What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-05-02 · 155 added, 89 removed, 154 unchanged (61% of the section changed)

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For static fixed-fee license agreements, we typically classify the associated revenue as catch-up revenues.

Samsung TV Agreement

In January 2024, we signed a patent license agreement with Samsung Electronics (the "Samsung TV agreement").

The agreement licenses Samsung’s digital TVs and computer display monitors under InterDigital's joint licensing program with Sony and includes licenses to key technologies including ATSC 3.0, as well as licenses under InterDigital’s patents including HEVC, VVC and Wi-Fi.

Lenovo Proceedings

On July 12, 2024, the UK’s Court of Appeal handed down its decision in InterDigital’s FRAND licensing case against Lenovo.

The Court of Appeal ruled in favor of InterDigital, including raising the amount that Lenovo must pay for a license to InterDigital’s cellular SEP patents.

The court rejected Lenovo’s appeal in its entirety and confirmed that Lenovo must pay for all of its past sales starting from 2007.

By virtue of this ruling, Lenovo paid an additional amount of more than $55 million, increasing the total lump-sum royalty to $240.1 million for Lenovo’s past sales through December 31, 2023.

Lenovo sought permission to appeal, and permission to appeal was refused by the UK Court of Appeals on July 12, 2024.

Lenovo has until August 9, 2024 to file a request for an appeal directly with the UK Supreme Court.

Additionally, in May 2024, the Regional Court in Munich held that Lenovo's sales of cellular products on or after January 1, 2024 infringe InterDigital’s patent-in-suit covering 4G and 5G devices, that we have acted in a FRAND manner at all times, and that Lenovo is an unwilling licensee who has not acted in line with widely recognized FRAND principles.

This is a first instance decision which can be appealed.

Google Agreement

In June 2024, we signed a new device license agreement with Google.

The agreement licenses a range of devices including Pixel smartphones, Fitbit wearables, and other consumer electronics devices to InterDigital’s cellular wireless, Wi-Fi, and HEVC video patented technologies.

Settlement of the 2024 Notes and 2024 Hedge Transactions

On June 1, 2024, the 2024 Notes matured, and we repaid $126.2 million in aggregate principal in cash and issued 0.3 million common shares to settle the remaining obligation.

This issuance was effectively offset by our receipt of 0.3 million shares from the settlement of the 2024 Note Hedge Transactions.

Return of Capital to Shareholders

During the first quarter 2024, we returned $39.2 million to shareholders, including $10.2 million, or $0.40 per share, of cash dividends declared and $29.0 million through the repurchase of 0.3 million shares of common stock.

During the period April 1, 2024 to April 30, 2024, we repurchased an additional 0.2 million shares for $21.1 million, bringing the year to date total to approximately 0.5 million shares of common stock repurchased.

As of April 30, 2024, there was $246.3 million remaining under the share repurchase authorization, which we plan to utilize to periodically repurchase additional common shares.

During the second quarter 2024, we returned $45.2 million to shareholders, including $10.1 million, or $0.40 per share, of cash dividends declared and $35.1 million through the repurchase of 0.3 million shares of common stock.

As of July 31, 2024, there was $232.6 million remaining under the share repurchase authorization, which we plan to utilize to periodically repurchase additional common shares.

See Part II, Item II - Unregistered Sales of Equity Securities and Use of Proceeds—Issuer Purchases of Equity Securities of this Quarterly Report on Form 10-Q.

Cash & Short-term Investments

As of March 31, 2024, we had $1.0 billion of cash, restricted cash and short-term investments and an additional $1.2 billion of cash payments due under contracted fixed price agreements, which includes our conservative estimates of the minimum cash receipts that we expect to receive under the wireless patent license agreement with Samsung.

As of June 30, 2024, we had $769.6 million of cash, restricted cash and short-term investments and nearly $1.3 billion of cash payments due under contracted fixed price agreements, which includes our conservative estimates of the minimum cash receipts that we expect to receive under the wireless patent license agreement with Samsung.

88% 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.

The following table reconciles the timing differences between cash receipts and recognized revenue during the three months ended March 31, 2024 and 2023, including the resulting operating cash flow (in thousands):

For the Three Months Ended March 31,

The following table reconciles the timing differences between cash receipts and recognized revenue during the three and six months ended June 30, 2024 and 2023, including the resulting operating cash flow (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Non-cash revenue:

2024 2023 2024 2023

Fixed fee cash receipts (a)

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Change in receivables 78,011 92,756 106,348 183,612

Other 7,353 24,110

71,110 (50,372) 78,463 (26,262)

Total Revenue $ 223,493 $ 101,591 $ 487,035 $ 303,964

Net cash provided by (used in) operating activities $ 50,773 $ (27,852)

Net cash (used in) provided by operating activities $ (48,910) $ (45,440) $ 1,863 $ (73,292)

(a) Fixed fee cash receipts are comprised of cash receipts from Dynamic Fixed-Fee Agreement royalties, including the associated catch-up royalties

(b) Other cash receipts are primarily comprised of cash receipts related to our variable patent royalty revenue and catch-up revenues.

(c) The changes in other are primarily driven by customer deposits partially offset by long-term contract assets associated with revenue estimates.

When we collect payments on a front-loaded basis, we recognize a deferred revenue liability equal to the cash received and accounts receivable recorded which relate to revenue expected to be recognized in future periods.

That liability is then reduced as we recognize revenue over the balance of the agreement.

The following table shows the projected amortization of our current and long term deferred revenue as of March 31, 2024 (in thousands):

The following table shows the projected amortization of our current and long term deferred revenue as of June 30, 2024 (in thousands):

Deferred Revenue

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Total Revenue $ 323,055

Total revenues of $263.5 million, which includes both recurring and catch-up revenues, increased 30% compared to first quarter 2023 primarily due to catch-up revenues from the Samsung TV agreement recognized in first quarter 2024.

First quarter 2024 recurring revenues were $96.9 million, compared to recurring revenues of $101.6 million in first quarter 2023, a 5% year-over-year decrease.

In first quarter 2024, revenues (in descending order) from Samsung and Apple each comprised 10% or more of our consolidated revenues.

Refer to " Results of Operations --First Quarter 2024 Compared to First Quarter 2023 " for further discussion of our 2024 revenue.

Total revenues of $223.5 million, which includes both recurring and catch-up revenues, increased 120% compared to second quarter 2023 primarily due to catch-up revenues resulting from the Lenovo UK proceedings and the Google patent license agreement signed in second quarter 2024.

Second quarter 2024 recurring revenues were $95.9 million, compared to recurring revenues of $99.1 million in second quarter 2023.

In second quarter 2024, revenues (in descending order) from Lenovo, Apple, and Samsung each comprised 10% or more of our consolidated revenues.

Refer to " Results of Operations --Second Quarter 2024 Compared to Second Quarter 2023 " for further discussion of our 2024 revenue.

Impact of Macroeconomic and Geopolitical Factors

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Comparability of Financial Results

When comparing first quarter 2024 financial results against other periods, the following items should be taken into consideration:

• Our first quarter 2024 revenues include $166.7 million of catch-up revenues primarily related to the Samsung TV agreement signed in first quarter 2024.

When comparing second quarter 2024 financial results against other periods, the following items should be taken into consideration:

• Our second quarter 2024 revenues include $127.6 million of catch-up revenues primarily related to the Lenovo UK proceedings and the Google agreement signed in second quarter 2024.

Operating Expenses

• During first quarter 2024, we incurred $65.7 million of nonrecurring revenue share costs associated with the catch-up revenues recognized in the period.

Non-Operating (Expense) Income, Net

• During first quarter 2024, we recognized a $0.7 million net loss resulting from observable price changes of our long-term strategic investment, which was included within “ Other income, net ” in the condensed consolidated statement of income.

• During second quarter 2024, we accrued a $3.2 million one-time contra expense for a net litigation fee reimbursement associated with the Lenovo proceedings.

See Note 6, “ Litigation and Legal Proceedings ,” to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding the Lenovo proceedings.

• During second quarter 2024, we incurred $1.4 million of one-time performance-based compensation costs driven by licensing success.

Non-Operating Income (Expense), Net

• During second quarter 2024, we recognized a $2.2 million gain resulting from fair value changes of one of our long-term strategic investments, which was included within “ Other income, net ” in the condensed consolidated statement of income.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

As of March 31, 2024 and December 31, 2023, we had the following amounts of cash and cash equivalents, restricted cash and short-term investments (in thousands):

March 31, 2024 December 31, 2023 Increase /

As of June 30, 2024 and December 31, 2023, we had the following amounts of cash and cash equivalents, restricted cash and short-term investments (in thousands):

June 30, 2024 December 31, 2023 Increase /

Cash and cash equivalents $ 299,762 $ 437,076 $ (137,314)

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Cash flows provided by (used in) operating activities

Cash flows provided by (used in) operating activities in the first quarter 2024 and 2023 (in thousands) were as follows:

For the Three Months Ended March 31,

Cash flows provided by (used in) operating activities in the first half 2024 and 2023 (in thousands) were as follows:

Six Months Ended June 30,

2024 2023 Change

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

The $78.6 million change in net cash provided by (used in) operating activities was driven by higher cash receipts primarily due to new patent license agreements signed in first quarter 2024 and due timing of cash receipts related to existing patent license agreements, partially offset by increased cash operating expenses primarily due to increased revenue share costs from new patent license agreements.

The table below sets forth the significant items comprising our cash flows provided by (used in) operating activities during the three months ended March 31, 2024 and 2023 (in thousands):

For the Three Months Ended March 31,

The $75.2 million change in net cash provided by (used in) operating activities was driven by higher cash receipts primarily due to new patent license agreements signed in first half 2024 and due timing of cash receipts related to existing patent license agreements, partially offset by increased cash operating expenses primarily due to increased revenue share costs from new patent license agreements.

The table below sets forth the significant items comprising our cash flows provided by (used in) operating activities during the six months ended June 30, 2024 and 2023 (in thousands):

Six Months Ended June 30,

2024 2023 Change

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(a) Cash operating expenses include operating expenses less depreciation and disposals of fixed assets, amortization of patents, and non-cash compensation.

Includes revenue share costs of $69.0 million and $1.1 million in first quarter 2024 and 2023, respectively.

Amount includes revenue share costs of $71.7 million and $1.5 million in first half 2024 and 2023, respectively.

(b) Income taxes paid include foreign withholding taxes.

Cash flows from investing and financing activities

Net cash provided by investing activities for first quarter 2024 was $16.8 million, a $31.2 million change from $14.5 million of net cash used in investing activities in first quarter 2023.

During first quarter 2024, we sold $24.6 million of short-term marketable securities, net of purchases, and capitalized $9.4 million of patent costs and property and equipment purchases.

During first quarter 2023, we purchased $6.0 million of short-term marketable securities, net of sales, and capitalized $8.5 million of patent costs and property and equipment purchases.

Net cash used in financing activities for first quarter 2024 was $49.3 million, a change of $168.8 million from $218.1 million the first quarter 2023.

Net cash provided by investing activities for first half 2024 was $97.5 million, a $165.0 million change from $67.5 million of net cash used in investing activities in first half 2023.

During first half 2024, we sold $118.9 million of short-term marketable securities, net of purchases, and capitalized $22.6 million of patent costs and property and equipment purchases.

During first half 2023, we purchased $46.0 million of short-term marketable securities, net of sales, and capitalized $21.5 million of patent costs and property and equipment purchases.

Net cash used in financing activities for first half 2024 was $233.3 million, a change of $38.1 million from $271.5 million the first half 2023.

This change was primarily attributable to a $182.2 million decrease in share repurchases, of which $203.4 million was related to the Company's modified "Dutch auction" tender offer in first quarter 2023.

Our combined short-term and long-term deferred revenue balance as of March 31, 2024 was approximately $349.9 million, a net decrease of $27.5 million from December 31, 2023.

This decrease in deferred revenue was primarily due to amortization of deferred revenue recognized in the period, partially offset by cash receipts on existing patent license agreements.

Based on current license agreements, we expect the amortization of dynamic fixed-fee royalty payments to reduce the March 31, 2024 deferred revenue balance of $349.9 million by $156.0 million over the next twelve months.

This change was partially offset by $139.1 million of payments on our long-term debt, of which $126.2 million was related to the maturity of the 2024 Notes.

Our combined short-term and long-term deferred revenue balance as of June 30, 2024 was approximately $323.1 million, a net decrease of $54.4 million from December 31, 2023.

This decrease in deferred revenue was primarily due to amortization of deferred revenue recognized in the period, partially offset by cash receipts on new and existing patent license agreements.

Based on current license agreements, we expect the amortization of dynamic fixed-fee royalty payments to reduce the June 30, 2024 deferred revenue balance of $323.1 million by $156.8 million over the next twelve months.

Convertible Notes

See Note 5, “ Obligations ” to the Notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for definitions of capitalized terms below.

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.

Additionally, from the period April 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.

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.

The 2024 Notes matured on June 1, 2024 resulting in 0.3 million of common shares being issued.

This issuance was effectively offset by the settlement of the 2024 Note Hedge Transactions resulting in zero net shares being issued on June 1, 2024.

Under the 2024 Warrant Transactions, we are required to issue up to 1.6 million shares of common stock at an initial strike price of approximately $109.43 per share.

These warrants remain outstanding and will settle, on a net-share basis, during the period September 3, 2024 through December 17, 2024.

From the period January 1, 2024 through September 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.

Our 2027 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.

Any remaining obligation of the 2027 Notes may be settled in cash, shares of the Company’s common stock or a combination thereof and any remaining obligation of the 2024 Notes is settled in shares of our common stock.

The 2027 Notes are convertible into cash up to the aggregate principal amount to be converted.

Any remaining obligation of the 2027 Notes 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 March 31, 2024) or above the strike price of the warrants (weighted average of $106.31 per share for the 2027 Warrant Transactions and $109.43 per share for the 2024 Warrant Transactions as of March 31, 2024), 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.

We must calculate the number of shares of our common stock issuable under the terms of the 2027 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 2027 Notes, we entered into the 2027 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 2027 Notes by, in effect, increasing the conversion price of the 2027 Notes from our economic standpoint.

However, under GAAP, since the impact of the 2027 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 2027 Notes (initial conversion price of approximately $77.49 per share), or above the strike price of the warrants (weighted average strike price of $106.31 per share), 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 2027 Notes and the 2027 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 5, " 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 March 31, 2024, 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 (in thousands):

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

$80 186 — 186 (186) —

$85 524 — 524 (524) —

$90 825 — 825 (825) —

$95 1,094 — 1,094 (1,094) —

$100 1,336 — 1,336 (1,336) —

$105 1,555 — 1,555 (1,555) —

$110 1,754 199 1,953 (1,754) 199

$115 1,936 449 2,385 (1,936) 449

$120 2,103 677 2,780 (2,103) 677

$125 2,256 888 3,144 (2,256) 888

As described in Note 5, " Obligations, " the 2027 Notes are convertible into cash up to the aggregate principal amount to be converted and any remaining obligation may be settled 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 outstanding as of June 30, 2024, and the approximately 5.9 million warrants related to the 2027 Notes changes in our stock price would affect (i) the number of shares issuable upon conversion of the 2027 Notes, (ii) the number of shares issuable upon exercise of the warrants subject to the 2027 Warrant Transactions, (iii) the number of additional shares deemed outstanding with respect to the 2027 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 2027 Hedge Transactions and (v) the number of shares issuable upon concurrent conversion of the 2027 Notes, exercise of the warrants subject to the 2027 Warrant Transactions, and settlement of the 2027 Hedge Transactions (in thousands):

2027 Notes 2024 Warrants

Shares Issuable Upon Exercise of the 2024 Warrant Transactions

$80 195 — 195 (195) — —

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RESULTS OF OPERATIONS

First Quarter 2024 Compared to First Quarter 2023

The following table compares first quarter 2024 revenues to first quarter 2023 revenues (in thousands):

For the Three Months Ended March 31,

Second Quarter 2024 Compared to Second Quarter 2023

The following table compares second quarter 2024 revenues to second quarter 2023 revenues (in thousands):

Three Months Ended June 30,

2024 2023 Increase/(Decrease)

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

Total revenues of $263.5 million, which includes both recurring and catch-up revenues, increased 30% from first quarter 2023 primarily due to catch-up revenues from the Samsung TV agreement signed in first quarter 2024, partially offset by catch-up revenues related to the Lenovo proceedings recognized in first quarter 2023.

Recurring revenues decreased 5% to $96.9 million, compared to $101.6 million in first quarter 2023.

The decrease was primarily driven by the expiration of the Huawei patent license agreement, partially offset by recurring revenues from seven new patent license agreements signed in first quarter 2024.

In first quarter 2024 and 2023, 84% and 67%, respectively, of our total revenue was attributable to licensees that individually accounted for 10% or more of our total revenue.

In first quarter 2024 and 2023, the following licensees accounted for 10% or more of our total revenue:

For the Three Months Ended March 31,

Customer A 71% <10%

Customer B 13% 17%

Customer C <10% 50%

Total revenues of $223.5 million, which includes both recurring and catch-up revenues, increased 120% from second quarter 2023 primarily due to catch-up revenues from the Lenovo UK proceedings and the Google agreement signed in second quarter 2024.

Recurring revenues were relatively flat decreasing 3% to $95.9 million, as increased CE, IoT/Auto revenue mostly offset the 2023 expiration of Huawei and other agreements.

In second quarter 2024 and 2023, 80% and 78%, respectively, of our total revenue was attributable to licensees that individually accounted for 10% or more of our total revenue.

In second quarter 2024 and 2023, the following licensees accounted for 10% or more of our total revenue:

Three Months Ended June 30,

Operating Expenses

The following table summarizes the changes in operating expenses between first quarter 2024 and first quarter 2023 by category (in thousands):

For the Three Months Ended March 31,

The following table summarizes the changes in operating expenses between second quarter 2024 and second quarter 2023 by category (in thousands):

Three Months Ended June 30,

2024 2023 Increase/(Decrease)

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Total Operating expenses $ 89,587 $ 78,215 $ 11,372 15 %

Operating expenses increased to $159.8 million in first quarter 2024 from $83.1 million in first quarter 2023.

Operating expenses increased to $89.6 million in second quarter 2024 from $78.2 million in second quarter 2023.

The $11.4 million increase in total operating expenses was primarily due to changes in the following items (in thousands):

Increase/(Decrease)

Intellectual property enforcement $ 10,911

Performance-based compensation

Revenue share

Net litigation fee reimbursement (5,000)

Total increase in operating expenses $ 11,372

The $11.4 million increase in operating expenses was driven by an increase in intellectual property enforcement costs of $10.9 million due to costs associated with the Lenovo and Oppo proceedings and the Samsung arbitration.

Additionally, there was a $4.0 million increase in performance-based compensation due to higher accrual rates driven by licensing successes and a $2.3 million increase in revenue share costs primarily related to the Samsung TV agreement.

These increases were partially offset by a change in the net litigation reimbursement accrual related to the Lenovo proceedings of $3.2 million contra-expense in second quarter 2024 compared to $1.8 million of expense in the second quarter 2023.

Research and portfolio development expense:

Research and portfolio development expenses were flat compared to second quarter 2023.

Licensing expense:

Licensing expense increased $8.5 million primarily driven by the above-noted increased intellectual property enforcement costs and revenue share costs, partially offset by the one-time net litigation fee reimbursement.

General and administrative expense:

General and administrative expense increased by $2.6 million primarily due to the increased performance-based compensation costs.

Non-Operating Income, net

The following table compares second quarter 2024 non-operating income, net to second quarter 2023 (in thousands):

Three Months Ended June 30,

2024 2023 Increase/(Decrease)

Interest expense $ (11,483) $ (12,141) $ 658 5 %

Interest and investment income 10,125 10,254 (129) (1) %

Other income, net 1,557 4,133 (2,576) (62) %

Total non-operating income, net $ 199 $ 2,246 $ (2,047) (91) %

Interest expense and interest and investment income were flat compared to second quarter 2023.

The change in Other income, net was primarily due to a foreign currency translation net loss arising from translation of our foreign subsidiaries of $0.9 million in second quarter 2024, compared to a $0.4 million net gain in second quarter 2023 and due to fair value adjustments of our investments resulting in a $2.9 million net gain in second quarter 2024, compared to a $3.9 million net gain in second quarter 2023.

In second quarter 2024 and 2023, based on the statutory federal tax rate net of discrete federal and state taxes, we had an effective tax rate of 18.2% and 16.9%, 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 revenue in certain foreign jurisdictions.

The effective tax rate in the three months ended June 30, 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 June 30, 2023 would have been 9.6%.

First Half 2024 Compared to First Half 2023

The following table compares first half 2024 revenues to first half 2023 revenues (in thousands):

Six Months Ended June 30,

2024 2023 Total Increase/(Decrease)

Recurring revenues:

Smartphone $ 147,554 $ 172,506 $ (24,952) (14) %

CE, IoT/Auto 43,994 27,518 16,476 60 %

Other 1,258 622 636 102 %

Total recurring revenues 192,806 200,646 (7,840) (4) %

Catch-up revenues a

294,229 103,318 190,911 185 %

Total revenues $ 487,035 $ 303,964 $ 183,071 60 %

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

Total revenues of $487.0 million, which includes both recurring and catch-up revenues, increased 60% from the first half 2023 primarily due to catch-up revenues from the Lenovo UK proceedings and eight other patent license agreements signed in first half 2024, partially offset by catch-up revenues related to the Lenovo UK proceedings and two previously announced agreements recognized in second quarter 2023.

Recurring revenues decreased 4% to $192.8 million, compared to $200.6 million in first half 2023, with increased CE, IoT/Auto revenue mostly offsetting the 2023 expiration of Huawei and other agreements.

In first half 2024 and 2023, 82% and 69% of our total revenue, respectively, was attributable to companies that individually accounted for 10% or more of our total revenue.

In first half 2024 and 2023, the following companies accounted for 10% or more of our total revenue:

Six Months Ended June 30,

Operating Expenses

The following table summarizes the changes in operating expenses between first half 2024 and first half 2023 by category (in thousands):

Six Months Ended June 30,

2024 2023 Increase/(Decrease)

Research and portfolio development $ 99,520 $ 99,307 $ 213 — %

Licensing 121,745 38,012 83,733 220 %

General and administrative 28,126 24,008 4,118 17 %

Total operating expenses $ 249,391 $ 161,327 $ 88,064 55 %

Operating expenses increased 55% to $249.4 million in first half 2024 from $161.3 million in first half 2023.

The $88.1 million increase in total operating expenses was primarily due to changes in the following items (in thousands):

Increase/(Decrease)

Revenue share $ 70,192

Intellectual property enforcement 22,540

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Net litigation fee reimbursement (10,737)

Patent impairment (2,500)

Other (1,341)

Total increase in operating expenses $ 88,064

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Additionally, intellectual property enforcement costs increased $22.5 million due to costs associated with the Lenovo and Oppo proceedings and the Samsung arbitration.

These increases were partially offset by one-time items recognized in first quarter 2023, including a $5.6 million net litigation fee reimbursement and a $2.5 million patent impairment on our patents held for sale.

These increases were partially offset by a change in the net litigation reimbursement accrual related to the Lenovo proceedings of $3.2 million contra expense in first half 2024 compared to $7.5 million of expense in the first half 2023.

Research and portfolio development expense:

Research and portfolio development expense were flat compared to first quarter 2023.

Research and portfolio development expense was flat compared to first half 2023.

Licensing expense:

Licensing expense increased $75.2 million primarily driven by the above-noted increased revenue share costs and intellectual property enforcement costs, partially offset by the one-time net litigation fee reimbursement.

Licensing expense increased by $83.7 million primarily driven by the above-noted increased revenue share costs and intellectual property enforcement costs, partially offset by the one-time net litigation fee reimbursement.

General and administrative expense:

General and administrative expense increased $1.5 million primarily due to the above-noted increased performance-based compensation costs.

The $4.1 million increase in general and administrative expense primarily resulted from the above-noted increases in performance-based compensation costs.

Non-Operating (Expense) Income, net

The following table compares first quarter 2024 non-operating expense, net to first quarter 2023 non-operating income, net (in thousands):

Three months ended March 31,

The following table compares first half 2024 non-operating expense, net to first half 2023 non-operating income, net (in thousands):

Six Months Ended June 30,

2024 2023 Increase/(Decrease)

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Total non-operating (expense) income, net $ (2,476) $ 3,350 $ (5,826) (174) %

Interest expense and interest and investment income were flat compared to first quarter 2023.

The change in Other (expense) 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.

In first quarter 2024 and 2023, based on the statutory federal tax rate net of discrete federal and state taxes, we had an effective tax rate of 19.2% and 14.0%, respectively.

Interest expense and interest and investment income were flat compared to first half 2023.

Other (expense) income, net changed primarily due to a foreign currency translation loss of $3.3 million in the first half 2024 arising from euro translation of our foreign subsidiaries, compared to a foreign currency translation gain of $1.2 million in first half 2023 and due to fair value adjustments of our investments resulting in a $3.5 million net gain in first half 2024, compared to a $4.9 million net gain in first half 2023.

In first half 2024 and 2023, we had an effective tax rate of 18.6% and 14.5%, 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.

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

The effective tax rate in the six months ended June 30, 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 six months ended June 30, 2023 would have been 13.0%.

In the six months ended 2024 and 2023, we recorded a net discrete tax benefit of $2.4 million and $1.2 million, respectively, primarily related to share-based compensation.

STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 — FORWARD-LOOKING STATEMENTS

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• our ability to enter into sales and/or licensing partnering arrangements for certain of our patent assets;

• our ability to enter into partnerships with leading inventors and research organizations and identify and acquire technology and patent portfolios that align with our roadmap;

• our ability to enter into partnerships with leading inventors and research organizations;

• our ability to identify and pursue strategic acquisitions of technology and patent portfolios and other strategic growth opportunities;

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

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• the resolution of current legal proceedings, including any awards or judgments relating to such proceedings, additional legal proceedings, changes in the schedules or costs associated with legal proceedings or adverse rulings in such proceedings;

• the timing and impact of potential administrative and legislative matters;

• the timing and impact of potential regulatory, administrative and legislative matters;

• changes or inaccuracies in market projections;

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis