What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-15 compared with 2022-02-17 · 179 added, 161 removed, 363 unchanged (48% of the section changed)

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A discussion regarding our financial condition and results of operations for December 31, 2021 compared to our fiscal year ended December 31, 2020 can be found in Part II, Item 7 of our Annual Report on Form 10-K for fiscal year 2021, filed with the Securities and Exchange Commission (the “SEC”) on February 17, 2022.

Throughout the following discussion and elsewhere in this Form 10-K, we refer to “recurring revenues” and “non-current patent royalties.” For all periods presented, recurring revenues are comprised of “current patent royalties” and “current technology solutions revenue,” while "non-current patent royalties" are comprised of past sales royalties and static fixed-fee agreement royalties.

Throughout the following discussion and elsewhere in this Form 10-K, we refer to “recurring revenues” and “non-recurring revenues.” For variable and dynamic fixed-fee license agreements, “non-recurring revenue” primarily represents revenue associated with reporting periods prior to the execution of the license agreement, while “recurring revenue” represents revenue associated with reporting periods beginning with the execution of the license agreement.

For static fixed-fee license agreements, we typically classify the associated revenue as non-recurring revenue.

InterDigital, Inc.

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We design and develop advanced technologies that enable connected, immersive experiences in a broad range of communications and entertainment products and services.

We license our innovations worldwide to companies in a variety of industries, including wireless communications, consumer electronics, personal computer, and automotive.

We license or intend to license our innovations worldwide to companies providing such products and services, including wireless communications, consumer electronics, personal computer, and automotive, as well as cloud-based services such as video streaming.

Since our founding in 1972, our engineers have designed and developed a wide range of innovations that are used in wireless products and networks, from the earliest digital cellular systems to 5G.

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InterDigital is one of the largest pure research and development and licensing companies in the world, with one of the most significant patent portfolios of fundamental wireless and video technologies.

As of December 31, 2021, InterDigital's wholly owned subsidiaries held a portfolio of approximately 27,500 patents and patent applications related to wireless communications, video coding, display technology, and other areas relevant to the wireless and consumer electronics industries.

As of December 31, 2022, InterDigital's wholly owned subsidiaries held a portfolio of approximately 28,800 patents and patent applications related to wireless communications, video coding, display technology, and other areas relevant to communications and entertainment products and services.

Our portfolio includes numerous patents and patent applications that we believe are or may be essential or may become essential to standards established by many Standards Development Organizations ("SDOs"), including cellular and other wireless communications and video technology standards.

Those wireless standards include 3G, 4G and the IEEE 802 suite of standards, as well as patents and patent applications that we believe are or may become essential to 5G standards that currently exist and as they continue to develop.

Our video technology portfolio includes patents and applications relating to standards established by ISO/IEC Moving Picture Expert Group (MPEG), the ITU-T Video Coding Expert Group (VCEG), the Joint Collaborative Team on Video Coding (JCT-VC) and the Joint Video Expert Team (JVET), among others.

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Our video technology portfolio combines patents and applications that InterDigital obtained through the Technicolor Acquisitions and patents and applications created by internal development.

Our patented wireless inventions, our patented video inventions, or both have been implemented in a wide variety of products.

Products incorporating our patented inventions include:

mobile devices, such as cellular phones, tablets, notebook computers and wireless personal digital assistants;

televisions, gaming consoles, set-top boxes, streaming devices and other consumer electronics;

wireless infrastructure equipment, such as base stations;

components, dongles and modules for wireless devices;

and Internet of Things ("IoT") devices and software platforms.

Our patented inventions have been implemented in a wide variety of products and services, including smartphones, other wireless communication devices and infrastructure equipment, such as tablets, and base stations, consumer electronics and Internet of Things ("IoT") products, such as televisions, laptops, gaming consoles, set-top boxes, streaming devices and connected automobiles.

In 2022, 2021, and 2020, our total revenues were $457.8 million, $425.4 million, and $359.0 million, respectively.

Our recurring revenues in 2022, 2021 and 2020 were $403.9 million, $351.7 million, and $336.8 million, respectively.

In 2021, 2020, and 2019, we recognized $73.7 million, $21.6 million and $19.8 million, respectively, of non-current patent royalties as more fully discussed below.

In 2021, fixed-fee royalties accounted for approximately 89% of our recurring revenues.

In 2022, 2021, and 2020, we recognized $53.9 million, $73.7 million and $22.2 million, respectively, of non-current patent royalties and patent sales as more fully discussed below.

In 2022, fixed-fee royalties accounted for 90% of our recurring revenues.

These fixed-fee revenues are not affected by the related licensees’ success in the market or the general economic climate.

The majority of the remaining portion of our recurring revenue was variable in nature due to the per-unit structure of the related license agreements.

Beginning in 2022, we updated our disaggregated revenue disclosures to provide information to enable investors to better understand the composition of revenue from contracts with customers.

As a result, variable patent royalty revenue and fixed-fee royalty revenue was combined and disaggregated into the Smartphone and CE, IoT/Auto groupings.

Additionally, the Other category includes current technology solutions revenues and non-recurring revenue is comprised of past patent royalties and revenues from static agreements.

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

The Company considers Smartphone and CE, Auto/IoT as the groupings that best reflect the Company's core licensing product verticals.

The Smartphone revenue grouping consists primarily of smartphones and also includes other wireless communication devices and infrastructure equipment, such as tablets, and base stations.

The CE, IoT/Auto revenue grouping consists of consumer electronics and IoT products, such as televisions, laptops, gaming consoles, set-top boxes, streaming devices and connected automobiles.

New Agreements

During 2021, we entered into thirteen patent license agreements, including agreements with Xiaomi, Sony, and a top ten TV manufacturer discussed below.

We estimate these agreements will result in revenues exceeding $390 million over their respective lives.

During 2022, we entered an agreement with Samsung for binding arbitration to take a new license and eight direct patent license agreements, including agreements with Apple, Amazon, Panasonic, Zebra, and LG as discussed below.

We agreed to renew our patent license agreement with Samsung and enter into binding arbitration to determine the final terms of the license, including the amount payable by Samsung under the new agreement.

Direct Licenses

During third quarter 2021, we entered into a multi-year, worldwide, non-exclusive, royalty bearing license with Xiaomi.

The license covers Xiaomi’s cellular-enabled mobile devices under our standard essential patents related to 3G, 4G, 5G, WiFi and HEVC video technology.

As part of the agreement, we and Xiaomi agreed to dismiss all pending patent litigation and other proceedings between the companies.

During fourth quarter 2021, we renewed our multi-year, worldwide, non-exclusive patent license agreement with Sony.

In addition, we renewed our joint venture with Sony, Convida Wireless.

Licenses Through Platforms

During third quarter 2021, as part of the Madison Arrangement, we entered into a non-exclusive, per-unit royalty-bearing patent license agreement with a top ten global TV manufacturer, covering certain of the licensee’s sales of digital televisions.

During second quarter 2022, we entered into a multi-year, worldwide, non-exclusive, fee bearing patent license agreement with Amazon Technologies, Inc., covering a range of Amazon's consumer electronic devices.

We also entered into a multi-year, worldwide, non-exclusive, royalty bearing license with Zebra Technologies Corporation, under the Company’s standard essential patents related to 4G, 5G and Wi-Fi.

During third quarter 2022, we renewed a patent license agreement with Apple.

The Company expects to recognize approximately $133.7 million in revenue each year over the seven-year term of the license, which commenced on October 1, 2022.

During fourth quarter 2022, the Company entered into four licenses covering digital television and/or video patents, including with Panasonic Entertainment & Communication Co., Ltd.

and LG Electronics.

Expiration of License Agreements

We had six patent license agreements that were scheduled to expire between January 1, 2021 and December 31, 2021.

Of the six related customers, four were renewed during 2021.

The two patent license agreements that have not yet been renewed contributed $13.2 million of recurring revenue in 2021.

Nine of our patent license agreements are scheduled to expire during 2022.

We had seven revenue generating patent license agreements that were scheduled to expire between January 1, 2022 and December 31, 2022, including with Apple and Samsung.

As discussed above, Apple was renewed to a seven-year agreement, which commenced on October 1, 2022.

We also agreed to renew our patent license agreement with Samsung and enter into binding arbitration to determine the final terms of the license, including the amount payable by Samsung under the new agreement.

We expect to recognize revenue for Samsung effective January 1, 2023, at a conservative level consistent with the revenue we have recognized from our patent license agreement that just expired on December 31, 2022.

We believe that it is likely the arbitration award will exceed the conservative estimate and require a true-up at that time.

The remaining patent license agreements that have not yet been renewed contributed $15.4 million of recurring revenue in 2022.

Ten of our revenue generating patent license agreements are scheduled to expire during 2023.

Collectively, these agreements accounted for $55.2 million, or approximately 14%, of recurring revenue in 2022.

Among the customers licensed under these agreements are Apple and Samsung, each of which comprised 10% or more of our consolidated revenues in 2021, 2020, and 2019.

We are actively working to renew these agreements on terms consistent with the licensees' respective market positions and utilization of our technology.

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 66 positions in our research and innovation unit, 60 of whom are based in France.

On September 28, 2021, the Company finalized an agreement with the representative trade unions of certain of its French subsidiaries to commence the reorganization of the research and innovation unit located in France as part of the reduction in force announced in June.

This agreement was validated by the Regional Director of Economy, Employment, Labor and Solidarity on October 25, 2021.

During fourth quarter 2021, the list of impacted employees was finalized and included additional employees who voluntarily took the termination benefits.

The company formally notified the impacted employees in fourth quarter 2021.

In October 2021, we expanded our restructuring efforts to include general and administrative functions largely centered in the U.S., which will result in a further reduction in force of approximately 8% of total headcount as well as cuts to our non-labor expenses.

These employees were provided notification of termination during fourth quarter 2021.

During 2021, we recognized $27.9 million restructuring expenses including $22.6 million severance and other benefits, a $13.2 million asset impairment, and $1.7 million outside services and other associated costs, offset by a $9.6 million reimbursement agreement, which are included within “ Restructuring Activities ” in the consolidated statement of income.

We expect to recognize additional restructuring charges of approximately $1 million in first quarter 2022.

We began to see related cost savings in late 2021 and expect to see further cost savings of approximately $15 million in 2022.

However, such savings do not account for any changes in litigation, revenue share, or any new investments we may make.

Intellectual Property Rights Enforcement

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During 2021, we filed patent infringement actions against Oppo, OnePlus and realme.

The matters are more fully discussed in Note 11, “ Litigation and Legal Proceedings ,” to the Notes to Consolidated Financial Statements included below in Part II, Item 8 of this Form 10-K and/or our 2019 Form 10-K.

During 2022, we agreed to have a panel of arbitrators establish the royalties to be paid by Samsung Electronics for a worldwide license to certain of the Company’s patents, as well as any other terms to a patent license agreement on which the parties are not able to agree.

The matters are more fully discussed in Note 11, “ Litigation and Legal Proceedings ,” to the Notes to Consolidated Financial Statements included below in Part II, Item 8 of this Form 10-K.

We filed these actions after lengthy periods of negotiation and after the refusal of our counterparties to accept our various proposals to them, including our proposal to have a third party adjudicator set a royalty rate and resolve certain other terms upon which we could not mutually agree.

In 2022, our intellectual property enforcement costs increased to $44.4 million, from $34.3 million and $28.6 million in 2021 and 2020, respectively.

These costs represented 20% of our total patent administration and licensing costs of $175.7 million in 2021.

These costs represented 62% of our total licensing costs of $71.4 million in 2022.

Intellectual property enforcement costs will vary depending upon activity levels, and it is likely they will continue to be a significant expense for us in the future.

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The remaining accounts receivable is primarily related to variable patent royalty revenue.

Over 90% of our revenue comes from fixed price agreements.

90% of our recurring revenue comes from fixed-fee royalties.

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.

As a result, our cash receipts due in 2022 from existing agreements are expected to be lower than revenue to be recognized in 2022 from such agreements as noted in the deferred revenue amortization table below.

The following table reconciles the timing differences between cash receipts and recognized revenue on a quarterly basis for each of the last three years, including the resulting operating cash flow (in thousands):

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(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 comprised of cash receipts related to our variable patent royalty revenue, including the associated past patent royalties, current technology solutions revenue, royalties from static agreements, and patent sales.

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.

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2023 $ 189,059

Thereafter 3,617

Total $ 426,639

Return of Capital

In June 2014, our Board of Directors authorized a $300 million share repurchase program (the “2014 Repurchase Program”).

Subsequently our Board of Directors authorized four $100 million increases to the program, respectively, bringing the total amount of the 2014 Repurchase Program to $700 million.

The Company may repurchase shares under the 2014 Repurchase Program through open market purchases, pre-arranged trading plans or privately negotiated purchases.

In June 2014, our Board of Directors authorized a $300 million share repurchase program (the “Share Repurchase Program”).

Subsequently our Board of Directors authorized five $100 million increases to the program, respectively, and an additional $333 million in December 2022, bringing the total amount of the Share Repurchase Program to $1.1 billion.

Since 2014, we have repurchased $733.0 million of shares at an average price of $52.22, adjusted for dividends.

As of December 31, 2021, there was approximately $41.5 million remaining under the share repurchase authorization.

Since January 2014, we have paid $313.2 million in dividends, bringing our total return of capital over the last eight years to $971.7 million.

The table below sets forth the total number of shares repurchased and the dollar value of shares repurchased under the 2014 Repurchase Program, cash dividends on outstanding common stock declared, and the total capital returned to our shareholders (in thousands):

2014 Repurchase Program Cash Dividends Declared Total Capital Returned to Shareholders

As of December 31, 2022, there was $400.0 million remaining under the share repurchase authorization, of which the Company expects to use up to $200 million pursuant to the modified Dutch auction tender offer commenced by the Company in January 2023.

Since January 2014, we have paid $355.1 million in dividends, bringing our total return of capital over the last nine years to $1.1 billion.

The table below sets forth the total number of shares repurchased and the dollar value of shares repurchased under the Share Repurchase Program, cash dividends on outstanding common stock declared, and the total capital returned to our shareholders (in thousands):

Share Repurchase Program Cash Dividends Declared Total Capital Returned to Shareholders

# of Shares Value Per Share Value

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2015 1,836 96,410 0.80 28,726 125,136

2014 3,554 152,625 0.70 27,153 179,778

Total 12,929 $ 732,981 $ 10.80 $ 355,101 $ 1,088,082

2027 Senior Convertible Notes

On May 27, 2022, we issued the $460.0 million aggregate principal of 2027 Notes.

The net proceeds from the offering were approximately $450.0 million after deducting the initial purchasers' fees and estimated offering expenses.

Additionally, on May 24 and May 25, 2022, in connection with the offering of the 2027 Notes, we entered into the 2027 Call Spread Transactions.

The net proceeds from the issuance of the 2027 Notes, after deducting fees and offering expenses, were used for the following:

(i) $282.5 million was used to repurchase $273.8 million in aggregate principal amount of the 2024 Notes in privately negotiated transactions concurrently with the offering of the 2027 Notes (ii) $74.4 million was used to repurchase shares of common stock at $60.78 per share, the closing price of the stock on May 24, 2022;

and (iii) $36.8 million, in addition to the proceeds from the 2027 Warrant Transactions, was used to fund the cost of the 2027 Call Spread Transactions.

The 2027 Notes will be convertible into cash up to the aggregate principal amount of the notes to be converted and in respect of the remainder, if any, of the Company’s obligation in excess of the aggregate principal amount of the notes being converted, pay or deliver, as the case may be, cash, shares of the Company’s common stock (“Common Stock”) or a combination thereof, at the Company’s election, at an initial conversion rate of 12.9041 shares of Common Stock per $1,000 principal amount of Notes (which is equivalent to an initial conversion price of approximately $77.49 per share).

For more information on this transaction, refer to Note 9, " Obligations " within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

Restructuring Activities

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.

During 2022, we recognized $3.3 million restructuring expenses, including a $2.4 million asset impairment, $0.3 million severance and other benefits, and $0.5 million outside services and other associated costs, which are included within “ Restructuring Activities ” in the consolidated statement of income.

The $2.4 million impairment, comprised of $2.0 million of right-of-use assets and $0.4 million of property and equipment, was due to the abandonment of portions of three of our leased properties resulting from the Company’s evaluation of its current office space footprint and its expected needs going forward.

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 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.

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization categorized the novel coronavirus ("COVID-19") as a pandemic, and it 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 fiscal year 2021.

Fixed-fee royalties accounted for 89% of our revenues in 2021.

We continue to believe that our strategic strengths, including talent, our strong balance sheet, stable revenue base, and the strength of our patent portfolio, allows us to weather a rapidly changing marketplace.

Fixed-fee royalties accounted for 90% of our recurring revenues in 2022.

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 fiscal year 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.

We are currently planning for a return to in-person work as early as March 2022, however we continue to evaluate feasibility of this date based on the evolving environment and regulatory guidance.

All of our locations are available on a limited and voluntary basis.

Despite these 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 on a limited basis, we have conducted the majority of our licensing negotiations, investor presentations and participation in standards organizations and industry events virtually.

Between March 12, 2020, when we began to work almost entirely remotely, and December 31, 2021, we successfully concluded eighteen new patent license agreements that we estimate will result in revenues exceeding $560.0 million over their respective lives.

Our financial position remains strong, we have sufficient access to capital if needed, and we remain committed to our efforts around cost discipline.

Comparability of Financial Results

When comparing our 2022 financial results against the financial results of other periods, the following items should be taken into consideration:

• Our 2021 revenue includes $73.7 million of non-recurring revenue primarily related to the patent license agreements with Xiaomi and a top ten global TV manufacturer signed, as discussed above.

• During 2021, we recognized $27.9 million restructuring expenses including $22.6 million of severance and other benefits, a $13.2 million asset impairment and $1.7 million of associated outside services and other costs, offset by a $9.6 million reimbursement agreement.

• Our 2022 revenue includes $53.9 million of non-recurring revenue primarily related to seven new patent license agreements signed in 2022 and new connected automobile license agreements.

• In 2022, we repurchased approximately $273.8 million in aggregate principal amount of our 2024 Notes, which resulted in the recognition of a $11.2 million loss on the extinguishment of debt, which was included within “ Other (expense) income, net ” in the condensed consolidated statement of income.

For more information on this transaction, refer to Note 9, " Obligations " within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

• In 2022, we incurred $1.5 million of one-time supplemental compensation costs driven by licensing successes achieved during 2022.

• In 2022, we recognized $3.3 million of restructuring expenses including a $2.4 million asset impairment, $0.3 million of severance and other benefits, and $0.5 million of associated outside services and other costs.

These costs resulted from our restructuring activities as described in Note 20, " Restructuring Activities " within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

The patents held for sale are recorded at fair value on December 31, 2021 and are included within " Prepaid and other current assets " in the consolidated balance sheet.

• During 2021, we incurred $10.1 million of one-time share-based compensation costs driven by the impact of licensing success achieved during 2021.

• Interest expense decreased in 2021 by $15.6 million, primarily due to a reduction in non-cash interest expense resulting from the accounting adoption of ASU 2020-06, related to the accounting for convertible debt.

• In 2021, " Other income, net " includes a $1.9 million gain on a contract termination, a $7.6 million gain resulting from observable price changes in orderly transactions of our long-term strategic investments, and a $2.3 million gain on the curtailment of our defined benefit plan.

• In 2022, " Other (expense) income, net " includes a $1.3 million net loss resulting from observable price changes in orderly transactions of our long-term strategic investments.

Critical Accounting Policies and Estimates

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Our significant accounting policies are described in Note 2, " Summary of Significant Accounting Policies and New Accounting Guidance " within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

We believe the accounting policies that are of particular importance to the portrayal of our financial condition and results and that may involve a higher degree of complexity and judgment in their application compared to others are those relating to revenue recognition, compensation, business combinations and goodwill, and income taxes.

If different assumptions were made or different conditions existed, our financial results could have been materially different.

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Contract assets due more than twelve months after the balance sheet date are included within other non-current assets.

For certain patent license agreements or other contractual arrangements, the amount of consideration that we will receive is uncertain.

In such cases, we estimate and recognize licensing revenues only when we have a contract, as defined in the revenue recognition guidance.

Such estimates are only recognized to the extent it is probable that a significant reversal of cumulative revenues recognized will not occur.

We analyze the risk of a significant revenue reversal considering both the likelihood and magnitude of the reversal and, if necessary, constrain the amount of estimated revenues recognized in order to mitigate this risk, which may result in recognizing revenues less than amounts we expect we are most likely to receive.

These aforementioned estimates may require significant judgment.

Patent License Agreements

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We typically receive these royalty reports subsequent to the period in which our licensees’ underlying sales occurred.

As a result, we are required to estimate revenues, subject to the constraint on our ability to estimate such amounts and will record a true-up when we receive the actual royalty report from the licensee.

As a result, we are required to estimate revenues and recognize sales-based royalties on such licensed products in the period in which the associated sales occur, considering all relevant information (historical, current and forecasted) that is reasonably available to us.

Estimating licensees’ quarterly royalties prior to receiving the royalty reports requires us to make assumptions and judgments related to forecasted trends and growth rates used to estimate our licensees’ sales, which could have an impact on the amount of revenue we report on a quarterly basis.

As a result of recognizing revenues in the period in which the licensees’ sales occur using estimates, adjustments to revenues are required in subsequent periods to reflect changes in estimates as new information becomes available, primarily resulting from actual amounts reported by our licensees.

Technology Solutions

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We recognize revenue from royalty payments and license agreements using the same methods described above under our policy for recognizing revenue from patent license agreements.

We recognize revenue from engineering services using percentage of completion method.

Our business strategy of monetizing our intellectual property includes the sale of select patent assets.

As patent sales executed under this strategy represent a component of our ongoing major or central operations and activities, we will record the related proceeds as revenue.

We will recognize the revenue in accordance with the five-step model, generally upon closing of the patent sale transaction.

We recognize revenue from engineering services using the percentage of completion method.

During 2022, we determined patent sales are no longer a part of the company’s on-going central operations and therefore will no longer be accounted for as revenue.

We had no patent sales during 2022 or 2021 and $0.6 million of patent revenues during 2020.

Agreements with Multiple Performance Obligations

During 2021, we signed three new fixed-fee agreements that had multiple performance obligations.

During 2022, we signed four new fixed-fee agreements that had multiple performance obligations.

Consistent with the revenue recognition policies disclosed above, we (1) identified the contract with the customer, (2) identified the performance obligations, (3) determined the transaction price, (4) allocated the transaction price to the performance obligations, and (5) recognized revenue as we satisfy the performance obligations.

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The estimated value of stock options includes assumptions around expected life, stock volatility and dividends.

The expected life of our stock option awards is based on the simplified method as prescribed by Staff Accounting Bulletin Topic 14.

For stock options considered to be “plain vanilla” options, the Company estimates the expected term based on the simplified method as prescribed by Staff Accounting Bulletin Topic 14.

The simplified method was used because the Company does not believe it has sufficient historical exercise data to provide a reasonable basis for the expected term of its grants.

In all periods, our policy has been to set the value of RSUs awards equal to the value of our underlying common stock on the date of measurement.

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The inclusion of windfalls and shortfalls in the tax provision could increase our earnings volatility between periods.

Tax windfalls related to share-based compensation for the years ended 2021, 2020 and 2019 were $0.8 million, $0.2 million and $0.2 million, respectively.

Tax windfalls and shortfalls related to share-based compensation was shortfalls of $0.4 million for the year ended 2022, and windfalls for the years ended 2021 and 2020 of $0.8 million and $0.2 million, respectively.

The below table summarizes our supplemental compensation expense for 2022, 2021 and 2020, in thousands:

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We believe we have the ability to obtain additional liquidity through debt and equity financings.

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 month, and the long-term beyond twelve months.

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.

Cash, cash equivalents, restricted cash and short-term investments

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Total cash, cash equivalents, restricted cash and short-term investments $ 1,211,459 $ 948,569 $ 262,890

The net increase in cash, cash equivalents, restricted cash and short-term investments was attributable to cash provided by operating activities of $130.4 million.

This increase was partially offset by cash used in investing activities, excluding sales and purchases of short-term investments, of $36.9 million and cash used in financing activities of $74.5 million.

Cash used in investing activities, excluding sales and purchases of short-term investments, primarily related to capital investments for patents and fixed assets, and patent acquisitions, was partially offset by net cash receipts from sales of our long-term investments.

Cash used in financing activities primarily related to dividend payments and repurchases of common stock.

The net increase in cash, cash equivalents, restricted cash and short-term investments was attributable to cash provided by operating activities of $286.0 million and cash provided by financing activities of $18.6 million.

These increases were partially offset by cash used in investing activities, excluding sales and purchases of short-term investments of $42.8 million.

Cash used in investing activities primarily related to net purchases of short-term investments, as well as capital investments for patents and fixed assets.

Cash provided by financing activities primarily related net proceeds from the debt refinancing, partially offset by dividend payments and repurchases of common stock.

Refer to the sections below for further discussion of these items.

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Cash flows provided by operating activities $ 286,039 $ 130,392 $ 155,647

Our cash flows 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 $33.1 million change in net cash provided by operating activities was primarily driven by an increase in cash operating expenses primarily due to restructuring activities and revenue share costs, along with other factors further discussed below in the " Results of Operations ".

Additionally, lower cash receipts contributed to the change, and was primarily attributable to the timing of cash receipts related to existing patent license agreements and reduction in cash receipts resulting from a handset manufacturer exiting the handset business, offset by cash receipts from new patent license agreements signed in 2021.

Our cash flows provided by operating activities are principally derived from cash receipts from patent license agreements, offset by cash operating expenses and income tax payments.

The $155.6 million change in net cash provided by operating activities was primarily driven by higher cash receipts, largely attributable to new or renewed patent license agreements, including the Apple patent license agreement discussed above.

Additionally, lower cash operating expenses benefiting from the cost-savings actions taken in 2021 contributed to the increase.

The table below sets forth the significant items comprising our cash flows provided by operating activities during the years ended December 31, 2022 and 2021 (in thousands):

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Cash provided by or used in investing and financing activities

Net cash provided by investing activities in 2021 was $179.6 million, a $489.7 million change from $310.0 million net cash used in investing activities in 2020.

During 2021, we sold $216.6 million of short-term marketable securities, net of purchases, capitalized $35.9 million of patent costs and property plant and equipment purchases, acquired $2.4 million of patents, and received $1.4 million of net cash receipts from our long-term strategic investments.

During 2020, we purchased $272.8 million of short-term marketable securities, net of sales, capitalized $42.4 million of patent costs and property plant and equipment purchases, and received $4.3 million of net cash receipts from the sale of one of our long-term strategic investments.

Net cash used in financing activities for 2021 was $74.5 million, a $58.4 million change from net cash used in financing activities of $132.9 million in 2020.

This change was primarily attributable to a $94.9 million payment on long-term debt related to the repayment of our 2020 Notes in 2020, offset by $29.7 million of additional repurchases of common stock in 2021 compared to 2020.

Our combined short-term and long-term deferred revenue balance at December 31, 2021 was $311.1 million, a decrease of $16.9 million from December 31, 2020.

Net cash used in investing activities in 2022 was $314.7 million, a $494.3 million change from $179.6 million net cash provided by investing activities in 2021.

During 2022, we purchased $272.0 million of short-term marketable securities, net of sales, and capitalized $42.8 million of patent costs and property and equipment purchases.

During 2021, we sold $216.6 million of short-term marketable securities, net of purchases, capitalized $35.9 million of patent costs and property and equipment purchases, acquired $2.4 million of patents, and received $1.4 million of net cash receipts from the sale of one of our long-term strategic investments.

The increase in net purchases of short-term marketable securities was largely driven by higher cash receipts discussed above, as well as more favorable market conditions.

Net cash provided by financing activities for 2022 was $18.6 million, a $93.1 million change from net cash used in financing activities of $74.5 million in 2021.

This change was primarily attributable to net proceeds of $138.9 million from the debt refinancing, partially offset by a $44.4 million increase in share repurchases.

Our combined short-term and long-term deferred revenue balance at December 31, 2022 was $426.6 million, a increase of $115.5 million from December 31, 2021.

Based on current license agreements, we expect the amortization of dynamic fixed-fee royalty payments to reduce the December 31, 2022 deferred revenue balance by $189.1 million over the next twelve months.

Convertible Notes

Our Convertible Notes are included in the dilutive earnings per share calculation using the treasury stock method.

Under the treasury stock method, we must calculate the number of shares of common stock issuable under the terms of the 2024 Notes (as defined herein) 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 2024 Notes, we entered into the 2024 Call Spread Transactions (defined in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K).

The 2024 Call Spread Transactions were designed to have the economic effect of reducing the net number of shares that will be issued in excess of the principal amount of converted Notes in the event of conversion of the 2024 Notes if the market price per share of our common stock is greater than the strike price of the 2024 Note Hedge Transactions by, in effect, increasing the conversion price of the 2024 Notes from our economic standpoint.

However, under GAAP, since the impact of the 2024 Note Hedge Transactions (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 2024 Notes ($81.29 per share as of December 31, 2021) or above the strike price of the warrants ($109.43 per share for the 2024 Warrant Transactions as of December 31, 2021), 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 when the average market price of our common stock is above the conversion price or strike price, as applicable, under the treasury stock method, we calculate the number of shares issuable under the terms of the 2024 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 treasury stock 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 9, " Obligations " within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K, as of December 30, 2021, we made the irrevocable election to settle all conversions of the 2024 Notes through a combination settlement of cash and shares of common stock, with a specified dollar amount of $1,000 per $1,000 principal amount of the 2024 Notes and any remaining amounts in shares ("net share settlement").

Assuming net share settlement upon conversion, the following table illustrates how, based on the $400.0 million aggregate principal amount of the 2024 Notes as of December 31, 2021, and the approximately 4.9 million warrants 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 2024 Notes, (ii) the number of shares issuable upon exercise of the warrants subject to the 2024 Warrant Transactions (the "Warrant Transaction"), (iii) the number of additional shares deemed outstanding with respect to the 2024 Notes, after applying the treasury stock method, for purposes of calculating diluted earnings per share ("Total Treasury Stock Method Incremental Shares"), (iv) the number of shares of 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 Note, exercise of the warrants subject to the Warrant Transactions, and settlement of the Note Hedge Transactions (shares in thousands):

Refer to Note 9, " Obligations " within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for definitions of capitalized terms used 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 settled 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 December 31, 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 December 31, 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 December 31, 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:

Market Price Per Share Shares Issuable Upon Conversion of the 2027 Notes Shares Issuable Upon Exercise of the 2027 Warrant Transactions Total Treasury Stock Method Incremental Shares Shares Deliverable to InterDigital upon Settlement of the 2027 Note Hedge Transactions Incremental Shares Issuable (a)

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$125 2,256 885 3,141 (2,256) 885

Market Price Per Share Shares Issuable Upon Conversion of the 2024 Notes Shares Issuable Upon Exercise of the 2024 Warrant Transactions Total Treasury Stock Method Incremental Shares Shares Deliverable to InterDigital upon Settlement of the 2024 Note Hedge Transactions Incremental Shares Issuable (a)

$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.

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The following table summarizes our contractual obligations as of December 31, 2022 (in thousands):

As discussed above 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 these contractual obligations discussed below in both the short-term over the next twelve month, and the long-term beyond twelve months.

Payments Due by Period

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1 year 1-3 Years 3-5 Years Thereafter

2024 Notes (a)

2024 and 2027 Notes (a)

$ 586,174 $ — $ 126,174 $ 460,000 $ —

Contractual interest payments on the 2024 Notes (a)

Contractual interest payments on the 2024 and 2027 Notes (a)

76,235 18,623 33,462 24,150 —

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Total contractual obligations $ 705,941 $ 35,346 $ 167,868 $ 492,358 $ 10,369

(a) Refer to Note 9, “ Obligations ,” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for details of our 2024 Notes.

(a) Refer to Note 9, “ Obligations ,” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for details of our 2024 Notes and 2027 Notes.

(b) Refer to Note 10, " Commitments ," within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for details of our defined benefit plan obligations.

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The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amounts and timing of cash settlement with the taxing authorities.

As of December 31, 2022, we have recorded long-term debt of $30.7 million related to the Technicolor Patent Acquisition.

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2022 2021 Total Increase/(Decrease)

Variable patent royalty revenue $ 32,234 $ 26,587 $ 5,647 21 %

Fixed-fee royalty revenue 314,585 298,461 16,124 5 %

Current patent royalties a

346,819 325,048 21,771 7 %

Non-current patent royalties b

73,709 21,582 52,127 242 %

Total patent royalties 420,528 346,630 73,898 21 %

Current technology solutions revenue a

4,881 11,761 (6,880) (58) %

Patent sales b

Recurring revenues:

Smartphone $ 351,064 $ 315,098 $ 35,966 11 %

CE, IoT/Auto 51,717 31,721 19,996 63 %

Other 1,107 4,881 (3,774) (77) %

Total recurring revenues 403,888 351,700 52,188 15 %

Non-recurring revenues a

53,906 73,709 (19,803) (27) %

Total revenue $ 425,409 $ 358,991 $ 66,418 19 %

(a) Recurring revenues are comprised of current patent royalties, inclusive of Dynamic Fixed-Fee Agreement royalties, and current technology solutions revenue.

(b) Non-recurring revenues are comprised of non-current patent royalties, which includes past patent royalties and royalties from static agreements, as well as patent sales.

The $66.4 million increase in total revenue was primarily driven by the third quarter 2021 Xiaomi and top ten global TV manufacturer patent license agreements, which primarily drove both a $14.9 million increase in recurring revenue and a $52.1 million increase in non-current patent royalties.

The increase in recurring revenues was also driven by revenue other new patent license agreements, including the Huawei PLA signed in second quarter 2020.

These increases were partially offset by a reduction in recurring revenues due to a handset manufacturer exiting the handset business.

The increase in non-current patent royalties was also primarily related to revenues from a static fixed-fee patent license agreement signed in second quarter 2021, offset by the prior period including past sales recognized from the Huawei patent license agreement signed in second quarter 2020.

The decrease in technology solutions revenue was primarily due to reduced revenue from a strategic partner, whose contract was terminated in the first half of 2021.

In 2021 and 2020, 70% and 68% of our total revenues, respectively, were attributable to companies that individually accounted for 10% or more of our total revenues.

Total revenues $ 457,794 $ 425,409 $ 32,385 8 %

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

Total revenues of $457.8 million, which includes both recurring and non-recurring revenues, increased 8% from $425.4 million in 2021 primarily due to recurring revenue increasing 15% to $403.9 million, compared to $351.7 million in 2021.

The company increased recurring revenue in both its Smartphone (up 11%) and CE, IoT/Auto markets (up 63%) as a result of twenty new agreements signed over the last seven quarters.

Non-recurring revenues decreased $19.8 million primarily attributable to revenues recognized on nine previously disclosed agreements signed in 2021.

Non-recurring revenues in 2022 were primarily attributable to seven of the above disclosed license agreements signed in 2022 and revenues from new connected automobile license agreements.

In each of 2022 and 2021, 70% of our total revenues were attributable to companies that individually accounted for 10% or more of our total revenues.

In 2022 and 2021, the following licensees or customers accounted for 10% or more of our total revenues:

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2022 2021 Increase/(Decrease)

Patent administration and licensing $ 175,741 $ 170,178 $ 5,563 3 %

Development 89,368 84,646 4,722 6 %

Selling, general and administrative 61,217 48,999 12,218 25 %

Research and portfolio development $ 185,202 $ 200,484 $ (15,282) (8) %

Licensing 71,419 64,625 6,794 11 %

General and administrative 47,377 61,217 (13,840) (23) %

Restructuring activities 3,280 27,877 (24,597) (88) %

Total operating expenses $ 307,278 $ 354,203 $ (46,925) (13) %

Operating expenses increased 17% to $354.2 million in 2021 from $303.8 million in 2020.

The $50.4 million increase in total operating expenses was primarily due to increases/(decreases) in the following items (in thousands):

Operating expenses decreased 13% to $307.3 million in 2022 from $354.2 million in 2021.

The $46.9 million decrease in total operating expenses was primarily due to increase/(decrease) in the following items (in thousands):

Increase/(Decrease)

Restructuring activities $ (24,598)

Share-based compensation 18,294

Revenue share 9,442

Personnel-related costs (19,569)

Consulting and outside services (6,986)

Revenue share (6,620)

Intellectual property enforcement and non-patent litigation 10,152

Non-cash charge of patents disposed (7,539)

Corporate initiatives (4,017)

Patent maintenance (2,800)

Depreciation and amortization (2,625)

Other (1,230)

Total increase in operating expenses $ (46,925)

The $50.4 million increase in operating expenses was driven by restructuring activities, share-based compensation, and revenue share costs related to the license agreements signed in 2021.

The share-based compensation increase was driven by the impact of licensing success achieved during 2021 on performance based equity awards, including previously granted awards, a new hire equity award granted to our CEO, and our 2019 grant for which we modified the goal for all participants in first half 2021.

The $9.4 million increase in revenue share costs related to the above-noted patent license agreement with a top ten global TV manufacturer.

In addition, $27.9 million of the increase related to non-recurring restructuring costs incurred as part of our overall restructuring plan, $5.8 million related to an increase in intellectual property enforcement costs, primarily driven by the Xiaomi and Lenovo litigations, and $7.2 million related to increased personnel-related costs primarily driven by new employment agreements.

These increases were primarily offset due a one-time $7.5 million non-cash charge to write-off the remaining book value of patents we disposed of in 2020 as part of our ongoing patent portfolio management and by a $4.0 million decrease due to 2020 efforts to optimize our cost structure in 2020, including the closure of our San Diego office.

Additionally, ongoing efforts to effectively manage our patent portfolio size drove the $2.8 million reduction in patent maintenance costs and the $2.6 million reduction in depreciation and amortization costs.

Patent administration and licensing expense:

The $5.6 million increase in patent administration and licensing expense primarily resulted from the above noted $9.4 million increase in revenue share costs, $5.8 million increase in intellectual property enforcement costs, and share-based compensation costs.

These increases were partially offset by the above noted decrease in depreciation and amortization costs and the $7.5 million one-time non-cash charge to write-off the remaining book value of patents disposed in 2020.

Development expense:

Development expense increased by $4.7 million primarily resulting from the increases in share-based compensation discussed above.

Selling, general and administrative expense:

The $12.2 million increase in selling, general and administrative expense primarily resulted from the above-noted increases in share-based compensation and personnel-related costs, partially offset by the above-noted corporate initiatives, as well as a decrease in outside consulting costs.

The $46.9 million decrease in operating expenses was primarily due to reduction in non-recurring costs, which were driven by a $6.6 million decrease in revenue share costs primarily attributable to a patent license agreement signed in third quarter 2021, and a $24.6 million decrease in restructuring costs associated with cost savings measures taken in 2021.

These measures also helped drive both the $19.6 million decrease in personnel-related costs and the $7.0 million decrease in consulting and outside services.

These decreases were offset by a $10.2 million increase in intellectual property enforcement costs, primarily driven by the Oppo and Lenovo litigations.

Research and portfolio development expense:

Research and portfolio development expense decreased by $15.3 million primarily resulting from the above-noted decreases in personnel-related costs and consulting costs.

Licensing expense:

The $6.8 million increase in licensing expense primarily resulted from the above noted increase in intellectual property enforcement costs.

This increase was partially offset by the above noted decrease in revenue share costs.

General and administrative expense:

The $13.8 million decrease in general and administrative expense was primarily due to the above-noted decreases in personnel-related costs and consulting costs.

Restructuring Activities:

The Company incurred $27.9 million of restructuring expenses associated with the Company's overall restructuring plan, as described in Note 20, " Restructuring Activities " within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for further information.

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 20, " Restructuring Activities " within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

Non-Operating Expense

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Interest and investment income 14,452 1,690 12,762 755 %

Loss on extinguishment of long-term debt (11,190) — (11,190) 100 %

Other (6,719) 9,885 (16,604) (168) %

Total non-operating expense $ (32,953) $ (13,650) $ (19,303) (141) %

The change in non-operating expense between periods was primarily driven by $15.6 million of reduced non-cash interest expense primarily due to the removal of the accretion of the debt discount on the 2024 Notes resulting from the adoption of ASU 2020-06 and a decrease in interest and investment income of $4.0 million in 2021, primarily due to reduced rates of return on our short-term investments.

Other decreased $1.4 million driven primarily by a $3.0 million foreign currency translation loss in 2021, compared to a $4.6 million gain in 2020 arising from euro translation of our foreign subsidiaries.

This decrease was offset by gains recognized in 2021 including a $1.9 million gain on a contract termination and a $2.3 million gain on the curtailment of our defined benefit plan, as discussed further in Note 10, " Commitments ," within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

Additionally, during 2021 and 2020 we recognized $7.6 million and $5.6 million, respectively, of gains resulting from observable price changes of our long-term strategic investments.

All of these items are included in the " Other " caption in the table above.

Interest expense increased $4.3 million due to the interest on the 2027 Notes issued during second quarter 2022.

The $12.8 million increase in interest and investment income was 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 9, " Obligations " within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

The change in Other was primarily due to fair value adjustments of our investments resulting in a $3.7 million net loss in 2022, compared to a $9.1 million net gain in 2021 and due to foreign currency translation losses arising from euro translation of our foreign subsidiaries of $3.9 million in 2022, compared to $3.0 million in 2021.

Additionally, we recognized a $1.9 million gain on a contract termination in 2021.

In 2022, based on the statutory federal tax rate net of discrete federal and state taxes, our effective tax rate is 21.7%.

The effective tax rate was driven by a net expense of $10.8 million that primarily relates to non-deductible officer’s compensation and losses in certain jurisdictions where the Company presently has recorded a valuation allowance against the related tax benefit.

The current year effective tax rate is compared to an effective tax rate benefit of 21.2% in 2020.

The effective tax rate for 2020 was favorably impacted by a net benefit of $19.7 million associated with amendment of prior year tax returns to utilize a tax asset generated during the year, as well as the reversal of a tax reserve.

as compared to an effective tax of 27.0% in 2021.

In both periods, the effective tax rate 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 would have been 19.3% and 16.7% in 2022 and 2021, respectively.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Exchange Act.

Such statements include certain information in “Part I, Item 1.

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• our ability to commercialize our technologies and enter into customer agreements;

• the failure of the markets for our current or new technologies and products to materialize to the extent or at the rate that we expect;

• unexpected delays or difficulties related to the development of our technologies and products;

• 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;

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• our ability to obtain liquidity through debt and equity financings;

• the potential effects that the ongoing COVID-19 pandemic and/or corresponding macroeconomic uncertainty could have on our financial position, results of operations and cash flows;

• the potential effects that macroeconomic uncertainty could have on our financial position, results of operations and cash flows;

• changes in our business strategy;

• changes or inaccuracies in our expectations with respect to royalty payments by our customers;

• risks related to our assumptions and application of relevant accounting standards.

You should carefully consider these factors as well as the risks and uncertainties outlined in greater detail in Part I, Item 1A, of this Form 10-K before making any investment decision with respect to our common stock.

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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-K

Item 7. Management’s Discussion and Analysis