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Item 1. Financial Statements

2024-05-02 compared with 2023-11-02 · 298 added, 389 removed, 335 unchanged (67% of the section changed)

4 unchanged sentences

(in thousands, except per share data)

SEPTEMBER 30, 2023 DECEMBER 31, 2022

2024 DECEMBER 31,

Current assets:

8 unchanged sentences

Other non-current assets, net 156,060 149,656

Total non-current assets 568,792 555,430

Total assets $ 1,807,021 $ 1,770,814

19 unchanged sentences

Accumulated other comprehensive loss ( 1,142 ) ( 647 )

2,166,833 2,208,951

Treasury stock, 44,204 and 43,927 shares of common stock held at cost

( 1,652,568 ) ( 1,623,549 )

Total InterDigital, Inc.

shareholders’ equity 583,430 724,895

Noncontrolling interest 4,352 5,618

Total equity 587,782 730,513

Total shareholders' equity 624,291 581,549

Total liabilities and shareholders' equity $ 1,807,021 $ 1,770,814

4 unchanged sentences

(in thousands, except per share data)

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

2023 2022 2023 2022

For the Three Months Ended March 31,

Revenues $ 263,542 $ 202,373

Operating expenses:

Research and portfolio development 49,375 49,429

1 unchanged sentence

General and administrative 13,840 12,315

Restructuring activities — — — 3,280

Total operating expenses 159,804 83,112

1 unchanged sentence

Interest expense ( 11,922 ) ( 12,087 )

OTHER INCOME (EXPENSE), NET 14,725 912 42,303 ( 15,109 )

Other income, net 9,247 13,191

Income before income taxes 101,063 120,365

8 unchanged sentences

Weighted average number of common shares outstanding — Diluted 28,341 29,372

Cash dividends declared per common share $ 0.40 $ 0.35

The accompanying notes are an integral part of these statements.

3 unchanged sentences

(in thousands)

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

2023 2022 2023 2022

For the Three Months Ended March 31,

Net income $ 81,652 $ 103,520

Unrealized gain (loss) on investments, net of tax

30 ( 292 ) ( 1,230 ) ( 659 )

Unrealized (loss) gain on investments, net of tax

Comprehensive income $ 81,157 $ 104,099

19 unchanged sentences

Net loss attributable to noncontrolling interest — — — — — — — ( 1,739 ) ( 1,739 )

Noncontrolling interest distribution — — — — — — — ( 1,928 ) ( 1,928 )

Noncontrolling interest contributions — — — — — — — 1,500 1,500

Non-controlling interest contributions — — — — — — — 1,750 1,750

Net change in unrealized loss on short-term investments

— — — — 579 — — — 579

Dividends declared ($ 0.35 per share)

2 unchanged sentences

Issuance of common stock, net 132 1 ( 6,709 ) — — — — — ( 6,708 )

Amortization of unearned compensation — — 5,386 — — — — — 5,386

BALANCE, MARCH 31, 2022

71,883 $ 718 $ 715,342 $ 1,448,138 $ ( 881 ) 41,031 $ ( 1,409,611 ) $ 6,960 $ 760,666

Net income attributable to InterDigital, Inc.

— — — 21,069 — — — — 21,069

Net loss attributable to noncontrolling interest — — — — — — — ( 485 ) ( 485 )

Net change in unrealized loss on short-term investments — — — — ( 57 ) — — — ( 57 )

Dividends declared ($ 0.35 per share)

Share-based compensation

— — 7,790 — — — — — 7,790

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

Amortization of unearned compensation — — 3,977 — — — — — 3,977

Repurchase of common stock ( 2,739 ) ( 27 ) — ( 203,354 ) — — — — ( 203,381 )

Net convertible note hedge transactions, net of tax — — ( 54,257 ) — — — — — ( 54,257 )

Net warrant transactions — — 39,863 — — — — — 39,863

BALANCE, JUNE 30, 2022

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

Net income attributable to InterDigital, Inc.

— — — 22,222 — — — — 22,222

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

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

Dividends declared ($ 0.35 per share)

— — 179 ( 10,561 ) — — — — ( 10,382 )

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

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

BALANCE, SEPTEMBER 30, 2022

Balance, March 31, 2023

69,329 $ 693 $ 719,129 $ 1,384,243 $ ( 337 ) 42,255 $ ( 1,484,056 ) $ 5,629 $ 625,301

7 unchanged sentences

Balance, December 31, 2023

Net income attributable to InterDigital, Inc.

69,507 $ 694 $ 742,981 $ 1,462,070 $ ( 647 ) 43,927 $ ( 1,623,549 ) $ — $ 581,549

Net loss attributable to noncontrolling interest — — — — — — — ( 1,739 ) ( 1,739 )

Noncontrolling interest contributions — — — — — — — 1,750 1,750

Net change in unrealized loss on short-term investments — — — — 579 — — — 579

Dividends declared ($ 0.35 per share)

— — 259 ( 9,708 ) — — — — ( 9,449 )

Exercise of common stock options 13 — 687 — — — — — 687

Issuance of common stock, net 132 1 ( 6,709 ) — — — — — ( 6,708 )

Amortization of unearned compensation — — 7,790 — — — — — 7,790

Repurchase of common stock ( 2,739 ) ( 27 ) — ( 203,354 ) — — — — ( 203,381 )

BALANCE, MARCH 31, 2023

69,329 $ 693 $ 719,129 $ 1,384,243 $ ( 337 ) 42,255 $ ( 1,484,056 ) $ 5,629 $ 625,301

Net income attributable to InterDigital, Inc.

— — — 81,652 — — — — 81,652

Net loss attributable to noncontrolling interest — — — — — — — ( 490 ) ( 490 )

Net change in unrealized loss on short-term investments — — — — ( 495 ) — — — ( 495 )

1 unchanged sentence

— — 343 ( 10,490 ) — — — — ( 10,147 )

Exercise of common stock options 1 — 12 — — — — — 12

Issuance of common stock, net 131 2 ( 8,637 ) — — — — — ( 8,635 )

Amortization of unearned compensation — — 8,740 — — — — — 8,740

Repurchase of common stock — — — — — 548 ( 42,489 ) — ( 42,489 )

BALANCE, JUNE 30, 2023

69,372 $ 693 $ 726,852 $ 1,396,393 $ ( 2,176 ) 42,803 $ ( 1,526,545 ) $ 5,139 $ 600,356

Net income attributable to InterDigital, Inc.

— — — 47,941 — — — — 47,941

Net loss attributable to noncontrolling interest — — — — — — — ( 787 ) ( 787 )

Net change in unrealized loss on short-term investments — — — — 30 — — — 30

Dividends declared ($ 0.40 per share)

Share-based compensation

— — 9,386 — — — — — 9,386

Issuance of common stock, net 59 1 ( 2,888 ) — — — — — ( 2,887 )

Amortization of unearned compensation — — 10,335 — — — — — 10,335

Repurchase of common stock — — — — — 277 ( 29,019 ) — ( 29,019 )

BALANCE, SEPTEMBER 30, 2023

Balance, March 31, 2024

69,638 $ 696 $ 744,073 $ 1,533,232 $ ( 1,142 ) 44,204 $ ( 1,652,568 ) $ — $ 624,291

4 unchanged sentences

(in thousands)

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Cash flows from operating activities:

Net income $ 81,652 $ 103,520

Adjustments to reconcile net income to net cash used in operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization 17,240 19,526

Non-cash interest (income) expense, net ( 9,800 ) 3,742

Non-cash change in fair-value ( 9,370 ) ( 1,404 )

Non-cash interest income, net

( 3,661 ) ( 3,434 )

Non-cash change in investments 1,247 ( 158 )

Change in deferred revenue ( 27,542 ) ( 42,766 )

Loss on extinguishment of debt — 11,190

Deferred income taxes 11,789 12,471

Share-based compensation 9,386 7,790

Impairment of assets 2,500 2,427

Other — 2,567

(Increase) in assets:

1 unchanged sentence

Deferred charges and other assets ( 27,577 ) ( 31,091 )

Increase in liabilities:

Increase (decrease) in liabilities:

Accounts payable 3,522 ( 2,807 )

7 unchanged sentences

Long-term investments 1,576 —

Net cash used in investing activities

( 74,298 ) ( 123,199 )

Net cash provided by (used in) investing activities 16,775 ( 14,463 )

Cash flows from financing activities:

Proceeds from issuance of convertible senior notes — 460,000

Purchase of convertible bond hedge — ( 80,500 )

Proceeds from issuance of warrants — 43,700

Payments on long-term debt ( 1,590 ) —

Proceeds from hedge unwind — 11,851

Payment for warrant unwind — ( 3,837 )

Payments of debt issuance costs — ( 100 )

4 unchanged sentences

Dividends paid ( 10,226 ) ( 10,384 )

Net cash (used in) provided by financing activities ( 340,469 ) 29,429

NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Net cash used in financing activities ( 49,319 ) ( 218,136 )

Net increase (decrease) in cash, cash equivalents and restricted cash

18,229 ( 260,451 )

7 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

March 31, 2024

BASIS OF PRESENTATION

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

(individually and/or collectively with its subsidiaries referred to as “InterDigital,” the “Company,” “we,” “us” or “our,” unless otherwise indicated) as of September 30, 2023, the results of our operations for the three and nine months ended September 30, 2023 and 2022 and our cash flows for the nine months ended September 30, 2023 and 2022.

(individually and/or collectively with its subsidiaries referred to as “InterDigital,” the “Company,” “we,” “us” or “our,” unless otherwise indicated) as of March 31, 2024, the results of our operations for the three months ended March 31, 2024 and 2023 and our cash flows for the three months ended March 31, 2024 and 2023.

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

10 unchanged sentences

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

During 2022, the Company made reclassifications between the operating expenses lines on the consolidated income statement in order to more clearly reflect the Company’s investments to create and protect the value of our innovations.

The Company grouped research and portfolio related costs within the line " Research and portfolio development ", previously referred to as " Development ", which resulted in reclassifying certain portfolio related costs out of the " Licensing " line, previously referred to as " Patent administration and licensing ", and into " Research and portfolio development.

" The impact of this reclassification was $ 28.3 million and $ 83.0 million for the three and nine months ended September 30, 2022, respectively.

Additionally, the previous " Selling, general, and administrative " line is now referred to as " General and administrative ".

Supplemental Cash Flow Information

The following table presents additional supplemental cash flow information for the nine months ended September 30, 2023 and 2022 (in thousands):

Nine months ended September 30,

The following table presents additional supplemental cash flow information for the three months ended March 31, 2024 and 2023 (in thousands):

For the Three Months Ended March 31,

Supplemental cash flow information:

Interest paid $ 9,312 $ 3,938

Income taxes paid, including foreign withholding taxes $ 9,335 $ 4,942

1 unchanged sentence

Dividend payable 10,155 9,449

Accrued debt issuance costs — 390

Right-of-use assets obtained in exchange of operating lease liabilities 2,189 —

Non-cash acquisition of patents — 30,100

Non-cash distribution of patents — 1,928

Accrued capitalized patent costs and property and equipment purchases ( 1,358 ) ( 1,274 )

Unsettled repurchase of common stock 1,853 —

New Accounting Guidance

No new accounting pronouncement issued or effective during the nine months ended September 30, 2023 has or is expected to have a material impact on our condensed consolidated interim financial statements.

Accounting Standards Update:

Improvements to Reportable Segment Disclosure s

In November 2023, the FASB issued ASU No.

2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures”.

The amendments in the ASU require disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption allowed.

We are currently evaluating the impact of adoption on our financial disclosures.

Accounting Standards Update:

Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU No.

2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures”.

The amendments in the ASU enhance income tax disclosures, primarily through standardization, disaggregation of rate reconciliation categories, and income taxes paid by jurisdiction.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption allowed.

We are currently evaluating the impact of adoption on our financial disclosures.

Disaggregated Revenue

The following table presents the disaggregation of our revenue for the three and nine months ended September 30, 2023 and 2022 (in thousands):

Three months ended September 30,

2023 2022 Total Increase/(Decrease)

Recurring revenues:

Smartphone $ 88,376 $ 87,141 $ 1,235 1 %

CE, IoT/Auto 15,659 13,905 1,754 13 %

Other 441 — 441 100 %

Total recurring revenues 104,476 101,046 3,430 3 %

Catch-up revenues a

35,630 13,718 21,912 160 %

Total revenues $ 140,106 $ 114,764 $ 25,342 22 %

Nine months ended September 30,

The following table presents the disaggregation of our revenue for the three months ended March 31, 2024 and 2023 (in thousands):

For the Three Months Ended March 31,

2024 2023 Total Increase/(Decrease)

7 unchanged sentences

Total revenues $ 263,542 $ 202,373 $ 61,169 30 %

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

During the nine months ended September 30, 2023, we recognized $ 145.7 million of revenue that had been included in deferred revenue as of the beginning of the period.

As of September 30, 2023, we had contract assets of $ 46.1 million and $ 43.7 million included within " Accounts receivable " and " Other non-current assets, net " in the condensed consolidated balance sheet, respectively.

As of December 31, 2022, we had contract assets of $ 32.9 million and $ 2.5 million included within " Accounts receivable " and " Other non-current assets, net " in the condensed consolidated balance sheet, respectively.

(a) Catch-up revenues are comprised of past patent royalties and revenues from static fixed-fee agreements.

During the three months ended March 31, 2024, we recognized $ 49.9 million of revenue that had been included in deferred revenue as of the beginning of the period.

As of March 31, 2024, we had contract assets of $ 120.4 million included within " Accounts receivable " in the condensed consolidated balance sheet.

As of December 31, 2023, we had contract assets of $ 94.6 million included within " Accounts receivable " in the condensed consolidated balance sheet.

Contracted Revenue

Based on contracts signed and committed as of September 30, 2023, we expect to recognize the following revenue from dynamic fixed-fee royalty payments over the term of such contracts (in thousands):

Based on contracts signed and committed as of March 31, 2024, we expect to recognize the following revenue from dynamic fixed-fee royalty payments over the term of such contracts (in thousands):

Remainder of 2024 $ 252,057

2028 and Thereafter 472,696

Thereafter 265,882

Total Revenue $ 1,515,694

(a) This table includes estimated revenue related to our Samsung arbitration and Lenovo UK proceedings.

(a) This table includes estimated revenue related to our Samsung arbitration.

In accordance with ASC 606, these estimates are limited to the amount of revenue we expect to recognize only to the extent it is probable that a subsequent change in the estimate would not result in a significant revenue reversal.

In the nine months ended September 30, 2023 and 2022, the Company had an estimated annual effective tax rate of 14.7 % and 22.4 %, respectively.

The change in effective tax rate is due to an increase in the amount of Foreign Derived Intangible Income deduction benefit available to the Company due to higher taxable income inclusive of timing differences between the recognition of book and tax revenue.

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

Excluding this valuation allowance, our effective tax rate for the nine months ended September 30, 2023 and 2022 would have been 13.4 % and 18.1 %, respectively.

During the nine months ended September 30, 2023, the Company recorded a discrete net benefit of $ 2.9 million primarily related to share-based compensation and foreign royalty withholding tax that was previously non-creditable.

The prior period included a net discrete tax expense of $ 2.3 million primarily related to the extinguishment of long-term debt recognized during second quarter of 2022.

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

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

During the nine months ended September 30, 2023 and 2022, the Company paid approximately $ 8.4 million and $ 3.7 million, respectively, in foreign source creditable withholding tax.

NET INCOME PER SHARE

Basic Earnings Per Share ("EPS") is calculated by dividing net income or loss available to common shareholders by the weighted-average number of common shares outstanding for the period.

Diluted EPS reflects the potential dilution that could occur if options or other securities with features that could result in the issuance of common stock were exercised or converted to common stock or resulting from unvested outstanding restricted stock units ("RSUs").

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

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

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

Cash, Cash Equivalents and Restricted Cash

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

The following table provides a reconciliation of total cash, cash equivalents and restricted cash as of March 31, 2024, December 31, 2023 and March 31, 2023 to the captions within the condensed consolidated balance sheets and condensed consolidated statements of cash flows (in thousands):

March 31, December 31, March 31,

2024 2023 2023

Net income applicable to InterDigital, Inc.

Cash and cash equivalents $ 440,242 $ 437,076 $ 430,625

Restricted cash included within prepaid and other current assets 20,948 5,885 12,085

Total cash, cash equivalents and restricted cash $ 461,190 $ 442,961 $ 442,710

Concentration of Credit Risk and Fair Value of Financial Instruments

Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash equivalents, short-term investments, and accounts receivable.

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

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

Four licensees comprised 85 % and 84 % of our accounts receivable balance, as of March 31, 2024 and December 31, 2023, respectively.

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

We believe that the book values of our financial instruments approximate their fair values.

Fair Value Measurements

We use various valuation techniques and assumptions when measuring the fair value of our assets and liabilities.

We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique.

This guidance established a hierarchy that prioritizes fair value measurements based on the types of input used for the various valuation techniques (market approach, income approach and cost approach).

The levels of the hierarchy are described below:

Level 1 Inputs — Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets.

Level 2 Inputs — Level 2 includes financial instruments for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets with insufficient volume or infrequent transactions (less active markets) or model-driven valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data, including market interest rate curves, referenced credit spreads and pre-payment rates.

Level 3 Inputs — Level 3 includes financial instruments for which fair value is derived from valuation techniques including pricing models and discounted cash flow models in which one or more significant inputs are unobservable, including the Company’s own assumptions.

The pricing models incorporate transaction details such as contractual terms, maturity and, in certain instances, timing and amount of future cash flows, as well as assumptions related to liquidity and credit valuation adjustments of marketplace participants.

Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy.

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

Recurring Fair Value Measurements

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

Our financial assets and liabilities that are accounted for at fair value on a recurring basis are presented in the tables below as of March 31, 2024 and December 31, 2023 (in thousands):

Fair Value as of March 31, 2024

Level 1 Level 2 Level 3 Total

Money market and demand accounts (a)

$ 435,695 $ — $ — $ 435,695

Weighted-average shares outstanding:

Basic 26,285 29,659 27,259 30,255

Dilutive effect of stock options, RSUs, convertible securities and warrants 1,527 281 1,002 383

Diluted 27,812 29,940 28,261 30,638

Earnings per share:

Basic $ 1.82 $ 0.75 $ 6.42 $ 2.03

Dilutive effect of stock options, RSUs, convertible securities and warrants ( 0.10 ) ( 0.01 ) ( 0.23 ) ( 0.03 )

Diluted $ 1.72 $ 0.74 $ 6.19 $ 2.00

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

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

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

Commercial paper (b)

— 136,406 — 136,406

Restricted stock units and stock options 1 537 142 493

Warrants 7,488 7,488 7,488 6,096

government securities (c)

— 251,166 — 251,166

Corporate bonds, asset backed and other securities (d)

— 182,316 — 182,316

Total $ 435,695 $ 569,888 $ — $ 1,005,583

Convertible Notes and Warrants

Refer to Note 7, " Obligations ," for information about the Company's convertible notes and warrants and related conversion and strike prices.

During periods in which the average market price of the Company's common stock is above the applicable conversion price of the Company's convertible notes, or above the strike price of the Company's outstanding warrants, the impact of conversion or exercise, as applicable, would be dilutive and such dilutive effect is reflected in diluted EPS.

As a result, in periods where the average market price of the Company's common stock is above the conversion price or strike price, as applicable, under the if-converted method, the Company calculates 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 includes that number in the total diluted shares outstanding for the period.

Fair Value as of December 31, 2023

Level 1 Level 2 Level 3 Total

Money market and demand accounts (a)

$ 430,707 $ — $ — $ 430,707

Commercial paper (b)

— 174,991 — 174,991

government securities (c)

— 256,850 — 256,850

Corporate bonds, asset backed and other securities (d)

— 149,693 — 149,693

Total $ 430,707 $ 581,534 $ — $ 1,012,241

______________________________

(a) Primarily included within cash and cash equivalents.

(b) As of March 31, 2024 and December 31, 2023, $ 5.8 million and $ 5.7 million of commercial paper was included within cash and cash equivalents, respectively.

government securities was included within cash and cash equivalents, respectively.

(d) As of March 31, 2024 and December 31, 2023, $ 7.9 million and $ 6.5 million of corporate bonds, asset backed and other securities was included within cash and cash equivalents, respectively.

Non-Recurring Fair Value Measurements

During first quarter 2023, we incurred a one-time impairment of $ 2.5 million on our patents held for sale.

We determined the fair value based upon evaluation of market conditions.

Fair Value of Long-Term Debt

Convertible Notes

The principal amount, carrying value and related estimated fair value of the Company's Convertible Notes reported as of March 31, 2024 and December 31, 2023 was as follows (in thousands).

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

March 31, 2024 December 31, 2023

Amount Carrying

Value Principal

Amount Carrying

2027 Senior Convertible Long-Term Debt $ 460,000 $ 453,295 $ 658,030 $ 460,000 $ 452,830 $ 677,230

2024 Senior Convertible Long-Term Debt $ 126,174 $ 126,074 $ 165,364 $ 126,174 $ 125,922 $ 171,130

Technicolor Patent Acquisition Long-term Debt

The carrying value and related estimated fair value of the Technicolor Patent Acquisition long-term debt reported as of March 31, 2024 and December 31, 2023 was as follows (in thousands).

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

March 31, 2024 December 31, 2023

Value Carrying

Technicolor Patent Acquisition Long-Term Debt $ 28,029 $ 28,300 $ 29,019 $ 28,859

OTHER ASSETS AND LIABILITIES

The amounts included in " Prepaid and other current assets " in the condensed consolidated balance sheet as of March 31, 2024 and December 31, 2023 were as follows (in thousands):

March 31, 2024 December 31, 2023

Prepaid assets $ 32,792 $ 9,353

Tax receivables 21,959 19,835

Restricted cash 20,948 5,885

Other current assets 9,473 8,903

Total Prepaid and other current assets $ 85,172 $ 43,976

The amounts included in " Other non-current assets, net " in the condensed consolidated balance sheet as of March 31, 2024 and December 31, 2023 were as follows (in thousands):

March 31, 2024 December 31, 2023

Tax receivables $ 79,251 $ 76,740

Long-term investments 33,481 31,895

Goodwill 22,421 22,421

Right-of-use assets 17,328 15,746

Other non-current assets 3,579 2,854

Total Other non-current assets, net $ 156,060 $ 149,656

The amounts included in " Other accrued expenses " in the condensed consolidated balance sheet as of March 31, 2024 and December 31, 2023 were as follows (in thousands):

March 31, 2024 December 31, 2023

Customer deposit $ 76,100 $ 76,100

Accrued legal fees 16,541 10,338

Other accrued expenses 29,525 11,604

Total Other accrued expenses $ 122,166 $ 98,042

The amounts included in " Other long-term liabilities " in the condensed consolidated balance sheet as of March 31, 2024 and December 31, 2023 were as follows (in thousands):

March 31, 2024 December 31, 2023

Deferred compensation liabilities $ 18,967 $ 18,413

Operating lease liabilities 18,547 17,385

Other long-term liabilities 19,413 19,454

Total Other long-term liabilities $ 56,927 $ 55,252

2027 Notes, and Related Note Hedge and Warrant Transactions

On May 27, 2022, we issued $ 460.0 million in aggregate principal amount of 3.50 % Senior Convertible Notes due 2027 (the "2027 Notes").

The net proceeds from the issuance of the 2027 Notes, after deducting the initial purchasers' transaction fees and offering expenses, were approximately $ 450.0 million.

The 2027 Notes bear interest at a rate of 3.50 % per year, payable in cash on June 1 and December 1 of each year, commencing on December 1, 2022, and mature on June 1, 2027, unless earlier redeemed, converted or repurchased.

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 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).

From the period January 1, 2024 through June 30, 2024, the holders of the 2027 Notes have the right, but not the obligation, to convert any portion of the principal amount of the 2027 Notes.

As such, the 2027 are included in " Current portion of long-term debt " in our condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023.

The 2027 Notes are the Company’s senior unsecured obligations and rank equally in right of payment with any of the Company’s current and any future senior unsecured indebtedness, including its 2.00 % Senior Convertible Notes due 2024 (the “2024 Notes” and together with the 2027 Notes, the "Convertible Notes").

The 2027 Notes are effectively subordinated to all of the Company’s future secured indebtedness, if any, to the extent of the value of the related collateral, and the 2027 Notes are structurally subordinated to indebtedness and other liabilities, including trade payables, of the Company’s subsidiaries.

On May 24 and May 25, 2022, in connection with the offering of the 2027 Notes, we entered into convertible note hedge transactions that cover, subject to customary anti-dilution adjustments, approximately 5.9 million shares of common stock, in the aggregate, at a strike price that initially corresponds to the initial conversion price of the 2027 Notes, subject to adjustment, and are exercisable upon any conversion of the 2027 Notes.

Also on May 24 and May 25, 2022, we entered into privately negotiated warrant transactions, whereby we sold warrants to acquire, subject to customary anti-dilution adjustments, approximately 5.9 million shares of common stock.

As of March 31, 2024, the warrants under the 2027 Warrant Transactions had a weighted average strike price of $ 106.31 per share, subject to adjustment.

2024 Notes, and Related Note Hedge and Warrant Transactions

On June 3, 2019, we issued $ 400.0 million in aggregate principal amount of 2024 Notes.

The net proceeds from the issuance of the 2024 Notes, after deducting the initial purchasers' transaction fees and offering expenses, were approximately $ 391.6 million.

The 2024 Notes bear interest at a rate of 2.00 % per year, payable in cash on June 1 and December 1 of each year, commencing on December 1, 2019, and mature on June 1, 2024, unless earlier redeemed, converted or repurchased.

Commencing on March 1, 2024, the 2024 Notes became convertible at any time prior to 5:00 p.m., New York City time, on the second scheduled trading day immediately preceding the maturity date of the 2024 Notes.

The 2024 Notes are convertible into cash and shares of our common stock, with a specified dollar amount of $1,000 per $1,000 principal amount of 2024 Notes and any remaining amounts in shares of our common stock, at an initial conversion rate of 12.3018 shares of our common stock per $1,000 principal amount of 2024 Notes (which is equivalent to an initial conversion price of approximately $ 81.29 per share).

The 2024 Notes are senior unsecured obligations of the Company and rank equally in right of payment with any of our current and any future senior unsecured indebtedness.

The 2024 Notes are effectively subordinated to all of our future secured indebtedness, if any, to the extent of the value of the related collateral, and the 2024 Notes are structurally subordinated to indebtedness and other liabilities, including trade payables, of our subsidiaries.

On May 29 and May 31, 2019, in connection with the offering of the 2024 Notes, we entered into convertible note hedge transactions (collectively, the "2024 Note Hedge Transactions") that cover, subject to customary anti-dilution adjustments, approximately 4.9 million shares of common stock, in the aggregate, at a strike price that initially corresponds to the initial conversion price of the 2024 Notes, subject to adjustment, and are exercisable upon any conversion of the 2024 Notes.

On May 29 and May 31, 2019, we also entered into privately negotiated warrant transactions (collectively, the "2024 Warrant Transactions" and, together with the 2024 Note Hedge Transactions, the "2024 Call Spread Transactions"), whereby we sold warrants to acquire, subject to customary anti-dilution adjustments, approximately 4.9 million shares of common stock at an initial strike price of approximately $ 109.43 per share, subject to adjustment.

During second quarter 2022, we repurchased $ 273.8 million in aggregate principal amount of the 2024 Notes in privately negotiated transactions concurrently with the offering of the 2027 Notes.

As a result of the partial repurchase of the 2024 Notes, $ 126.2 million in aggregate principal amount of the 2024 Notes remained outstanding as of March 31, 2024.

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

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

As a result of the partial unwind transactions, approximately 1.6 million shares of common stock in the aggregate were covered under each of the 2024 Note Hedge Transactions and the 2024 Warrant Transactions as of March 31, 2024.

As of March 31, 2024, the warrants under the 2024 Warrant Transactions had a strike price of approximately $ 109.43 per share, as adjusted.

The following table reflects the carrying value of our Convertible Notes long-term debt as of March 31, 2024 and December 31, 2023 (in thousands):

March 31, 2024 December 31, 2023

3.50 % Senior Convertible Notes due 2027

$ 460,000 $ 460,000

2.00 % Senior Convertible Notes due 2024

126,174 126,174

Deferred financing costs ( 6,805 ) ( 7,422 )

Net carrying amount of the Convertible Notes 579,369 578,752

Current portion of long-term debt ( 579,369 ) ( 578,752 )

Long-term net carrying amount of the Convertible Notes $ — $ —

The following table presents the amount of interest cost recognized, which is included within " Interest expense" in our condensed consolidated statements of income, for the three months ended March 31, 2024 and 2023 relating to the contractual interest coupon and the amortization of deferred financing costs of the Convertible Notes (in thousands):

For the Three Months Ended March 31,

2027 Notes 2024 Notes Total 2027 Notes 2024 Notes Total

Contractual coupon interest $ 4,025 $ 631 $ 4,656 $ 4,025 $ 631 $ 4,656

Amortization of deferred financing costs 465 151 616 431 142 573

Total $ 4,490 $ 782 $ 5,272 $ 4,456 $ 773 $ 5,229

Technicolor Patent Acquisition Long-Term Debt

On July 30, 2018, we completed our acquisition of the patent licensing business of Technicolor SA ("Technicolor"), a worldwide technology leader in the media and entertainment sector (the "Technicolor Patent Acquisition").

In conjunction with the Technicolor Patent Acquisition, we assumed Technicolor’s rights and obligations under a joint licensing program with Sony relating to digital televisions and standalone computer display monitors, which commenced in 2015 and is referred to as the "Madison Arrangement." An affiliate of CPPIB Credit Investments Inc.

("CPPIB Credit"), a wholly owned subsidiary of Canada Pension Plan Investment Board, is a third-party investor in the Madison Arrangement.

CPPIB Credit has made certain payments to Technicolor and Sony and has agreed to contribute cash to fund certain capital reserve obligations under the arrangement in exchange for a percentage of future revenues, specifically through September 11, 2030 in regard to the Technicolor patents.

Upon our assumption of Technicolor’s rights and obligations under the Madison Arrangement, our relationship with CPPIB Credit meets the criteria in ASC 470-10-25 - Sales of Future Revenues or Various Other Measures of Income ("ASC 470"), which relates to cash received from an investor in exchange for a specified percentage or amount of revenue or other measure of income of a particular product line, business segment, trademark, patent, or contractual right for a defined period.

Under this guidance, we recognized the fair value of our contingent obligation to CPPIB Credit, as of the acquisition date, as long-term debt in our condensed consolidated balance sheet.

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

The fair value of the long-term debt as of March 31, 2024 and December 31, 2023 is disclosed within Note 3, " Cash, Concentration of Credit Risk and Fair Value of Financial Instruments.

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

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

At each reporting period, we will review the discounted expected future cash flows over the life of the obligation.

The Company made an accounting policy election to utilize the catch-up method when there is a change in the estimated future cash flows, whereby we will adjust the carrying amount of the debt to the present value of the revised estimated future cash flows, discounted at the original effective interest rate, with a corresponding adjustment recognized as interest expense within “ Interest Expense ” in the condensed consolidated statements of income.

The effective interest rate as of the acquisition date was approximately 14.5 %.

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

During the three months ended March 31, 2024 and 2023, we recognized $ 0.6 million and $ 0.3 million of interest expense related to this debt.

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

Any future payments made to CPPIB Credit, or additional proceeds received from CPPIB Credit, will decrease or increase the long-term debt balance accordingly.

We made a $ 1.6 million payment to CPPIB Credit during the three months ended March 31, 2024.

Technicolor Contingent Consideration

As part of the Technicolor Patent Acquisition, we entered into a revenue-sharing arrangement with Technicolor that created a contingent consideration liability.

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

As of March 31, 2024, the contingent consideration liability from the revenue-sharing arrangement was deemed not probable and is therefore not reflected within the consolidated financial statements.

LITIGATION AND LEGAL PROCEEDINGS

15 unchanged sentences

On March 7, 2023, the UK High Court issued an order staying all deadlines with respect to the fourth and fifth technical trials.

On March 16, 2023, the UK High Court issued its order regarding judgement in the trial to determine how much Lenovo must pay for a license to the Company’s portfolio of cellular assets, awarding the Company a lump sum of $ 138.7 million for such license through December 31, 2023.

A form of order hearing took place in May 2023 regarding the license terms, interest, costs, and permission to appeal.

On March 16, 2023, the UK High Court issued its order regarding judgment in the trial to determine how much Lenovo must pay for a license to the Company’s portfolio of cellular assets, awarding the Company a lump sum of $ 138.7 million for such license through December 31, 2023.

On June 27, 2023, the court issued an order awarding the Company an additional $ 46.2 million, thus increasing the total award to $ 184.9 million, which was paid on July 11, 2023.

8 unchanged sentences

Lenovo sought, among other relief, a declaration that the patents at issue are invalid, not essential, and not infringed, revocation of the patents at issue, and a declaration that, upon expiration of the current license in 2023, Lenovo is licensed under terms to be determined by the UK High Court through 2028 or, in the alternative, a determination of the terms of a FRAND license.

On October 19, 2023, Lenovo filed a request for an order that the Company indicate whether it is prepared to give an unconditional undertaking to enter into a global license on terms set by the UK Court, or failing that, a declaration that the Defendants are unwilling licensors;

a hearing was held on December 12, 2023 where Lenovo agreed to stay its application.

On November 22, 2023, the Company filed a jurisdiction challenge.

A hearing on the jurisdiction challenge took place on April 24-25, 2024, and on April 25, 2024 the jurisdiction challenge was denied.

On November 28, 2023, Lenovo filed an application seeking an expedited FRAND trial and an interim license until a FRAND decision is issued in the UK.

A hearing on the interim license was held on February 26-27, 2024;

on March 21, 2024 the UK High Court denied Lenovo’s request for the interim license.

A hearing on Lenovo’s request for an expedited FRAND trial will be scheduled now that the interim license and jurisdiction challenge issues are resolved.

District of Delaware Patent Proceedings

35 unchanged sentences

On October 5, 2023, the International Trade Commission instituted the requested investigation.

The hearing has been scheduled for May 8-14, 2024.

The Initial Determination is expected to be issued by October 11, 2024, and the Final Determination is expected to be issued by February 11, 2025.

The hearing is scheduled for August 14-20, 2024.

The Initial Determination is expected to be issued by January 13, 2025, and the Final Determination is expected to be issued by May 13, 2025 .

On September 1, 2023, the Company and certain of its subsidiaries filed a complaint in the United States District Court for the Eastern District of North Carolina (the "North Carolina District Court") against Lenovo Group Ltd.

8 unchanged sentences

Lenovo filed its answer and counterclaims and motion to dismiss a portion of the complaint on October 10, 2023, which remains pending.

On October 31, 2023, the Company filed its answer to Lenovo’s counterclaims, an amended complaint, as well as a motion to dismiss certain of Lenovo’s counterclaims, which was denied on March 25, 2024.

On February 23, 2024, Lenovo filed a Motion for Judgment on the Pleadings, alleging three of the asserted patents are invalid;

that motion is pending.

China Proceedings

5 unchanged sentences

On November 9, 2022, the Company filed a petition to stay the case.

On June 12, 2023, the Beijing IP Court decided not to dismiss or stay the case at this time.

On June 12, 2023, the Beijing IP Court decided not to dismiss or stay the case.

On December 5, 2023, Lenovo filed a request to withdraw the proceedings, and on December 29, 2023, the Beijing IP Court granted Lenovo’s request.

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

2 unchanged sentences

The Company filed an appeal before the SPC on September 4, 2023.

On December 19, 2023, Lenovo filed a request to withdraw the proceedings, and on January 15, 2024, the Beijing IP Court granted Lenovo’s request.

Germany Proceedings

9 unchanged sentences

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

A hearing regarding European Patent No.

2,127,420 was held on April 18, 2024;

judgment is expected on or around May 2, 2024.

Oppo, OnePlus and realme

8 unchanged sentences

2,485,558 is valid and essential based on the result of Technical Trial A in the Lenovo UK proceedings .

The FRAND trial to determine the royalties to be paid under the license with Oppo is scheduled to commence on February 26, 2024.

The FRAND trial to determine the royalties to be paid under the license with Oppo was held from March 1 - April 16, 2024;

judgment is pending.

India Proceedings

2 unchanged sentences

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

On February 21, 2024, the Delhi High Court granted the Company ’s application for pro tem security.

Oppo appealed the judgment on March 13, 2024, and the appeal is pending.

Germany Proceedings

2 unchanged sentences

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

The Munich Regional Court held a hearing on December 14, 2022 regarding European Patent No.

2,421,318, with a second hearing scheduled for December 6, 2023.

The Munich Regional Court held a hearing on March 2, 2023 regarding European Patent No.

2,127,420, with a second hearing scheduled for November 23, 2023.

2,127,420, and a second hearing was held on November 23, 2023.

On December 21, 2023, the Munich Regional Court issued a decision finding infringement and issuing an injunction against Oppo.

Oppo filed an appeal of this decision on January 22, 2024, which is pending.

On March 10, 2023, the Munich Regional Court entered a stay of the proceedings regarding European Patent No.

On November 30, 2023, the Munich Regional Court entered a stay of proceedings regarding European Patent No.

China Proceedings

10 unchanged sentences

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

Oppo filed its reply, invalidity counterclaims, and defenses on July 31.

The Company filed its response to Oppo’s counterclaims on December 20, 2023.

The Company reached an agreement with Samsung Electronics Co.

4 unchanged sentences

The hearing has been scheduled for Summer of 2024 with an expected resolution in late 2024.

On December 5, 2023, Tesla and certain of its subsidiaries filed a claim in the UK High Court against the Company and Avanci.

The claim alleges invalidity of three of the Company’s patents relating to 5G standards:

European Patent (UK) Nos.

3,718,369, 3,566,413, and 3,455,985.

Tesla sought, among other relief , a declaration that the patents at issue are invalid, not essential, and not infringed, revocation of the patents at issue, a declaration that the terms of the Avanci 5G Connected Vehicle platform license are not FRAND, and a determination of FRAND terms for a license between Tesla and Avanci covering its Avanci’s 5G Connected Vehicle platform .

On March 8, 2024, the Company filed a jurisdiction challenge;

a hearing on the jurisdiction challenge is scheduled to begin on May 20, 2024.

We are party to certain other disputes and legal actions in the ordinary course of business, including arbitrations and legal proceedings with licensees regarding the terms of their agreements and the negotiation thereof.

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

None of the preceding matters have met the requirements for accrual or disclosure of a potential range as of September 30, 2023, except as noted above.

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

Cash, Cash Equivalents and Restricted Cash

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

The following table provides a reconciliation of total cash, cash equivalents and restricted cash as of September 30, 2023, December 31, 2022 and September 30, 2022 to the captions within the condensed consolidated balance sheets and condensed consolidated statements of cash flows (in thousands):

September 30, 2023 December 31, 2022 September 30, 2022

Cash and cash equivalents $ 518,483 $ 693,479 $ 539,651

Restricted cash included within prepaid and other current assets 7,229 9,682 8,253

Restricted cash included within other non-current assets — — 1,081

Total cash, cash equivalents and restricted cash $ 525,712 $ 703,161 $ 548,985

Concentration of Credit Risk and Fair Value of Financial Instruments

Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash equivalents, short-term investments, and accounts receivable.

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

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

Four licensees comprised 71 % and 76 % of our net accounts receivable balance as of September 30, 2023 and December 31, 2022, respectively.

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

We believe that the book values of our financial instruments approximate their fair values.

Fair Value Measurements

We use various valuation techniques and assumptions when measuring the fair value of our assets and liabilities.

The levels of the hierarchy are described below:

Level 1 Inputs — Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets.

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

Recurring Fair Value Measurements

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

Our financial assets and liabilities that are accounted for at fair value on a recurring basis are presented in the tables below as of September 30, 2023 and December 31, 2022 (in thousands):

Fair Value as of September 30, 2023

Level 1 Level 2 Level 3 Total

Money market and demand accounts (a)

$ 515,488 $ — $ — $ 515,488

Commercial paper (b)

— 203,241 — 203,241

government securities (c)

— 214,181 — 214,181

Corporate bonds, asset backed and other securities (d)

— 156,385 — 156,385

Total $ 515,488 $ 573,807 $ — $ 1,089,295

Fair Value as of December 31, 2022

Level 1 Level 2 Level 3 Total

Money market and demand accounts (a)

$ 643,825 $ — $ — $ 643,825

Commercial paper (b)

— 209,956 — 209,956

government securities (c)

— 243,840 — 243,840

Corporate bonds, asset backed and other securities (d)

— 113,838 — 113,838

Total $ 643,825 $ 567,634 $ — $ 1,211,459

______________________________

(a) Primarily included within cash and cash equivalents.

(b) As of September 30, 2023 and December 31, 2022, $ 0.0 million and $ 26.7 million of commercial paper was included within cash and cash equivalents, respectively.

government securities was included within cash and cash equivalents, respectively.

(d) As of September 30, 2023 and December 31, 2022, $ 8.4 million and $ 16.9 million of corporate bonds, asset backed and other securities was included within cash and cash equivalents, respectively.

Non-Recurring Fair Value Measurements

During first quarter 2023, we incurred a one-time impairment of $ 2.5 million on our patents held for sale.

We determined the fair value based upon evaluation of market conditions.

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

A portion of the consideration for the agreement was in the form of patents, which we received in March 2022.

We have determined the fair value of the patents for determining the transaction price for revenue recognition purposes, which was estimated to be $ 30.1 million utilizing the income and market approaches.

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

Investment in Other Entities

During third quarter 2023, we recognized a $ 6.1 million gain resulting from observable price changes of our long-term strategic investments, which was included within “ Other income (expense), net ” in the condensed consolidated statement of income.

During second quarter 2023, we recognized a $ 3.1 million gain resulting from fair value changes of one of our long-term strategic investments, which was included within “ Other income (expense), net ” in the condensed consolidated statement of income.

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

Fair Value of Long-Term Debt

Convertible Notes

The principal amount, carrying value and related estimated fair value of the Company's Convertible Notes reported as of September 30, 2023 and December 31, 2022 was as follows (in thousands).

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

September 30, 2023 December 31, 2022

Amount Carrying

Value Principal

Amount Carrying

2027 Senior Convertible Long-Term Debt $ 460,000 $ 452,377 $ 541,328 $ 460,000 $ 451,062 $ 441,485

2024 Senior Convertible Long-Term Debt $ 126,174 $ 125,774 $ 134,060 $ 126,174 $ 125,342 $ 119,941

Technicolor Patent Acquisition Long-term Debt

The carrying value and related estimated fair value of the Technicolor Patent Acquisition long-term debt reported as of September 30, 2023 and December 31, 2022 was as follows (in thousands).

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

September 30, 2023 December 31, 2022

Value Carrying

Technicolor Patent Acquisition Long-Term Debt $ 33,099 $ 29,753 $ 30,662 $ 28,048

2027 Notes, and Related Note Hedge and Warrant Transactions

On May 27, 2022, we issued $ 460.0 million in aggregate principal amount of 3.50 % Senior Convertible Notes due 2027 (the "2027 Notes").

The net proceeds from the issuance of the 2027 Notes, after deducting the initial purchasers' transaction fees and offering expenses, were approximately $ 450.0 million.

The 2027 Notes are effectively subordinated to all of the Company’s future secured indebtedness to the extent of the value of the related collateral, and the 2027 Notes are structurally subordinated to indebtedness and other liabilities, including trade payables, of the Company’s subsidiaries.

2024 Notes, and Related Note Hedge and Warrant Transactions

On June 3, 2019, we issued $ 400.0 million in aggregate principal amount of 2024 Notes.

The net proceeds from the issuance of the 2024 Notes, after deducting the initial purchasers' transaction fees and offering expenses, were approximately $ 391.6 million.

The 2024 Notes are senior unsecured obligations of the Company and rank equally in right of payment with any of our current and any future senior unsecured indebtedness.

The 2024 Notes are effectively subordinated to all of our future secured indebtedness to the extent of the value of the related collateral, and the 2024 Notes are structurally subordinated to indebtedness and other liabilities, including trade payables, of our subsidiaries.

During second quarter 2022, the Company repurchased $ 273.8 million in aggregate principal amount of the 2024 Notes in privately negotiated transactions concurrently with the offering of the 2027 Notes.

$ 126.2 million in aggregate principal amount of the 2024 Notes remained outstanding as of September 30, 2023.

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

Approximately 1.6 million shares of common stock in the aggregate were covered under each of the 2024 Note Hedge Transactions and the 2024 Warrant Transactions as of September 30, 2023.

As of September 30, 2023, the warrants under the 2024 Warrant Transactions had a strike price of approximately $ 109.43 per share, as adjusted.

The following table reflects the carrying value of our Convertible Notes long-term debt as of September 30, 2023 and December 31, 2022 (in thousands):

September 30, 2023 December 31, 2022

3.50 % Senior Convertible Notes due 2027

None of the preceding matters have met the requirements for accrual or disclosure of a potential range as of March 31, 2024, except as noted above.

In the three months ended March 31, 2024 and 2023, the Company had an estimated effective tax rate of 19.2 % and 14.0 %, respectively.

The change in effective tax rate is due to a decrease in the amount of Foreign Derived Intangible Income deduction benefit available to the Company.

In addition, the Company is subject to an increase in the Global Intangible Low-Tax Income inclusion derived from the increase in French revenue.

The effective tax rate in the period ending March 31, 2023, was impacted by losses in certain jurisdictions where the Company recorded a valuation allowance against the related tax benefit.

Excluding this valuation allowance, our effective tax rate for the three months ended March 31, 2023 would have been 13.8 % respectively.

During both the three months ended March 31, 2024 and 2023, the Company recorded discrete net benefits of $ 1.7 million and $ 1.0 million, respectively, primarily related to share-based compensation.

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

During the three months ended March 31, 2024 and 2023, the Company paid approximately $ 9.3 million and $ 4.4 million, respectively, in foreign source creditable withholding tax.

NET INCOME PER SHARE

Basic Earnings Per Share ("EPS") is calculated by dividing net income or loss available to common shareholders by the weighted-average number of common shares outstanding for the period.

Diluted EPS reflects the potential dilution that could occur if options or other securities with features that could result in the issuance of common stock were exercised or converted to common stock or resulting from the unvested outstanding restricted stock units ("RSUs").

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

For the Three Months Ended March 31,

Net income applicable to InterDigital, Inc.

$ 81,652 $ 105,259

2.00 % Senior Convertible Notes due 2024

Weighted-average shares outstanding:

Basic 25,510 28,780

Dilutive effect of stock options, RSUs, and warrants

Dilutive effect of convertible securities

Diluted 28,341 29,372

Earnings per share:

Basic $ 3.20 $ 3.66

Dilutive effect of stock options, RSUs, and warrants

( 0.10 ) ( 0.08 )

Deferred financing costs ( 8,023 ) ( 9,770 )

Net carrying amount of the Convertible Notes 578,151 576,404

Current portion of long-term debt ( 125,774 ) —

Long-term net carrying amount of the Convertible Notes $ 452,377 $ 576,404

The following table presents the amount of interest cost recognized, which is included within " Interest expense" in our condensed consolidated statements of income, for the three and nine months ended September 30, 2023 and 2022 relating to the contractual interest coupon and the amortization of deferred financing costs of the Convertible Notes (in thousands):

Three months ended September 30,

2027 Notes 2024 Notes Total 2027 Notes 2024 Notes Total

Contractual coupon interest $ 4,025 $ 631 $ 4,656 $ 4,025 $ 631 $ 4,656

Amortization of deferred financing costs 448 147 595 422 138 560

Total $ 4,473 $ 778 $ 5,251 $ 4,447 $ 769 $ 5,216

Nine months ended September 30,

2027 Notes 2024 Notes Total 2027 Notes 2024 Notes Total

Contractual coupon interest $ 12,075 $ 1,893 $ 13,968 $ 5,501 $ 4,129 $ 9,630

Amortization of deferred financing costs 1,315 433 1,748 564 880 1,444

Dilutive effect of convertible securities

Diluted $ 2.88 $ 3.58

For the Three Months Ended March 31,

Restricted stock units and stock options — 420

Warrants 7,488 7,488

Total 7,488 7,908

Technicolor Patent Acquisition Long-Term Debt

("CPPIB Credit"), a wholly owned subsidiary of Canada Pension Plan Investment Board, is a third-party investor in the Madison Arrangement.

Under this guidance, we recognized the fair value of our contingent obligation to CPPIB Credit, as of the acquisition date, as long-term debt in our condensed consolidated balance sheet.

The fair value of the long-term debt as of September 30, 2023 and December 31, 2022 is disclosed within Note 6, " Cash, Concentration of Credit Risk and Fair Value of Financial Instruments.

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

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

At each reporting period, we will review the discounted expected future cash flows over the life of the obligation.

The effective interest rate as of the acquisition date was approximately 14.5 %.

During the three and nine months ended September 30, 2023, we recognized $ 1.1 million and $ 2.5 million, respectively, of interest expense related to this debt, compared to $ 1.0 million and $ 2.9 million during the three and nine months ended September 30, 2022, respectively.

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

Any future payments made to CPPIB Credit, or additional proceeds received from CPPIB Credit, will decrease or increase the long-term debt balance accordingly.

Technicolor Contingent Consideration

As part of the Technicolor Patent Acquisition, we entered into a revenue-sharing arrangement with Technicolor that created a contingent consideration liability.

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

As of September 30, 2023, the contingent consideration liability from the revenue-sharing arrangement was deemed not probable and is therefore not reflected within the consolidated financial statements.

VARIABLE INTEREST ENTITIES

As further discussed below, we are the primary beneficiary of one variable interest entity.

As of September 30, 2023, the book value of the assets and liabilities associated with this variable interest entity included in our condensed consolidated balance sheet were $ 11.4 million and $ 0.7 million, respectively.

Assets included $ 2.5 million of cash and cash equivalents, $ 0.1 million of prepaid and other current assets, and $ 8.8 million of patents, net.

As of December 31, 2022, the book value of the assets and liabilities associated with this variable interest entity included in our condensed consolidated balance sheet were $ 17.5 million and $ 1.8 million, respectively.

Assets included $ 4.4 million of cash and cash equivalents, $ 4.0 million of accounts receivable and prepaid and other current assets, and $ 9.1 million of patents, net.

Convida Wireless

Convida Wireless was launched in 2013, and most recently renewed in 2021, to combine Sony's consumer electronics expertise with our pioneering IoT expertise to drive IoT communications and connectivity.

Based on the terms of the agreement, the parties will contribute funding and resources for additional research and platform development, which we performed.

Convida Wireless is a variable interest entity.

Based on our provision of research and platform development services to Convida Wireless, we determined that we were the primary beneficiary for accounting purposes and consolidated Convida Wireless through September 30, 2023.

For the three and nine months ended September 30, 2023, we allocated approximately $ 0.8 million and $ 3.0 million, respectively, of Convida Wireless's net loss to noncontrolling interests held by other parties and for the three and nine months ended September 30, 2022, we allocated approximately $ 0.5 million and $ 1.2 million, respectively.

In October 2023, Convida Wireless appointed a President and Chief Licensing Officer who will be responsible for directing the operating activities of Convida, including research and platform development services.

Accordingly, we expect to deconsolidate Convida Wireless during fourth quarter 2023.

OTHER INCOME (EXPENSE), NET

The amounts included in " Other income (expense), net " in the condensed consolidated statements of income for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands):

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

2023 2022 2023 2022

Convertible Notes and Warrants

Refer to Note 5, " Obligations ," for information about the Company's convertible notes and warrants and related conversion and strike prices.

OPERATING INCOME, NET

The amounts included in " Other income, net " in the condensed consolidated statements of income for the three months ended March 31, 2024 and 2023 were as follows (in thousands):

For the Three Months Ended March 31,

Interest and investment income $ 11,778 $ 11,680

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

Other ( 2,531 ) 1,511

Other income (expense), net $ 14,725 $ 912 $ 42,303 $ ( 15,109 )

The changes in Other income (expense), net for the three and nine months ended September 30, 2023 and 2022 were $ 13.8 million and $ 57.4 million, respectively.

Interest and investment income increased in both three and nine months ended September 30, 2023 and 2022, due to increased short-term investments made by the Company and market conditions driving higher yields on our short-term investments.

The change in the nine months ended September 30, 2023 and 2022 was also due to the $ 11.2 million loss on extinguishment of the 2024 Notes in second quarter 2022, as described further in Note 7, " Obligations ".

The changes in Other were primarily due to foreign currency translation arising from euro translation of our foreign subsidiaries and fair value adjustments of our investments.

OTHER ASSETS AND LIABILITIES

The amounts included in " Prepaid and other current assets " in the consolidated balance sheet as of September 30, 2023 and December 31, 2022 were as follows (in thousands):

September 30, 2023 December 31, 2022

Tax receivables $ 75,934 $ 64,117

Prepaid assets 11,474 9,044

Restricted cash 7,229 9,682

Patents held for sale — 4,000

Other current assets 9,561 2,873

Total Prepaid and other current assets $ 104,198 $ 89,716

The amounts included in " Other non-current assets, net " in the consolidated balance sheet as of September 30, 2023 and December 31, 2022 were as follows (in thousands):

September 30, 2023 December 31, 2022

Contract asset

$ 43,720 $ 2,544

Tax receivables 26,688 29,370

Long-term investments 25,556 19,593

Goodwill 22,421 22,421

Right-of-use assets 16,335 18,034

Other non-current assets 2,753 3,758

Total Other non-current assets, net $ 137,473 $ 95,720

The amounts included in " Other accrued expenses " in the consolidated balance sheet as of September 30, 2023 and December 31, 2022 were as follows (in thousands):

September 30, 2023 December 31, 2022

Customer deposit $ 76,100 $ —

Accrued legal fees 11,510 12,230

Other accrued expenses 13,575 11,276

Total Other accrued expenses $ 101,185 $ 23,506

The amounts included in " Other long-term liabilities " in the consolidated balance sheet as of September 30, 2023 and December 31, 2022 were as follows (in thousands):

September 30, 2023 December 31, 2022

Operating lease liabilities $ 17,941 $ 19,923

Deferred compensation liabilities 16,447 14,078

Other long-term liabilities 18,297 19,599

Total Other long-term liabilities $ 52,685 $ 53,600

RESTRUCTURING ACTIVITIES

During second quarter 2021, the Company undertook certain actions in order to increase focus on core technologies and markets.

On June 10, 2021, the Company announced that, as a result of a strategic review of its research and innovation priorities, it commenced the process of a collective economic layoff in which it proposed a reduction in force of its research and innovation unit.

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

During 2021, Chordant ceased operations.

The Company implemented a reduction in workforce action in second quarter 2021.

Additionally, in June 2021, a non-controlled subsidiary that we consolidate for financial statement purposes approved a plan to sell certain patents.

The proceeds from the sale of these patents contributed to funding the non-controlled subsidiary's operations.

In October 2021, we expanded our restructuring efforts to include general and administrative functions largely centered in the U.S., which resulted in a further reduction in force as well as cuts to our non-labor expenses.

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

The Company does not anticipate further restructuring costs at this time, 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.

As of September 30, 2023 and December 31, 2022, the Company's restructuring liability was $ 0.2 million and $ 4.5 million, respectively, and is included in " Other accrued expenses " on our condensed consolidated balance sheet.

The following table presents the change in our restructuring liability during the period (in thousands):

Balance as of December 31, 2022 $ 4,495

Cash payments ( 1,487 )

Balance as of March 31, 2023 3,060

Cash payments ( 1,903 )

Balance as of June 30, 2023 1,159

Cash payments ( 956 )

Balance as of September 30, 2023 $ 193

The restructuring expenses included in " Restructuring activities " in the condensed consolidated statements of income for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands):

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

2023 2022 2023 2022

Asset impairment $ — $ — $ — $ 2,427

Severance and other benefits — — — 305

Outside services and other associated costs — — — 548

Total $ — $ — $ — $ 3,280

Other income, net $ 9,247 $ 13,191

The change in Other income, net was primarily due to a foreign currency translation net loss arising from translation of our foreign subsidiaries of $ 2.4 million in first quarter 2024, compared to a $ 0.7 million net gain in first quarter 2023 .

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

What changed 10-Q

Item 1. Financial Statements