1.7 billion over their respective lives. Our financial position remains strong, we believe we have sufficient access to capital if needed, and we remain committed to our efforts around cost discipline. 26 Table of Contents Impact of Inflation and Market Factors We have been actively monitoring the impact of the current macroeconomic environment in the U.S. and globally characterized by increasing inflation, supply chain issues, rising interest rates, labor shortages, and the potential for a recession. These market factors, as well as the impacts of the Russia and Ukraine conflict, have not had a material impact on our business to date. However, if these conditions continue or worsen, they could have an adverse effect on our operating results and our financial condition. Comparability of Financial Results When comparing third quarter 2022 financial results against other periods, the following items should be taken into consideration: • Our third quarter 2022 revenue includes $13.7 million of non-recurring revenue primarily related to new connected automobile license agreements. • During third quarter 2022, we incurred $8.4 million of one-time supplemental compensation costs driven by licensing success. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our significant accounting policies are described in Note 2, " Summary of Significant Accounting Policies and New Accounting Guidance ", in the notes to consolidated financial statements included in our 2021 Form 10-K. A discussion of our critical accounting policies, and the estimates related to them, are included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K. There have been no material changes to our existing critical accounting policies from the disclosures included in our 2021 Form 10-K. In addition, we have analyzed the impact of COVID-19 on our financial statements as of September 30, 2022, and we have determined that the changes to our significant judgments and estimates did not have a material impact on our financial statements. Refer to Note 1, “ Basis of Presentation ,” in the notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for updates related to new accounting pronouncements and changes in accounting policies. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity are cash, cash equivalents and short-term investments, as well as cash generated from operations. We believe we have the ability to obtain additional liquidity through debt and equity financings. From time to time, we may engage in a variety of transactions to augment our liquidity position as our business dictates and to take advantage of favorable interest rate environments or other market conditions, including the incurrence or issuance of debt and the refinancing or restructuring of existing debt. Based on our past performance and current expectations, we believe our available sources of funds, including cash, cash equivalents and short-term investments and cash generated from our operations, will be sufficient to finance our operations, capital requirements, debt obligations, existing stock repurchase program, dividend program, and other contractual obligations discussed below in both the short-term over the next twelve months, and the long-term beyond twelve months. Cash, cash equivalents, restricted cash and short-term investments As of September 30, 2022 and December 31, 2021, we had the following amounts of cash and cash equivalents, restricted cash and short-term investments (in thousands): September 30, 2022 December 31, 2021 Increase / (Decrease) Cash and cash equivalents $ 539,651 $ 706,282 $ (166,631) Restricted cash included within prepaid and other current assets 8,253 5,861 2,392 Restricted cash included within other non-current assets 1,081 1,081 — Short-term investments 323,772 235,345 88,427 Total cash, cash equivalents, restricted cash and short-term investments $ 872,757 $ 948,569 $ (75,812) The net decrease in cash, cash equivalents, restricted cash and short-term investments was primarily attributable to cash used in operating activities of $70.5 million and cash used in investing activities of $31.1 million, excluding sales and purchases of short-term investments, partially offset by cash provided by financing activities of $29.4 million, primarily consisting of net proceeds from the debt refinancing. Refer to the sections below for further discussion of these items. 27 Table of Contents Cash flows (used in) provided by operating activities Cash flows used in operating activities in the first nine months 2022 and 2021 (in thousands) were as follows: Nine months ended September 30, 2022 2021 Change Net cash (used in) provided by operating activities $ (70,469) $ 59,163 $ (129,632) Our cash flows (used in) provided by operating activities are principally derived from cash receipts from patent license and technology solutions agreements, offset by cash operating expenses and income tax payments. The $129.6 million change in net cash (used in) provided by operating activities was primarily driven by non-cash revenue, partially offset by lower cash operating expenses benefiting from the cost-savings actions taken in 2021. The table below sets forth the significant items comprising our cash flows (used in) provided by operating activities during the nine months ended September 30, 2022 and 2021 (in thousands): Nine months ended September 30, 2022 2021 Change Total Cash Receipts $ 105,419 $ 229,636 $ (124,217) Cash Outflows: Cash operating expenses a 152,032 176,996 (24,964) Income taxes paid b 4,585 9,835 (5,250) Total cash outflows 156,617 186,831 (30,214) Other working capital adjustments (19,271) 16,358 (35,629) Cash flows (used in) provided by operating activities $ (70,469) $ 59,163 $ (129,632) ______________________________ (a) Cash operating expenses include operating expenses less depreciation of fixed assets, amortization of patents, non-cash compensation and non-cash changes in fair value. (b) Income taxes paid include foreign withholding taxes. Cash flows from investing and financing activities Net cash used in investing activities for the first nine months 2022 was $123.2 million, a $110.7 million change from $12.5 million in the first nine months 2021. During the first nine months 2022, we purchased $92.1 million of short-term marketable securities, net of sales, and we capitalized $31.1 million of patent costs and property plant and equipment purchases. During the first nine months 2021, we sold $18.6 million of short-term marketable securities, net of purchases, we capitalized $30.0 million of patent costs and property plant and equipment purchases, and invested $1.1 million in a new strategic investment. Net cash provided by financing activities for the first nine months 2022 was $29.4 million, a change of $83.7 million from $54.3 million net cash used in financing activities for the first nine months 2021. This change was primarily attributable to net proceeds of $139.2 million from the debt refinancing, partially offset by a $51.4 million increase in share repurchases. Other Our combined short-term and long-term deferred revenue balance as of September 30, 2022 was approximately $487.6 million, a net increase of $176.4 million from December 31, 2021. This increase in deferred revenue was primarily attributable to an increase in accounts receivable associated with a license renewal signed in third quarter 2022 and was partially offset by amortization of deferred revenue recognized in the period. Based on current license agreements, we expect the amortization of dynamic fixed-fee royalty payments to reduce the September 30, 2022 deferred revenue balance of $487.6 million by $211.0 million over the next twelve months. 28 Table of Contents Convertible Notes See Note 7, “ Obligations ” to the notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for definitions of capitalized terms below. Our 2027 and 2024 Notes, which for purposes of this discussion are also referred to as the "Convertible Notes", are included in the dilutive earnings per share calculation using the if-converted method. Under the if-converted method, we must assume that conversion of convertible securities occurs at the beginning of the reporting period. The Convertible Notes are convertible into cash up to the aggregate principal amount of the Convertible Notes to be converted and any remaining obligation may be in cash, shares of the Company’s common stock or a combination thereof. As the principal amount must be paid in cash and only the conversion spread is settled in shares, we only include the net number of incremental shares that would be issued upon conversion. We must calculate the number of shares of our common stock issuable under the terms of the Convertible Notes based on the average market price of our common stock during the applicable reporting period and include that number in the total diluted shares figure for the period. At the time we issued the Convertible Notes, we entered into the 2027 Call Spread Transactions and 2024 Call Spread Transactions that together were designed to have the economic effect of reducing the net number of shares that will be issued in the event of conversion of the Convertible Notes by, in effect, increasing the conversion price of the Convertible Notes from our economic standpoint. However, under GAAP, since the impact of the 2027 Note Hedge Transactions and 2024 Note Hedge Transactions (together, the "Note Hedge Transactions") is anti-dilutive, we exclude from the calculation of fully diluted shares the number of shares of our common stock that we would receive from the counterparties to these agreements upon settlement. During periods in which the average market price of our common stock is above the applicable conversion price of the Convertible Notes ($77.49 per share for the 2027 Notes and $81.29 per share for the 2024 Notes as of September 30, 2022) or above the strike price of the warrants ($106.37 per share for the 2027 Warrant Transactions and $109.43 per share for the 2024 Warrant Transactions as of September 30, 2022), the impact of conversion or exercise, as applicable, would be dilutive and such dilutive effect is reflected in diluted earnings per share. As a result, in periods where the average market price of our common stock is above the conversion price or strike price, as applicable, under the if-converted method, we calculate the number of shares issuable under the terms of the Convertible Notes and the warrants based on the average market price of the stock during the period, and include that number in the total diluted shares outstanding for the period. Under the if-converted method, changes in the price per share of our common stock can have a significant impact on the number of shares that we must include in the fully diluted earnings per share calculation. As described in Note 7, " Obligations, " the Convertible Notes are convertible into cash up to the aggregate principal amount of the Convertible Notes to be converted and any remaining obligation may be in cash, shares of the Company’s common stock or a combination thereof. ("net share settlement"). Assuming net share settlement upon conversion, the following tables illustrate how, based on the $460.0 million aggregate principal amount of the 2027 Notes and the $126.2 million aggregate principal amount of the 2024 Notes outstanding as of September 30, 2022, and the approximately 5.9 million warrants related to the 2027 Notes and the 1.6 million warrants remaining related to the 2024 Notes, outstanding as of the same date, changes in our stock price would affect (i) the number of shares issuable upon conversion of the Convertible Notes, (ii) the number of shares issuable upon exercise of the warrants subject to the 2027 Warrant Transactions and 2024 Warrant Transactions (together, the "Warrant Transactions"), (iii) the number of additional shares deemed outstanding with respect to the Convertible Notes, after applying the if-converted method, for purposes of calculating diluted earnings per share ("Total If-Converted Method Incremental Shares"), (iv) the number of shares of our common stock deliverable to us upon settlement of the Note Hedge Transactions and (v) the number of shares issuable upon concurrent conversion of the Convertible Notes, exercise of the warrants subject to the Warrant Transactions, and settlement of the Note Hedge Transactions: 29 Table of Contents 2027 Notes Market Price Per Share Shares Issuable Upon Conversion of the 2027 Notes Shares Issuable Upon Exercise of the 2027 Warrant Transactions Total If-Converted Method Incremental Shares Shares Deliverable to InterDigital upon Settlement of the 2027 Note Hedge Transactions Incremental Shares Issuable (a) (Shares in thousands) $80 186 — 186 (186) — $85 524 — 524 (524) — $90 825 — 825 (825) — $95 1,094 — 1,094 (1,094) — $100 1,336 — 1,336 (1,336) — $105 1,555 — 1,555 (1,555) — $110 1,754 196 1,950 (1,754) 196 $115 1,936 445 2,381 (1,936) 445 $120 2,103 674 2,777 (2,103) 674 $125 2,256 885 3,141 (2,256) 885 2024 Notes Market Price Per Share Shares Issuable Upon Conversion of the 2024 Notes Shares Issuable Upon Exercise of the 2024 Warrant Transactions Total If-Converted Method Incremental Shares Shares Deliverable to InterDigital upon Settlement of the 2024 Note Hedge Transactions Incremental Shares Issuable (a) (Shares in thousands) $85 68 — 68 (68) — $90 150 — 150 (150) — $95 224 — 224 (224) — $100 290 — 290 (290) — $105 351 — 351 (351) — $110 405 8 413 (405) 8 $115 455 75 530 (455) 75 $120 501 137 638 (501) 137 $125 543 193 736 (543) 193 $130 582 246 828 (582) 246 ______________________________ (a) Represents incremental shares issuable upon concurrent conversion of convertible notes, exercise of warrants and settlement of the hedge agreements. 30 Table of Contents RESULTS OF OPERATIONS Third Quarter 2022 Compared to Third Quarter 2021 Revenues The following table compares third quarter 2022 revenues to third quarter 2021 revenues (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 revenues $ 114,764 $ 143,496 (28,732) (20) % (a) Non-recurring revenues are comprised of past patent royalties and revenues from static agreements. Total revenues of $114.8 million, which includes both recurring and non-recurring revenues, decreased 20% from $143.5 million in third quarter 2021 primarily due to $50.1 million of non-recurring revenues recognized on three previously disclosed agreements signed in third quarter 2021. Non-recurring revenues in third quarter 2022 were primarily attributable to revenues from new connected automobile license agreements. Recurring revenue increased 8% to $101.0 million, compared to recurring revenue of $93.4 million in third quarter 2021. The company increased recurring revenue in both its Smartphone (up 4%) and CE, IoT/Auto markets (up 60%) as a result of nine new agreements signed over the last twelve months. In third quarter 2022 and third quarter 2021, 70% and 79% of our total revenue, respectively, was attributable to licensees that individually accounted for 10% or more of our total revenue. In third quarter 2022 and third quarter 2021, the following licensees accounted for 10% or more of our total revenue: Three months ended September 30, 2022 2021 Customer A 30% 19% Customer B 17% 14% Customer C 13% 31% Customer D 10% <10% Customer E <10% 15% Operating Expenses The following table summarizes the changes in operating expenses between third quarter 2022 and third quarter 2021 by category (in thousands): Three months ended September 30, 2022 2021 Increase/(Decrease) Patent administration and licensing $ 46,720 $ 56,150 $ (9,430) (17) % Development 21,789 22,546 (757) (3) % Selling, general and administrative 14,418 20,978 (6,560) (31) % Restructuring activities — 7,045 (7,045) (100) % Total operating expenses $ 82,927 $ 106,719 $ (23,792) (22) % 31 Table of Contents Operating expenses decreased to $82.9 million in third quarter 2022 from $106.7 million in third quarter 2021. The $23.8 million decrease in total operating expenses was primarily due to changes in the following items (in thousands): Increase/(Decrease) Revenue share $ (9,659) Restructuring activities (7,045) Performance-based compensation (4,538) Other (2,550) Total decrease in operating expenses $ (23,792) The $23.8 million decrease in operating expenses was primarily due to a reduction of non-recurring costs, which were driven by a $9.7 million decrease in revenue share costs primarily attributable to a patent license agreement signed in third quarter 2021 and a $7.0 million reduction in restructuring costs associated with the Company’s ongoing restructuring efforts. The remainder of the decrease was primarily attributable to a $4.5 million reduction in performance-based compensation. Patent Administration and Licensing Expense: The $9.4 million decrease in patent administration and licensing expense was primarily due to the above-noted decrease in revenue share costs. Development Expense: Development expense decreased $0.8 million primarily due to a decrease in consulting costs. Selling, General and Administrative Expense: Selling, general and administrative expense decreased $6.6 million primarily due to the above-noted decrease in performance-based compensation. Restructuring Activities: Restructuring expenses associated with our overall restructuring plan decreased due to the plan being substantially complete in 2022. There were no significant restructuring activities in third quarter 2022. For more information on the restructuring activities, refer to Note 11, " Restructuring Activities " within the notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Non-Operating Expense The following table compares third quarter 2022 non-operating expense to third quarter 2021 non-operating expense (in thousands): Three months ended September 30, 2022 2021 Increase/(Decrease) Interest expense $ (7,659) $ (5,773) $ (1,886) (33) % Interest and investment income 4,421 385 4,036 1,048 % Other expense (3,509) (1,922) (1,587) 83 % Total non-operating expense $ (6,747) $ (7,310) $ 563 8 % The $4.0 million increase in interest and investment income was primarily due to market conditions driving higher yields on the Company's short-term investments. Additionally, interest expense increased due to the additional interest on the 2027 Notes issued during second quarter 2022 and other expense increased primarily due to foreign currency translation loss arising from euro translation of our foreign subsidiaries. Income taxes In third quarter 2022 and 2021, based on the statutory federal tax rate net of discrete federal and state taxes, we had an effective tax rate of 13.2% and 14.4%, 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, as well as by the foreign-derived intangible income deduction and non-deductible compensation. Excluding this valuation allowance, our third quarter 2022 and 2021 effective tax rate would have been 7.5% and 11.8%, respectively. 32 Table of Contents First Nine Months 2022 Compared to First Nine Months 2021 Revenues The following table compares first nine months 2022 revenues to first nine months 2021 revenues (in thousands): 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 revenues $ 340,739 $ 313,594 27,145 9 % (a) Non- recurring revenues are comprised of past patent royalties and revenues from static agreements. Total revenues of $340.7 million, which includes both recurring and non-recurring revenues, increased 9% from $313.6 million in the first nine months of 2021 primarily due to recurring revenue increasing 20% to $300.3 million, compared to $250.1 million in 2021. The company increased recurring revenue in both its Smartphone (up 18%) and CE, IoT/Auto markets (up 66%) as a result of sixteen new agreements signed over the last eighteen months. Non-recurring revenues decreased $23.0 million primarily attributable to revenues recognized on five previously disclosed agreements signed in 2021. Non-recurring revenues in 2022 were primarily attributable to three previously disclosed license agreements signed in the first nine months of 2022 and revenues from new connected automobile license agreements. In first nine months 2022 and first nine months 2021, 71% and 71% of our total revenue, respectively, was attributable to companies that individually accounted for 10% or more of our total revenue. In first nine months 2022 and first nine months 2021, the following companies accounted for 10% or more of our total revenue: Nine months ended September 30, 2022 2021 Customer A 31% 27% Customer B 17% 19% Customer C 13% 14% Customer D 10% 11% Operating Expenses The following table summarizes the changes in operating expenses between first nine months 2022 and first nine months 2021 by category (in thousands): Nine months ended September 30, 2022 2021 Increase/(Decrease) Patent administration and licensing $ 134,232 $ 133,694 $ 538 — % Development 56,487 66,999 (10,512) (16) % Selling, general and administrative 34,818 46,994 (12,176) (26) % Restructuring activities 3,280 20,290 (17,010) (84) % Total operating expenses $ 228,817 $ 267,977 $ (39,160) (15) % 33 Table of Contents Operating expenses decreased 15% to $228.8 million in first nine months 2022 from $268.0 million in first nine months 2021. The $39.2 million decrease in total operating expenses was primarily due to changes in the following items (in thousands): Increase/(Decrease) Restructuring activities $ (17,010) Personnel-related costs (16,683) Revenue share (8,389) Consulting costs (4,668) Intellectual property enforcement and non-patent litigation 7,761 Other (171) Total decrease in operating expenses $ (39,160) The $39.2 million decrease in operating expenses was primarily due to a reduction of non-recurring costs, which were driven by a $8.4 million decrease in revenue share costs primarily attributable to a patent license agreement signed in third quarter 2021 and a $17.0 million reduction in restructuring costs associated with the Company’s ongoing restructuring efforts. Additionally, the cost-savings restructuring actions taken in 2021 drove a $16.7 million decrease in personnel-related costs and a $4.7 million decrease in consulting costs. These decreases were partially offset by $7.8 million of additional intellectual property enforcement costs related to the Lenovo and Oppo litigations. Patent Administration and Licensing Expense: The $0.5 million increase in patent administration and licensing expense primarily resulted from the above-noted increase in intellectual property enforcement costs. This increase was partially offset by the above-noted decreases in revenue share costs and consulting costs. Development Expense: Development expense decreased by $10.5 million primarily resulting from the above-noted decreases in personnel-related costs and consulting costs. Selling, General and Administrative Expense: The $12.2 million decrease in selling, general and administrative expense primarily resulted from the above-noted decreases in personnel-related costs and consulting costs. Restructuring Activities: Restructuring expenses associated with our overall restructuring plan decreased due to the plan being substantially complete in 2022. For more information on the restructuring activities, refer to Note 11, " Restructuring Activities " within the notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Non-Operating Expense The following table compares first nine months 2022 non-operating expense to first nine months 2021 non-operating expense (in thousands): Nine months ended September 30, 2022 2021 Increase/(Decrease) Interest expense $ (19,446) $ (19,429) $ (17) — % Interest and investment income 4,927 1,384 3,543 256 % Loss on extinguishment of long-term debt (11,190) — (11,190) — % Other (expense) income, net (8,846) 842 (9,688) 1,151 % Total non-operating expense $ (34,555) $ (17,203) $ (17,352) (101) % 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 ". Other (expense) income, net increased primarily due to a foreign currency translation loss of $6.7 million in the first nine months 2022 arising from euro translation of our foreign subsidiaries, compared to a foreign currency translation loss of $2.6 million in first nine months 2021. These changes were partially offset by an increase in interest and investment income primarily due to market conditions driving higher yields on the Company's short term investments. Additionally, we recognized a $1.9 million gain on a contract termination in first nine months 2021 and in both periods we recognized gains resulting from observable price changes of our long-term strategic investments, which were $1.6 million in first nine months 2022 and $1.0 million in first nine months 2021. 34 Table of Contents Income taxes In first nine months 2022 and 2021, we 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, as well as by the foreign-derived intangible income deduction and non-deductible compensation. Excluding this valuation allowance, our nine months ended 2022 and 2021 effective tax rate would have been 18.1% and 8.4%, respectively. In the nine months ended 2022 and 2021, we recorded a net discrete tax benefit of $2.3 million and $0.3 million, respectively, primarily related to extinguishment of long-debt and share-based compensation. 35 Table of Contents STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 — FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include certain information in regarding our current beliefs, plans and expectations, including, without limitation, the matters set forth below. Words such as "believe," “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “forecast,” "goal," "could," "would," "should," "if," "may," "might," "future," "target," "trend," "seek to," "will continue," "predict," "likely," "in the event," and variations of any such words or similar expressions contained herein are intended to identify such forward-looking statements. Forward-looking statements are made on the basis of management’s current views and assumptions and are not guarantees of future performance. Although the forward-looking statements in this Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements concerning our business, results of operations and financial condition are inherently subject to risks and uncertainties. These risks and uncertainties include, but are not limited to, the risks and uncertainties described in Part I, Item 1A of our 2021 Form 10-K and the risks and uncertainties set forth below: • unanticipated delays, difficulties or accelerations in the execution of patent license agreements; • our ability to leverage our strategic relationships and secure new patent license agreements on acceptable terms; • our ability to enter into sales and/or licensing partnering arrangements for certain of our patent assets; • our ability to enter into partnerships with leading inventors and research organizations and identify and acquire technology and patent portfolios that align with our roadmap; • our ability to commercialize our technologies and enter into customer agreements; • the failure of the markets for our current or new technologies to materialize to the extent or at the rate that we expect; • unexpected delays or difficulties related to the development of our technologies; • changes in our interpretations of, and assumptions and calculations with respect to the impact on us of, the 2017 Tax Cuts and Jobs Act, as well as further guidance that may be issued regarding such act; • risks related to the potential impact of new accounting standards on our financial position, results of operations or cash flows; • failure to accurately forecast the impact of our restructuring activities on our financial statements and our business; • the resolution of current legal proceedings, including any awards or judgments relating to such proceedings, additional legal proceedings, changes in the schedules or costs associated with legal proceedings or adverse rulings in such proceedings; • the timing and impact of potential administrative and legislative matters; • changes or inaccuracies in market projections; • our ability to obtain liquidity through debt and equity financings; • the potential effects that the ongoing COVID-19 pandemic and/or general economic or other conditions could have on our financial position, results of operations and cash flows; and • changes in our business strategy. You should carefully consider these factors before making any investment decision with respect to our common stock. These factors, individually or in the aggregate, may cause our actual results to differ materially from our expected and historical results. You should understand that it is not possible to predict or identify all such factors. In addition, you should not place undue reliance on the forward-looking statements contained herein, which are made only as of the date of this Form 10-Q. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . There have been no material changes in quantitative and qualitative market risk from the disclosures included in our 2021 Form 10-K. 36 Table of Contents