InterDigital, Inc. 10-Q

Item 1. FINANCIAL STATEMENTS INTERDIGITAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited) JUNE 30, 2024 DECEMBER 31, 2023 Assets Current assets: Cash and cash equivalents $ 299,762 $ 437,076 Short-term investments 460,581 569,280 Accounts receivable 223,640 117,292 Prepaid and other current assets 73,135 43,976 Total current assets 1,057,118 1,167,624 Property and equipment, net 10,861 11,566 Patents, net 302,773 313,001 Deferred tax assets 99,627 128,967 Other non-current assets, net 165,916 149,656 Total assets $ 1,636,295 $ 1,770,814 Liabilities and Shareholders' equity Current liabilities: Current portion of long-term debt $ 453,766 $ 578,752 Accounts payable 8,091 7,846 Accrued compensation and related expenses 29,758 32,665 Deferred revenue 156,792 153,597 Dividends payable 10,052 10,226 Other accrued expenses 40,888 98,042 Total current liabilities 699,347 881,128 Long-term debt 17,687 29,019 Long-term deferred revenue 166,263 223,866 Other long-term liabilities 56,221 55,252 Total liabilities 939,518 1,189,265 Commitments and contingencies Shareholders' equity: Preferred Stock, $ 0.10 par value, 14,399 shares authorized, 0 shares issued and outstanding — — Common Stock, $ 0.01 par value, 100,000 shares authorized, 70,001 and 69,507 shares issued and 25,129 and 25,580 shares outstanding 699 694 Additional paid-in capital 789,708 742,981 Retained earnings 1,632,401 1,462,070 Accumulated other comprehensive loss ( 1,232 ) ( 647 ) Treasury stock, 44,872 and 43,927 shares of common stock held at cost ( 1,724,799 ) ( 1,623,549 ) Total shareholders' equity 696,777 581,549 Total liabilities and shareholders' equity $ 1,636,295 $ 1,770,814 The accompanying notes are an integral part of these statements. 3 Table of Contents INTERDIGITAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenues $ 223,493 $ 101,591 $ 487,035 $ 303,964 Operating expenses: Research and portfolio development 50,145 49,878 99,520 99,307 Licensing 25,156 16,644 121,745 38,012 General and administrative 14,286 11,693 28,126 24,008 Total operating expenses 89,587 78,215 249,391 161,327 Income from operations 133,906 23,376 237,644 142,637 Interest expense ( 11,483 ) ( 12,141 ) ( 23,405 ) ( 24,228 ) Other income, net 11,682 14,387 20,929 27,578 Income before income taxes 134,105 25,622 235,168 145,987 Income tax provision ( 24,441 ) ( 4,329 ) ( 43,852 ) ( 21,174 ) Net income $ 109,664 $ 21,293 $ 191,316 $ 124,813 Net loss attributable to noncontrolling interest — ( 490 ) — ( 2,229 ) Net income attributable to InterDigital, Inc. $ 109,664 $ 21,783 $ 191,316 $ 127,042 Net income per common share — Basic $ 4.35 $ 0.81 $ 7.54 $ 4.58 Weighted average number of common shares outstanding — Basic 25,207 26,768 25,359 27,754 Net income per common share — Diluted $ 3.93 $ 0.79 $ 6.80 $ 4.46 Weighted average number of common shares outstanding — Diluted 27,910 27,655 28,125 28,494 Cash dividends declared per common share $ 0.40 $ 0.35 $ 0.80 $ 0.70 The accompanying notes are an integral part of these statements. 4 Table of Contents INTERDIGITAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net income $ 109,664 $ 21,293 $ 191,316 $ 124,813 Unrealized loss on investments, net of tax ( 90 ) ( 1,839 ) ( 585 ) ( 1,260 ) Comprehensive income $ 109,574 $ 19,454 $ 190,731 $ 123,553 Comprehensive loss attributable to noncontrolling interest — ( 490 ) — ( 2,229 ) Total comprehensive income attributable to InterDigital, Inc. $ 109,574 $ 19,944 $ 190,731 $ 125,782 The accompanying notes are an integral part of these statements. 5 Table of Contents INTERDIGITAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands, except per share data) (unaudited) Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Non-Controlling Interest Total Shareholders' Equity Shares Amount Shares Amount Balance, December 31, 2022 71,923 $ 719 $ 717,102 $ 1,492,046 $ ( 916 ) 42,255 $ ( 1,484,056 ) $ 5,618 $ 730,513 Net income attributable to InterDigital, Inc. — — — 105,259 — — — — 105,259 Net loss attributable to noncontrolling interest — — — — — — — ( 1,739 ) ( 1,739 ) 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) — — 259 ( 9,708 ) — — — — ( 9,449 ) Exercise of common stock options 13 — 687 — — — — — 687 Issuance of common stock, net 132 1 ( 6,709 ) — — — — — ( 6,708 ) Share-based 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. — — — 21,783 — — — — 21,783 Net loss attributable to noncontrolling interest — — — — — — — ( 490 ) ( 490 ) Net change in unrealized loss on short-term investments — — — — ( 1,839 ) — — — ( 1,839 ) Dividends declared ($ 0.35 per share) — — 360 ( 9,633 ) — — — — ( 9,273 ) Exercise of common stock options 1 — 12 — — — — — 12 Issuance of common stock, net 42 — ( 1,389 ) — — — — — ( 1,389 ) Share-based 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 6 Table of Contents Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Non-Controlling Interest Total Shareholders' Equity Shares Amount Shares Amount Balance, December 31, 2023 69,507 $ 694 $ 742,981 $ 1,462,070 $ ( 647 ) 43,927 $ ( 1,623,549 ) $ — $ 581,549 Net income attributable to InterDigital, Inc. — — — 81,652 — — — — 81,652 Net change in unrealized loss on short-term investments — — — — ( 495 ) — — — ( 495 ) Dividends declared ($ 0.40 per share) — — 343 ( 10,490 ) — — — — ( 10,147 ) Issuance of common stock, net 131 2 ( 8,637 ) — — — — — ( 8,635 ) Share-based compensation — — 9,386 — — — — — 9,386 Repurchase of common stock — — — — — 277 ( 29,019 ) — ( 29,019 ) Balance, March 31, 2024 69,638 $ 696 $ 744,073 $ 1,533,232 $ ( 1,142 ) 44,204 $ ( 1,652,568 ) $ — $ 624,291 Net income attributable to InterDigital, Inc. — — — 109,664 — — — — 109,664 Net change in unrealized loss on short-term investments — — — — ( 90 ) — — — ( 90 ) Dividends declared ($ 0.40 per share) — — 443 ( 10,495 ) — — — — ( 10,052 ) Issuance of common stock, net 39 — ( 1,580 ) — — — — — ( 1,580 ) Share-based compensation — — 9,655 — — — — — 9,655 Repurchase of common stock — — — — — 344 ( 35,111 ) — ( 35,111 ) Settlement of the 2024 Notes 324 3 ( 3 ) — — — — — — Settlement of the 2024 Hedges — — 37,120 — — 324 ( 37,120 ) — — Balance, June 30, 2024 70,001 $ 699 $ 789,708 $ 1,632,401 $ ( 1,232 ) 44,872 $ ( 1,724,799 ) $ — $ 696,777 The accompanying notes are an integral part of these statements. 7 Table of Contents INTERDIGITAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Six Months Ended June 30, 2024 2023 Cash flows from operating activities: Net income $ 191,316 $ 124,813 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 34,616 39,171 Non-cash interest income, net ( 6,429 ) ( 6,330 ) Non-cash change in investments ( 150 ) ( 3,258 ) Change in deferred revenue ( 54,408 ) ( 81,407 ) Deferred income taxes 29,495 430 Share-based compensation 19,041 16,530 Other — 2,581 Increase in assets: Receivables ( 106,348 ) ( 183,612 ) Deferred charges and other assets ( 41,151 ) ( 51,818 ) (Decrease) Increase in liabilities: Accounts payable ( 611 ) ( 955 ) Customer deposit ( 63,100 ) 76,100 Accrued compensation and other expenses ( 408 ) ( 5,537 ) Net cash provided by (used in) operating activities 1,863 ( 73,292 ) Cash flows from investing activities: Purchases of short-term investments ( 297,086 ) ( 531,556 ) Sales of short-term investments 415,988 485,528 Purchases of property and equipment ( 1,003 ) ( 2,603 ) Capitalized patent costs ( 21,595 ) ( 18,914 ) Long-term investments 1,194 — Net cash provided by (used in) investing activities 97,498 ( 67,545 ) Cash flows from financing activities: Payments on long-term debt ( 139,069 ) — Payments of debt issuance costs — ( 100 ) Repurchase of common stock ( 63,670 ) ( 245,870 ) Net proceeds from exercise of stock options — 699 Non-controlling interest contribution — 1,750 Taxes withheld upon restricted stock unit vestings ( 10,215 ) ( 8,098 ) Dividends paid ( 20,373 ) ( 19,833 ) Net cash used in financing activities ( 233,327 ) ( 271,452 ) Net decrease in cash, cash equivalents and restricted cash ( 133,966 ) ( 412,289 ) Cash, cash equivalents and restricted cash, beginning of period 442,961 703,161 Cash, cash equivalents and restricted cash, end of period $ 308,995 $ 290,872 Refer to Note 1, " Basis of Presentation, " for additional supplemental cash flow information. Additionally, refer to Note 3, " Cash, Concentration of Credit Risk and Fair Value of Financial Instruments " for a reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets. The accompanying notes are an integral part of these statements. 8 Table of Contents INTERDIGITAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2024 (unaudited) 1. BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited, condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position of InterDigital, Inc. (individually and/or collectively with its subsidiaries referred to as “InterDigital,” the “Company,” “we,” “us” or “our,” unless otherwise indicated) as of June 30, 2024, the results of our operations for the three and six months ended June 30, 2024 and 2023 and our cash flows for the six months ended June 30, 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”). The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP for year-end financial statements. Therefore, these financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (our “2023 Form 10-K”) as filed with the Securities and Exchange Commission (“SEC”) on February 15, 2024. Definitions of capitalized terms not defined herein appear within our 2023 Form 10-K. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year. We have one reportable segment. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Change in Accounting Policies There have been no material changes or updates to our existing accounting policies from the disclosures included in our 2023 Form 10-K, except as indicated below in " New Accounting Guidance ". Reclassifications Certain reclassifications have been made to prior year amounts to conform to the current year presentation. Supplemental Cash Flow Information The following table presents additional supplemental cash flow information for the six months ended June 30, 2024 and 2023 (in thousands): Six Months Ended June 30, Supplemental cash flow information: 2024 2023 Interest paid $ 9,311 $ 9,312 Income taxes paid, including foreign withholding taxes 16,920 21,132 Non-cash investing and financing activities: Dividend payable 10,052 9,273 Right-of-use assets obtained in exchange of operating lease liabilities 2,189 93 Accrued capitalized patent costs and property and equipment purchases ( 856 ) 729 Unsettled repurchase of common stock — 1,998 9 Table of Contents New Accounting Guidance 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. 2. REVENUE Disaggregated Revenue The following table presents the disaggregation of our revenue for the three and six months ended June 30, 2024 and 2023 (in thousands): Three Months Ended June 30, 2024 2023 Total Increase/(Decrease) Recurring revenues: Smartphone $ 73,525 $ 85,075 $ ( 11,550 ) ( 14 ) % CE, IoT/Auto 21,878 13,432 8,446 63 % Other 539 566 ( 27 ) ( 5 ) % Total recurring revenues 95,942 99,073 ( 3,131 ) ( 3 ) % Catch-up revenues a 127,551 2,518 125,033 4,966 % Total revenues $ 223,493 $ 101,591 $ 121,902 120 % 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 fixed-fee agreements. During the six months ended June 30, 2024, we recognized $ 84.9 million of revenue that had been included in deferred revenue as of the beginning of the period. As of June 30, 2024, we had contract assets of $ 201.9 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. 10 Table of Contents Contracted Revenue Based on contracts signed and committed as of June 30, 2024, we expect to recognize the following revenue from dynamic fixed-fee royalty payments over the term of such contracts (in thousands): Revenue (a) Remainder of 2024 $ 169,574 2025 327,439 2026 234,275 2027 227,858 2028 215,821 Thereafter 265,882 Total Revenue $ 1,440,849 (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. 3. 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 June 30, 2024, December 31, 2023 and June 30, 2023 to the captions within the condensed consolidated balance sheets and condensed consolidated statements of cash flows (in thousands): June 30, December 31, June 30, 2024 2023 2023 Cash and cash equivalents $ 299,762 $ 437,076 $ 277,599 Restricted cash included within prepaid and other current assets 9,233 5,885 13,273 Total cash, cash equivalents and restricted cash $ 308,995 $ 442,961 $ 290,872 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 88 % and 84 % of our accounts receivable balance, as of June 30, 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. 11 Table of Contents 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 June 30, 2024 and December 31, 2023 (in thousands): Fair Value as of June 30, 2024 Level 1 Level 2 Level 3 Total Assets: Money market and demand accounts (a) $ 303,146 $ — $ — $ 303,146 Commercial paper — 108,285 — 108,285 U.S. government securities — 206,160 — 206,160 Corporate bonds, asset backed and other securities (c) — 151,985 — 151,985 Total $ 303,146 $ 466,430 $ — $ 769,576 Fair Value as of December 31, 2023 Level 1 Level 2 Level 3 Total Assets: Money market and demand accounts (a) $ 430,707 $ — $ — $ 430,707 Commercial paper (b) — 174,991 — 174,991 U.S. government securities — 256,850 — 256,850 Corporate bonds, asset backed and other securities (c) — 149,693 — 149,693 Total $ 430,707 $ 581,534 $ — $ 1,012,241 ______________________________ (a) Primarily included within cash and cash equivalents. (b) As of December 31, 2023, $ 5.7 million of commercial paper was included within cash and cash equivalents. (c) As of June 30, 2024 and December 31, 2023, $ 5.8 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 Patents 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. Investment in Other Entities During second quarter 2024 and 2023, we recognized gains of $ 2.2 million and $ 3.1 million, respectively, 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. 12 Table of Contents 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 June 30, 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. June 30, 2024 December 31, 2023 Principal Amount Carrying Value Fair Value Principal Amount Carrying Value Fair Value 2027 Senior Convertible Long-Term Debt $ 460,000 $ 453,766 $ 707,135 $ 460,000 $ 452,830 $ 677,230 2024 Senior Convertible Long-Term Debt $ — $ — $ — $ 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 June 30, 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. June 30, 2024 December 31, 2023 Carrying Value Fair Value Carrying Value Fair Value Technicolor Patent Acquisition Long-Term Debt $ 17,687 $ 16,528 $ 29,019 $ 28,859 4. OTHER ASSETS AND LIABILITIES The amounts included in " Prepaid and other current assets " in the condensed consolidated balance sheet as of June 30, 2024 and December 31, 2023 were as follows (in thousands): June 30, 2024 December 31, 2023 Prepaid assets $ 35,775 $ 9,353 Tax receivables 21,536 19,835 Restricted cash 9,233 5,885 Other current assets 6,591 8,903 Total Prepaid and other current assets $ 73,135 $ 43,976 The amounts included in " Other non-current assets, net " in the condensed consolidated balance sheet as of June 30, 2024 and December 31, 2023 were as follows (in thousands): June 30, 2024 December 31, 2023 Tax receivables $ 83,385 $ 76,740 Long-term investments 35,146 31,895 Goodwill 22,421 22,421 Right-of-use assets 16,680 15,746 Other non-current assets 8,284 2,854 Total Other non-current assets, net $ 165,916 $ 149,656 The amounts included in " Other accrued expenses " in the condensed consolidated balance sheet as of June 30, 2024 and December 31, 2023 were as follows (in thousands): June 30, 2024 December 31, 2023 Accrued legal fees $ 15,248 $ 10,338 Customer deposit 13,000 76,100 Other accrued expenses 12,640 11,604 Total Other accrued expenses $ 40,888 $ 98,042 13 Table of Contents The amounts included in " Other long-term liabilities " in the condensed consolidated balance sheet as of June 30, 2024 and December 31, 2023 were as follows (in thousands): June 30, 2024 December 31, 2023 Deferred compensation liabilities $ 19,245 $ 18,413 Operating lease liabilities 17,659 17,385 Other long-term liabilities 19,317 19,454 Total Other long-term liabilities $ 56,221 $ 55,252 5. OBLIGATIONS 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 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. As such, the 2027 Notes are included in " Current portion of long-term debt " in our condensed consolidated balance sheets as of June 30, 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. 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 June 30, 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 Senior Convertible Notes due in 2024 (the "2024 Notes") that bore 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 matured on June 1, 2024. 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. We repaid the remaining $ 126.2 million in aggregate principal at maturity on June 1, 2024. 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 covered, subject to customary anti-dilution adjustments, approximately 4.9 million shares of common stock, in the aggregate, at a strike price that corresponded to the conversion price of the 2024 Notes, subject to adjustment, and were 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. At maturity on June 1, 2024, the Company issued 0.3 million shares to settle the 2024 Notes that had been converted by holders. This issuance was effectively offset by our receipt of 0.3 million shares from the settlement of the 2024 Note Hedge Transactions. No shares have been issued related to the 2024 Warrant Transactions as of June 30, 2024, and warrants to acquire 1.6 million shares of common stock at an initial strike price of approximately $ 109.43 per share, subject to adjustment, remain outstanding. The 2024 Warrants settle during the period September 3, 2024 through December 17, 2024. 14 Table of Contents The following table reflects the carrying value of our Convertible Notes long-term debt as of June 30, 2024 and December 31, 2023 (in thousands): June 30, 2024 December 31, 2023 3.50 % Senior Convertible Notes due 2027 $ 460,000 $ 460,000 2.00 % Senior Convertible Notes due 2024 — 126,174 Less: Deferred financing costs ( 6,234 ) ( 7,422 ) Net carrying amount of the Convertible Notes 453,766 578,752 Less: Current portion of long-term debt ( 453,766 ) ( 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 and six months ended June 30, 2024 and 2023 relating to the contractual interest coupon and the amortization of deferred financing costs of the Convertible Notes (in thousands): Three Months Ended June 30, 2024 2023 2027 Notes 2024 Notes Total 2027 Notes 2024 Notes Total Contractual coupon interest $ 4,025 $ 428 $ 4,453 $ 4,025 $ 631 $ 4,656 Amortization of deferred financing costs 471 101 572 436 144 580 Total $ 4,496 $ 529 $ 5,025 $ 4,461 $ 775 $ 5,236 Six Months Ended June 30, 2024 2023 2027 Notes 2024 Notes Total 2027 Notes 2024 Notes Total Contractual coupon interest $ 8,050 $ 1,059 $ 9,109 $ 8,050 $ 1,262 $ 9,312 Amortization of deferred financing costs 936 252 1,188 867 286 1,153 Total $ 8,986 $ 1,311 $ 10,297 $ 8,917 $ 1,548 $ 10,465 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 (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 June 30, 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. 15 Table of Contents 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 and six months ended June 30, 2024, we recognized $ 1.0 million and $ 1.6 million, respectively, of interest expense related to this debt, compared to $ 1.0 million and $ 1.3 million during the three and six months ended June 30, 2023, 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. We made $ 12.9 million in payments to CPPIB Credit during the six months ended June 30, 2024 and no payments were made during the six months ended June 30, 2023. 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 June 30, 2024, the contingent consideration liability from the revenue-sharing arrangement was deemed not probable and is therefore not reflected within the consolidated financial statements. 6. LITIGATION AND LEGAL PROCEEDINGS ARBITRATIONS AND COURT PROCEEDINGS Lenovo UK Proceedings On August 27, 2019, the Company and certain of its subsidiaries filed a claim in the UK High Court against Lenovo Group Limited and certain of its subsidiaries. The claim, as amended, alleges infringement of five of the Company’s patents relating to 3G and/or 4G/LTE standards: European Patent (UK) Nos. 2,363,008; 2,421,318; 2,485,558; 2,557,714; and 3,355,537. The Company sought, among other relief, injunctive relief to prevent further infringement of the asserted patents or, in the alternative, a determination of the terms of a FRAND license. On July 29, 2021, the UK High Court issued its decision regarding the first technical trial finding European Patent (UK) No. 2,485,558 valid, infringed, and essential to Release 8 of LTE. Lenovo appealed this decision, and on January 19, 2023, the UK Court of Appeal upheld the UK High Court’s findings that Lenovo is infringing on InterDigital’s valid and essential patent. On January 6, 2022, the UK High Court issued its decision regarding the second technical trial finding European Patent (UK) No. 3,355,537 invalid, but essential and infringed but for the finding of invalidity. The Company appealed this decision as legally erroneous, and on February 9, 2023, the UK Court of Appeal allowed the appeal, finding that Lenovo is infringing on InterDigital’s valid and essential patent. On January 31, 2023, the UK High Court issued its decision regarding the third technical trial finding European Patent (UK) No. 2,421,318 valid, essential, and infringed. 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 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. The court also found that the Company should pay a portion of Lenovo’s costs and granted both parties permission to appeal on certain grounds. Both parties filed Appellant’s Notices and the appeals were docketed on July 31, 2023. On September 19, 2023, the Court of Appeal granted the Company permission to appeal on all its requested grounds. The appeal was heard on June 10-14, 2024, and the UK Court of Appeal issued its decision on July 12, 2024. The UK Court of Appeal ruled in favor of InterDigital and awarded the Company an additional amount of $ 55.2 million to a total of approximately $ 240.1 million. It rejected Lenovo’s appeal in its entirety and confirmed that Lenovo must pay for all of its past sales starting from 2007 through December 31, 2023. The court also found that Lenovo should pay the Company’s costs for the appeal and reduced the costs that Lenovo was awa rded from the initial decision. 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. 16 Table of Contents On September 24, 2023, Lenovo filed a new claim in the UK High Court against the Company. The claim alleges invalidity of two of the Company’s patents relating to 4G/LTE standards: European Patent (UK) Nos. 2,557,714 and 2,557,715. 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 was held on July 17, 2024. District of Delaware Patent Proceedings On August 28, 2019, the Company and certain of its subsidiaries filed a complaint in the United States District Court for the District of Delaware (the "Delaware District Court") against Lenovo Holding Company, Inc. and certain of its subsidiaries alleging that Lenovo infringes eight of the Company’s U.S. patents-U.S. Patent Nos. 8,085,665; 8,199,726; 8,427,954; 8,619,747; 8,675,612; 8,797,873; 9,203,580; and 9,456,449-by making, using, offering for sale, and/or selling Lenovo wireless devices with 3G and/or 4G LTE capabilities. As relief, InterDigital is seeking: (a) a declaration that the Company is not in breach of its relevant FRAND commitments with respect to Lenovo; (b) to the extent Lenovo does not agree to negotiate a worldwide patent license, does not agree to enter into binding international arbitration to set the terms of a FRAND license, and does not agree to be bound by the terms to be set by the UK High Court in the separately filed UK proceedings described above, an injunction prohibiting Lenovo from continued infringement; (c) damages, including enhanced damages for willful infringement and supplemental damages; and (d) attorneys’ fees and costs. On September 16, 2020, the Delaware District Court entered a schedule for the case, setting a patent jury trial. On March 8, 2021, the Delaware District Court held a claim construction hearing, and the court issued its order on May 10, 2021, construing various disputed terms. On March 24, 2021, the Delaware District Court consolidated the antitrust proceeding discussed below with this patent proceeding. On April 25, 2022, the parties filed a stipulation to stay only the claims relating to U.S. Patent No. 8,199,726. The stipulation was granted. On January 13, 2023, Lenovo filed a motion to sever and stay the Company’s patent infringement claims, requesting that its Sherman Act and breach of FRAND claims proceed to trial. On June 30, 2023, the parties submitted an update to the Court requesting that the entire case be stayed, and on July 18, 2023, the court ordered that the case be stayed pending resolution of all appeals in the UK proceedings. District of Delaware Antitrust Proceedings On April 9, 2020, Lenovo (United States) Inc. and Motorola Mobility LLC filed a complaint in the Delaware District Court against the Company and certain of its subsidiaries. The complaint alleges that the Company defendants have violated Sections 1 and 2 of the Sherman Act in connection with, among other things, their licensing of 3G and 4G standards essential patents ("SEPs"). The complaint further alleges that the Company defendants have violated their commitment to the ETSI with respect to the licensing of 3G and 4G SEPs on FRAND terms and conditions. The complaint seeks, among other things (i) rulings that the Company defendants have violated Sections 1 and 2 of the Sherman Act and are liable for breach of their ETSI FRAND commitments, (ii) a judgment that the plaintiffs are entitled to a license with respect to the Company’s 3G and 4G SEPs on FRAND terms and conditions, and (iii) injunctions against any demand for allegedly excessive royalties or enforcement of the Company defendants’ 3G and 4G U.S. SEPs against the plaintiffs or their customers via patent infringement proceedings. On June 22, 2020, the Company filed a motion to dismiss Lenovo’s Sherman Act claims with prejudice, and to dismiss Lenovo’s breach of contract claim with leave to re-file as a counterclaim in the Company’s legal proceeding against Lenovo in the Delaware District Court discussed above. On March 24, 2021, the Delaware District Court ruled on the Company’s motion to dismiss. The Delaware District Court dismissed the Sherman Act Section 1 claim without prejudice, denied the motion to dismiss the Sherman Act Section 2 claim, and consolidated the Section 2 and breach of contract claims with Company’s Delaware patent proceeding discussed above. Accordingly, these claims have been stayed pending resolution of all appeals in the UK proceedings. 17 Table of Contents International Trade Commission and Companion District Court Proceedings On September 1, 2023, the Company and certain of its subsidiaries filed a complaint in the United States International Trade Commission (the "International Trade Commission") against Lenovo Group Ltd. and certain of its subsidiaries alleging that Lenovo infringes five of the Company’s U.S. patents (U.S. Patent Nos. 10,250,877, 8,674,859, 9,674,556, 9,173,054, and 8,737,933) by making, using, offering for sale, and/or selling certain electronic devices, including smartphones, computers, tablet computers, and components thereof that infringe certain claims of the asserted patents. As relief, the Company is seeking: (a) a limited exclusion order against Lenovo barring from entry into the United States all of Lenovo’s products that infringe the asserted patents; (b) cease and desist orders prohibiting Lenovo from importing, selling, offering for sale, marketing, advertising, and distributing, infringing products; and (c) a bond during the 60-day Presidential review period. On October 5, 2023, the International Trade Commission instituted the requested investigation. 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. and certain of its subsidiaries alleging that Lenovo infringes five of the Company’s U.S. patents (U.S. Patent Nos. 10,250,877, 8,674,859, 9,674,556, 9,173,054, and 8,737,933) by making, using, offering for sale, and/or selling Lenovo smartphones, computers (including both laptop and desktop), and tablet computers that utilize the Company’s patented technology. As relief, the Company is seeking: (a) a finding that Lenovo is liable for infringement of the asserted patents; (b) an injunction against further infringement; (c) damages, including enhanced damages for willful infringement and supplemental damages; and (d) costs. 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. On July 17, 2024, the North Carolina District Court granted Lenovo’s Motion for Judgment on the Pleadings in part, finding two of the asserted patents to be invalid, and denied Lenovo’s motion with respect to a third asserted patent that was challenged by Lenovo. Germany Proceedings On September 22, 2023, the Company filed a complaint with the Munich Regional Court against Lenovo and certain of its affiliates, alleging infringement of European Patent No. 2,127,420, relating to cellular 4G/LTE and/or 5G standards. The Company is seeking, among other relief, injunctive relief to prevent further infringement of the asserted patents. On May 2, 2024, the Munich Regional Court issued a judgment finding Lenovo infringes European Patent No. 2,127,420 and that the Company complied with its FRAND obligations while Lenovo did not; the Court ordered Lenovo to cease and desist selling infringing products. The Company served Lenovo with an enforcement note of the judgment on May 7, 2024. Lenovo appealed the judgment on May 2, 2024. On May 7, 2024, Lenovo requested a stay of the enforcement of the judgment, and on June 25, 2024, the Munich Regional Court rejected Lenovo’s request. Oppo, OnePlus and realme UK Proceedings On December 20, 2021, the Company filed a patent infringement claim in the UK High Court against Guangdong Oppo Mobile Telecommunications Corp., Ltd. (“Oppo”) and certain of its affiliates, OnePlus Technology (Shenzhen) Co., Ltd. (“OnePlus”) and certain of its affiliates, and realme Mobile Telecommunications (Shenzhen) Co., Ltd. (“realme”) and certain of its affiliates, alleging infringement of European Patent (UK) Nos. 2,127,420; 2,421,318; 2,485,558; and 3,355,537 relating to cellular 3G, 4G/LTE or 5G standards. The Company is seeking, among other relief, injunctive relief to prevent further infringement of the asserted patents. On March 24, 2023, the parties agreed to stay all technical trials on the basis that European Patent No. 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 was held from March 1 - April 16, 2024; judgment is pending. India Proceedings On December 20, 2021 and December 22, 2021, the Company and certain of its subsidiaries filed patent infringement claims in the Delhi High Court in New Delhi, India against Oppo and certain of its affiliates , OnePlus and certain of its affiliates, and realme Mobile Telecommunication (India) Private Limited, alleging infringement of Indian Patent Nos. 262910, 295912, 313036, 320182, 319673, 242248, 299448, and 308108 relating to cellular 3G, 4G/LTE, and/or 5G, and HEVC standards. 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. Evidentiary trial proceedings are expected to take place from September 2024 through December 2024. 18 Table of Contents Germany Proceedings On December 20, 2021, a subsidiary of the Company filed three patent infringement claims, two in the Munich Regional Court and one in the Mannheim Regional Court, against Oppo and certain of its affiliates, OnePlus and certain of its affiliates, and realme and certain of its affiliates, alleging infringement of European Patent Nos. 2,485,558; 2,127,420; and 2,421,318 relating to cellular 3G, 4G/LTE and/or 5G standards. 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 March 2, 2023 regarding European Patent No. 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. 2,485,558. On November 30, 2023, the Munich Regional Court entered a stay of proceedings regarding European Patent No. 2,421,318. China Proceedings On January 19, 2022, the Company was informed that Oppo had purportedly filed a complaint against the Company in the Guangzhou Intellectual Property Court (the “Guangzhou IP Court”) seeking a determination of a global FRAND royalty rate for the Company’s 3G, 4G, 5G, 802.11 and HEVC SEPs. On May 20, 2022, the Company filed an application challenging, among other things, process of service and the jurisdiction of the Guangzhou IP Court. On January 12, 2023, the Guangzhou IP Court denied the application. On February 28, 2023, the Company filed an appeal to the decision. The Supreme People’s Court denied the appeal on September 7, 2023. An initial evidentiary hearing was held on October 13, 2023. Spain Proceedings On March 1, 2022, a subsidiary of the Company filed patent infringement claims in the Barcelona Commercial Courts against Oppo and certain of its affiliates, OnePlus and certain of its affiliates, and realme and certain of its affiliates. The Company filed its amended complaint on April 25, 2022, alleging infringement of European Patent Nos. 3,355,537; 2,485,558; 2,421,318; and 2,557,715 relating to cellular 3G, 4G/LTE and/or 5G standards. 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. 2023. The Company filed its response to Oppo’s counterclaims on December 20, 2023. Samsung The Company reached an agreement with Samsung Electronics Co. Ltd. (“Samsung”) to enter into binding arbitration to determine the final terms of a renewed patent license agreement to certain of the Company’s patents, which will be effective from January 1, 2023. The Company and Samsung have also agreed not to initiate certain claims against the other during the arbitration. On March 31, 2023, the Company filed a request for arbitration with the International Chamber of Commerce. On July 21, 2023, the International Chamber of Commerce confirmed the full tribu nal for the arbitration. The two-week arbitration hearing was held in July 2024, and we expect a decision by the end of 2024. Tesla 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; the jurisdiction challenge was heard on May 24-25 and June 4, 2024, and on July 15, 2024 the UK High Court issued a judgment dismissing Tesla’s FRAND claims against the Company and Avanci, and maintaining Tesla’s patent claims against the Company. The patent claims against the Company were further stayed by the UK High Court, and a hearing on costs and permission to appeal is scheduled for July 30, 2024. On July 16, 2024, Tesla sought permission to appeal the decision; the Company also sought permission to appeal on two limited grounds conditionally, should Tesla’s request for an appeal be granted. OTHER 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 June 30, 2024 , except as noted above. 19 Table of Contents 7. INCOME TAXES In the six months ended June 30, 2024 and 2023, the Company had an estimated 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 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 %. During both the six months ended June 30, 2024 and 2023, the Company recorded discrete net benefits of $ 2.4 million and $ 1.2 million, respectively, primarily related to share-based compensation. The effective tax rate reported in any given year will continue to be influenced by a variety of factors, including timing differences between the recognition of book and tax revenue, the level of pre-tax income or loss, the foreign vs. domestic classification of the Company’s customers, and any discrete items that may occur. During the six months ended June 30, 2024 and 2023, the Company paid approximately $ 13.4 million and $ 6.0 million, respectively, in foreign source creditable withholding tax. 8. 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): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net income applicable to InterDigital, Inc. $ 109,664 $ 21,783 $ 191,316 $ 127,042 Weighted-average shares outstanding: Basic 25,207 26,768 25,359 27,754 Dilutive effect of stock options, RSUs, and warrants 832 632 860 612 Dilutive effect of convertible securities 1,871 255 1,906 128 Diluted 27,910 27,655 28,125 28,494 Earnings per share: Basic $ 4.35 $ 0.81 $ 7.54 $ 4.58 Dilutive effect of stock options, RSUs, and warrants ( 0.12 ) ( 0.02 ) ( 0.21 ) ( 0.10 ) Dilutive effect of convertible securities ( 0.30 ) — ( 0.53 ) ( 0.02 ) Diluted $ 3.93 $ 0.79 $ 6.80 $ 4.46 Shares of common stock issuable upon the exercise or conversion of certain securities have been excluded from our computation of EPS because the strike price or conversion rate, as applicable, of such securities was greater than the average market price of our common stock and, as a result, the effect of such exercise or conversion would have been anti-dilutive. Set forth below are the securities and the weighted average number of shares of common stock underlying such securities that were excluded from our computation of EPS for the periods presented (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Restricted stock units and stock options 4 4 2 212 Warrants 7,462 7,488 7,475 7,488 Total 7,466 7,492 7,477 7,700 20 Table of Contents 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. 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. 9. OTHER INCOME, NET The amounts included in " Other income, net " in the condensed consolidated statements of income for the three and six months ended June 30, 2024 and 2023 were as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Interest and investment income $ 10,125 $ 10,254 $ 21,903 $ 21,934 Other 1,557 4,133 ( 974 ) 5,644 Other income, net $ 11,682 $ 14,387 $ 20,929 $ 27,578 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 and $ 3.3 million in the three and six months ended June 30, 2024, respectively, compared to net gains of $ 0.4 million and $ 1.2 million in three and six months ended June 30, 2023, respectively. 21 Table of Contents