What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-08-01 · 116 added, 109 removed, 200 unchanged (53% of the section changed)

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

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.

Subsequent Events

In October 2024, we entered into a patent license agreement with Oppo Group.

The agreement covers Oppo, realme and OnePlus branded mobile devices worldwide.

As part of the agreement, both parties have agreed to dismiss all pending litigations between us.

We expect to recognize revenue related to the patent license agreement beginning in fourth quarter 2024.

In October 2024, we entered into an arbitration agreement with Lenovo to determine the terms of a new patent license.

As part of the agreement to arbitrate, both parties have agreed to dismiss all pending litigations between them.

We expect to recognize revenue related to the arbitration agreement, on an estimated basis, beginning in fourth quarter 2024.

New Agreements

In September 2024, we signed new patent license agreements with TPV, a major manufacturer of a range of digital TVs under various brands.

These agreements license TPV to InterDigital’s extensive portfolio of HEVC patents as well as DTV patents licensed through InterDigital´s joint licensing program with Sony.

Additionally, in August 2024, we signed a signed a new license agreement with Panasonic.

Notes, Hedge, and Warrant Transactions

A portion of the 2024 Warrant Transaction settled during third quarter 2024 resulting in the issuance of 0.1 million shares.

As of September 30, 2024, 1.1 million warrants at an initial strike price of approximately $109.43 per share, subject to adjustment, remain outstanding and will settle, on a net-share basis, during the period October 1, 2024 to December 17, 2024.

Additionally, 5.9 million warrants remain outstanding related to the 2027 Warrant Transactions at a weighted average strike price of $106.31 per share, subject to adjustment, which mature on a net-share basis beginning September 2027 through April 2028.

During third quarter 2024, the 2027 Notes had a dilutive impact of 2.4 million shares, which are offset from an economic standpoint by the 2027 Note Hedge Transactions and would result in no incremental shares being issued upon conversion.

However, under GAAP, we are required to exclude the impact of the shares received from the 2027 Note Hedge Transactions counterparties from the calculation of weighted average diluted shares outstanding.

Assuming a share price of $150, we would issue 0.3 million and 1.7 million of common shares related to the 2024 and 2027 Warrant Transactions, respectively.

Refer to " Financial Position, Liquidity, and Capital Resources — Convertible Notes " for further information regarding how changes in our stock price would affect the number of shares issuable related to the 2024 Warrant Transactions and the 2027 Warrant Transactions.

Return of Capital to Shareholders

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.

During the third quarter 2024, we returned $14.5 million to shareholders, including $11.4 million, or $0.45 per share, of cash dividends declared and $3.1 million through the repurchase of shares of common stock.

Additionally, we announced an increase to the quarterly cash dividend from $0.40 to $0.45 per share, beginning with the dividend paid in fourth quarter 2024.

As of October 31, 2024, there was $229.5 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 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.

As of September 30, 2024, we had $822.9 million of cash, restricted cash, and short-term investments and over $1.1 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 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,

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

Three Months Ended September 30, Nine Months Ended September 30,

Non-cash revenue:

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Total Revenue $ 128,679 $ 140,106 $ 615,714 $ 444,070

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

Net cash provided by operating activities

$ 77,631 $ 310,610 $ 79,494 $ 237,318

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

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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 June 30, 2024 (in thousands):

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

Deferred Revenue

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Total Revenue $ 373,550

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.

Total revenues of $128.7 million, which includes both recurring and catch-up revenues, decreased 8% compared to third quarter 2023 primarily due to catch-up revenues from the Lenovo HEVC agreement recognized in third quarter 2023, partially offset by revenues recognized from new agreements and the resolution of litigation.

Third quarter 2024 recurring revenues were $98.6 million, compared to recurring revenues of $104.5 million in third quarter 2023.

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

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

Impact of Macroeconomic and Geopolitical Factors

We have been actively monitoring the impact of the current macroeconomic environment in the U.S.

and globally characterized by inflation, supply chain issues, rising interest rates, labor shortages, and the potential for a recession.

and globally characterized by inflation, supply chain issues, high interest rates, labor shortages, and the potential for a recession.

These market factors, as well as the impacts of the Ukraine-Russia and Middle East conflicts, have not had a material impact on our business to date.

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Comparability of Financial Results

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.

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

• Our third quarter 2024 revenues include $30.0 million of catch-up revenues primarily related to new agreements and the resolution of litigation.

Operating Expenses

• 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.

• During third quarter 2024, we recorded a $1.2 million one-time contra expense for a net litigation fee reimbursement.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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 /

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

September 30, 2024 December 31, 2023 Increase / (Decrease)

Cash and cash equivalents $ 401,090 $ 437,076 $ (35,986)

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

$ 822,900 $ 1,012,241 $ (189,341)

The net decrease in cash, cash equivalents, restricted cash, and short-term investments was attributable to cash used in financing activities of $251.0 million and cash used in investing activities of $33.9 million, excluding sales and purchases of short-term investments, partially offset by cash provided by operating activities of $79.5 million.

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

Cash flows provided by (used in) operating activities

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,

Cash flows provided by operating activities

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

Nine Months Ended September 30,

2024 2023 Change

Net cash provided by (used in) operating activities $ 1,863 $ (73,292) $ 75,155

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 $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,

Net cash provided by operating activities

$ 79,494 $ 237,318 $ (157,824)

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

The $157.8 million change in net cash provided by operating activities was driven by increased cash operating expenses primarily due to increased revenue share costs from new patent license agreements and lower cash receipts primarily due to cash receipts from new agreements signed in both periods and timing of cash receipts from existing patent license agreements.

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

Nine Months Ended September 30,

2024 2023 Change

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Other working capital adjustments (45,532) (15,551) (29,981)

Cash flows provided by (used in) operating activities

Cash flows provided by operating activities

$ 79,494 $ 237,318 $ (157,824)

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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.

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

Amount includes revenue share costs of $78.7 million and $2.4 million in first nine months 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 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.

Net cash provided by investing activities for first nine months 2024 was $139.4 million, a $213.6 million change from $74.3 million of net cash used in investing activities in first nine months 2023.

During first nine months 2024, we sold $173.2 million of short-term marketable securities, net of purchases, and capitalized $35.4 million of patent costs and property and equipment purchases.

During first nine months 2023, we purchased $43.7 million of short-term marketable securities, net of sales, and capitalized $31.2 million of patent costs and property and equipment purchases.

Net cash used in financing activities for first nine months 2024 was $251.0 million, a change of $89.4 million from $340.5 million the first nine months 2023.

This change was primarily attributable to a $236.0 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.

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.

Our combined short-term and long-term deferred revenue balance as of September 30, 2024 was approximately $373.6 million, a net decrease of $3.9 million from December 31, 2023.

This decrease in deferred revenue was primarily due 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 September 30, 2024 deferred revenue balance of $373.6 million by $156.9 million over the next twelve months.

Convertible Notes

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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.

A portion of the 2024 Warrant Transactions settled during third quarter 2024 resulting in the issuance of 0.1 million shares related to the 2024 Warrant Transactions.

As of September 30, 2024, 1.1 million warrants at an initial strike price of approximately $109.43 per share, subject to adjustment, remain outstanding and will settle during the period October 1, 2024 to December 17, 2024 on a net-share basis.

From the period January 1, 2024 through December 31, 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.

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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.

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 Warrant Transactions 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 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):

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 September 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 Note 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 Note Hedge Transactions (in thousands):

2027 Notes 2024 Warrants

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RESULTS OF OPERATIONS

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,

Third Quarter 2024 Compared to Third Quarter 2023

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

Three Months Ended September 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 $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,

Total revenues of $128.7 million, which includes both recurring and catch-up revenues, decreased 8% from third quarter 2023 primarily due to catch-up revenues from the Lenovo HEVC agreement recognized in third quarter 2023, partially offset by revenues recognized from new agreements and the resolution of litigation.

Recurring revenues decreased 6% to $98.6 million primarily due to the 2023 expiration of Huawei and other agreements, which were partially offset by increased CE, IoT/Auto revenues.

In third quarter 2024 and 2023, 83% and 78%, respectively, of our total revenue was attributable to licensees that individually accounted for 10% or more of our total revenue.

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

Three Months Ended

September 30,

Operating Expenses

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,

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

Three Months Ended September 30,

2024 2023 Increase/(Decrease)

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Total Operating expenses $ 89,337 $ 86,453 $ 2,884 3 %

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

Operating expenses increased to $89.3 million in third quarter 2024 from $86.5 million in third quarter 2023.

The $2.9 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

Performance-based compensation

Net litigation fee reimbursement (1,161)

Total increase in operating expenses $ 2,884

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.

Operating expenses were relatively flat compared to third quarter 2023.

Revenue share costs increased $6.1 million primarily due to the TPV and Samsung TV agreements signed in 2024, which are subject to the Madison revenue share arrangement.

This increase was offset by a $1.4 million decrease in performance-based compensation mostly due to one-time performance-based compensation costs recognized in third quarter 2023 and $1.2 million net litigation fee reimbursements due to litigation successes.

Research and portfolio development expense:

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

Research and portfolio development decreased $1.9 million primarily due to the above-noted decrease in performance-based compensation, as well as a decrease in patent amortization.

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.

Licensing expense increased $5.9 million primarily driven by the above-noted 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.

General and administrative expense decreased by $1.1 million primarily due to the above-noted decreased 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,

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

Three Months Ended September 30,

2024 2023 Increase/(Decrease)

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Total non-operating income, net $ 1,873 $ 2,042 $ (169) (8) %

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.

Non-operating income, net was relatively flat with decreased interest expense mostly offsetting the decreased interest and investment income that is based on lower investment balances compared to third quarter 2023.

The change in Other income, net was primarily due to a foreign currency translation net gain arising from translation of our foreign subsidiaries of $2.8 million in third quarter 2024, compared to a $2.2 million net loss in third quarter 2023 and due to fair value adjustments of our investments resulting in a $1.1 million net gain in third quarter 2024, compared to a $5.6 million net gain in third quarter 2023.

In third 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 17.0% and 15.3%, 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)

The effective tax rate in the three months ended September 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 September 30, 2023 would have been 14.4%.

First Nine Months 2024 Compared to First Nine Months 2023

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

Nine Months Ended September 30,

2024 2023 Increase/(Decrease)

Recurring revenues:

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(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,

Total revenues of $615.7 million, which includes both recurring and catch-up revenues, increased 39% from the first nine months 2023 primarily due to catch-up revenues recognized from both new agreements and the resolution of litigation, partially offset by catch-up revenues related to the Lenovo UK proceedings and other previously announced agreements recognized in first nine months ended 2023.

Recurring revenues decreased 4% to $291.4 million, compared to $305.1 million in first nine months 2023, with increased CE, IoT/Auto revenue mostly offsetting the 2023 expiration of Huawei and other agreements.

In first nine months 2024 and 2023, 77% and 79% of our total revenue, respectively, was attributable to companies that individually accounted for 10% or more of our total revenue.

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

Nine Months Ended September 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,

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

Nine Months Ended September 30,

2024 2023 Increase/(Decrease)

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Total operating expenses $ 338,728 $ 247,780 $ 90,948 37 %

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

Operating expenses increased 37% to $338.7 million in first nine months 2024 from $247.8 million in first nine months 2023.

The $90.9 million increase in total operating expenses was primarily due to changes in the following items (in thousands):

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Total increase in operating expenses $ 90,948

The $88.1 million increase in operating expenses was driven by a $70.2 million increase in revenue share costs primarily related to the Samsung TV agreement and a $7.4 million increase in performance-based compensation due to higher accrual rates driven by licensing successes.

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 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.

The $90.9 million increase in operating expenses was driven by a $76.3 million increase in revenue share costs primarily related to the TPV and Samsung TV agreements and a $6.0 million increase in performance-based compensation due to higher accrual rates driven by licensing successes.

Additionally, intellectual property enforcement costs increased $23.3 million due to costs associated with the Lenovo and Oppo proceedings, as well as the Samsung arbitration.

These increases were partially offset by a change in the net litigation reimbursement contra expense of $4.4 million recorded in first nine months 2024 compared to $7.5 million of expense recorded in first nine months 2023.

Research and portfolio development expense:

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

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

Licensing expense:

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Non-Operating (Expense) Income, net

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,

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

Nine Months Ended September 30,

2024 2023 Increase/(Decrease)

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Interest and investment income 31,078 33,697 (2,619) (8) %

Other (expense) income, net (974) 5,644 (6,618) (117) %

Other income, net

2,405 8,606 (6,201) (72) %

Total non-operating (expense) income, net $ (603) $ 5,392 $ (5,995) (111) %

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.

Interest expense and interest and investment income were relatively flat compared to first nine months 2023, with the decreased interest and investment income mostly offset by the decreased interest expense.

Other income, net changed primarily due to fair value adjustments of our investments resulting in a $4.6 million net gain in first nine months 2024, compared to a $10.5 million net gain in first nine months 2023.

In first nine months 2024 and 2023, we had an effective tax rate of 18.4% and 14.7%, 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%.

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.

The effective tax rate in first nine months 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 nine months ended September 30, 2023 would have been 13.4%.

In the nine months ended 2024 and 2023, we recorded a net discrete tax benefit of $4.3 million and $2.9 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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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