InterDigital, Inc. 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . OVERVIEW The following discussion should be read in conjunction with the unaudited, condensed consolidated financial statements and notes thereto contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, in addition to our 2023 Form 10-K, other reports filed with the SEC and the Statement Pursuant to the Private Securities Litigation Reform Act of 1995 — Forward-Looking Statements below. Throughout the following discussion and elsewhere in this Form 10-Q, we refer to “recurring revenues” and “catch-up revenues.” For variable and dynamic fixed-fee license agreements, “catch-up revenues” primarily represents revenue associated with reporting periods prior to the execution of the license agreement, while “recurring revenue” represents revenue associated with reporting periods beginning with the execution of the license agreement. For static fixed-fee license agreements, we typically classify the associated revenue as catch-up revenues. 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 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. 22 Table of Contents Cash & Short-term Investments 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 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, Cash vs. Non-cash revenue: 2024 2023 2024 2023 Fixed fee cash receipts (a) $ 160,300 $ 368,608 $ 384,990 $ 404,967 Other cash receipts (b) 10,025 4,032 35,746 37,620 Change in deferred revenue (50,495) (77,474) 3,913 3,933 Change in receivables (11,220) (167,222) 95,128 16,390 Other (c) 20,069 12,162 95,937 (18,840) Total Revenue $ 128,679 $ 140,106 $ 615,714 $ 444,070 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 (b) Other cash receipts are primarily comprised of cash receipts related to our variable patent royalty revenue and catch-up revenues. (c) The changes in other are primarily driven by customer deposits partially offset by long-term contract assets associated with revenue estimates. When we collect payments on a front-loaded basis, we recognize a deferred revenue liability equal to the cash received and accounts receivable recorded which relate to revenue expected to be recognized in future periods. That liability is then reduced as we recognize revenue over the balance of the agreement. The following table shows the projected amortization of our current and long term deferred revenue as of September 30, 2024 (in thousands): Deferred Revenue Remainder of 2024 $ 52,406 2025 138,874 2026 139,057 2027 39,596 2028 1,141 Thereafter 2,476 Total Revenue $ 373,550 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. 23 Table of Contents 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, 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. However, if these conditions continue or worsen, they could have an adverse effect on our operating results and our financial condition. Comparability of Financial Results When comparing third quarter 2024 financial results against other periods, the following items should be taken into consideration: Revenue • 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 third quarter 2024, we recorded a $1.2 million one-time contra expense for a net litigation fee reimbursement. 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 litigation proceedings. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our significant accounting policies are described in Note 2, " Summary of Significant Accounting Policies and New Accounting Guidance ", in the notes to consolidated financial statements included in our 2023 Form 10-K. A discussion of our critical accounting policies, and the estimates related to them, are included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Form 10-K. There have been no material changes to our existing critical accounting policies from the disclosures included in our 2023 Form 10-K. Refer to Note 1, “ Basis of Presentation ,” in the notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for updates related to new accounting pronouncements and changes in accounting policies. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity are cash, cash equivalents, and short-term investments, as well as cash generated from operations. We believe we have the ability to obtain additional liquidity through debt and equity financings. From time to time, we may engage in a variety of transactions to augment our liquidity position as our business dictates and to take advantage of favorable interest rate environments or other market conditions, including the incurrence or issuance of debt and the refinancing or restructuring of existing debt. Based on our past performance and current expectations, we believe our available sources of funds, including cash, cash equivalents, and short-term investments and cash generated from our operations, will be sufficient to finance our operations, capital requirements, debt obligations, existing stock repurchase program, dividend program, and other contractual obligations discussed below in both the short-term over the next twelve months, and the long-term beyond twelve months. Cash, cash equivalents, restricted cash, and short-term investments 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) Restricted cash included within prepaid and other current assets 9,690 5,885 3,805 Short-term investments 412,120 569,280 (157,160) 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. 24 Table of Contents 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 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 Total Cash Receipts $ 420,736 $ 442,587 $ (21,851) Cash Outflows: Cash operating expenses a 258,441 159,601 98,840 Income taxes paid b 37,269 30,117 7,152 Total cash outflows 295,710 189,718 105,992 Other working capital adjustments (45,532) (15,551) (29,981) Cash flows provided by operating activities $ 79,494 $ 237,318 $ (157,824) ______________________________ (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 $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 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. Other 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. 25 Table of Contents Convertible Notes See Note 5, “ Obligations ” to the Notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for definitions of capitalized terms below. The 2024 Notes matured on June 1, 2024 resulting in 0.3 million of common shares being issued. This issuance was effectively offset by the settlement of the 2024 Note Hedge Transactions resulting in zero net shares being issued on June 1, 2024. 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. Under the if-converted method, we must assume that conversion of convertible securities occurs at the beginning of the reporting period. The 2027 Notes are convertible into cash up to the aggregate principal amount to be converted. Any remaining obligation of the 2027 Notes may be settled in cash, shares of the Company’s common stock or a combination thereof. As the principal amount must be paid in cash and only the conversion spread is settled in shares, we only include the net number of incremental shares that would be issued upon conversion. We must calculate the number of shares of our common stock issuable under the terms of the 2027 Notes based on the average market price of our common stock during the applicable reporting period and include that number in the total diluted shares figure for the period. At the time we issued the 2027 Notes, we entered into the 2027 Call Spread Transactions that together were designed to have the economic effect of reducing the net number of shares that will be issued in the event of conversion of the 2027 Notes by, in effect, increasing the conversion price of the 2027 Notes from our economic standpoint. However, under GAAP, since the impact of the 2027 Note Hedge Transactions is anti-dilutive, we exclude from the calculation of fully diluted shares the number of shares of our common stock that we would receive from the counterparties to these agreements upon settlement. During periods in which the average market price of our common stock is above the applicable conversion price of the 2027 Notes (initial conversion price of approximately $77.49 per share), or above the strike price of the warrants (weighted average strike price of $106.31 per share), the impact of conversion or exercise, as applicable, would be dilutive and such dilutive effect is reflected in diluted earnings per share. As a result, in periods where the average market price of our common stock is above the conversion price or strike price, as applicable, under the if-converted method, we calculate the number of shares issuable under the terms of the 2027 Notes and the 2027 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. 26 Table of Contents 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 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 Market Price Per Share Shares Issuable Upon Conversion of the 2027 Notes Shares Issuable Upon Exercise of the 2027 Warrant Transactions Total If-Converted Method Incremental Shares Shares Deliverable to InterDigital upon Settlement of the 2027 Note Hedge Transactions Incremental Shares Issuable (a) Shares Issuable Upon Exercise of the 2024 Warrant Transactions $110 1,766 208 1,974 (1,766) 208 8 $120 2,115 686 2,801 (2,115) 686 102 $130 2,409 1,091 3,500 (2,409) 1,091 182 $140 2,662 1,438 4,100 (2,662) 1,438 250 $150 2,881 1,739 4,620 (2,881) 1,739 310 $160 3,073 2,002 5,075 (3,073) 2,002 362 $170 3,242 2,234 5,476 (3,242) 2,234 408 $180 3,392 2,440 5,832 (3,392) 2,440 448 $190 3,527 2,625 6,152 (3,527) 2,625 485 $200 3,648 2,791 6,439 (3,648) 2,791 517 ______________________________ (a) Represents incremental shares issuable upon concurrent conversion of convertible notes, exercise of warrants and settlement of the hedge agreements. 27 Table of Contents RESULTS OF OPERATIONS Third Quarter 2024 Compared to Third Quarter 2023 Revenues The following table compares third quarter 2024 revenues to third quarter 2023 revenues (in thousands): Three Months Ended September 30, 2024 2023 Increase/(Decrease) Recurring revenues: Smartphone $ 74,184 $ 88,376 $ (14,192) (16) % CE, IoT/Auto 23,830 15,659 8,171 52 % Other 620 441 179 41 % Total recurring revenues 98,634 104,476 (5,842) (6) % Catch-up revenues a 30,045 35,630 (5,585) (16) % Total revenues $ 128,679 $ 140,106 $ (11,427) (8) % (a) Catch-up revenues are comprised of past patent royalties and revenues from static agreements. 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, 2024 2023 Customer A 26% 24% Customer B 20% 14% Customer C 13% —% Customer D 12% 29% Customer E 12% 11% Operating Expenses 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) Research and portfolio development $ 48,331 $ 50,253 $ (1,922) (4) % Licensing 27,467 21,522 5,945 28 % General and administrative 13,539 14,678 (1,139) (8) % Total Operating expenses $ 89,337 $ 86,453 $ 2,884 3 % 28 Table of Contents 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) Revenue share $ 6,089 Performance-based compensation (1,376) Net litigation fee reimbursement (1,161) Other (668) Total increase in operating expenses $ 2,884 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 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 $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 decreased by $1.1 million primarily due to the above-noted decreased performance-based compensation costs. Non-Operating Income, net 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) Interest expense $ (10,681) $ (12,683) $ 2,002 16 % Interest and investment income 9,175 11,763 (2,588) (22) % Other income, net 3,379 2,962 417 14 % Total non-operating income, net $ 1,873 $ 2,042 $ (169) (8) % 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. Income taxes 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 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%. 29 Table of Contents First Nine Months 2024 Compared to First Nine Months 2023 Revenues 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: Smartphone $ 221,738 $ 260,882 $ (39,144) (15) % CE, IoT/Auto 67,824 43,177 24,647 57 % Other 1,878 1,063 815 77 % Total recurring revenues 291,440 305,122 (13,682) (4) % Catch-up revenues a 324,274 138,948 185,326 133 % Total revenues $ 615,714 $ 444,070 $ 171,644 39 % (a) Catch-up revenues are comprised of past patent royalties and revenues from static agreements. 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, 2024 2023 Customer B 38% 13% Customer D 23% 33% Customer A 16% 23% Customer F <10% 10% Operating Expenses 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) Research and portfolio development $ 147,851 $ 149,560 $ (1,709) (1) % Licensing 149,212 59,534 89,678 151 % General and administrative 41,665 38,686 2,979 8 % Total operating expenses $ 338,728 $ 247,780 $ 90,948 37 % 30 Table of Contents 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): Increase/(Decrease) Revenue share $ 76,280 Intellectual property enforcement 23,341 Performance-based compensation 6,033 Net litigation fee reimbursement (11,898) Other (2,808) Total increase in operating expenses $ 90,948 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 nine months 2023. Licensing expense: Licensing expense increased by $89.7 million primarily driven by the above-noted increased revenue share costs and intellectual property enforcement costs, partially offset by the one-time net litigation fee reimbursement. General and administrative expense: The $3.0 million increase in general and administrative expense primarily resulted from the above-noted increases in performance-based compensation costs. Non-Operating (Expense) Income, net The following table compares first 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) Interest expense $ (34,086) $ (36,911) $ 2,825 8 % Interest and investment income 31,078 33,697 (2,619) (8) % 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 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. Income taxes 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 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. 31 Table of Contents STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 — FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include certain information in regarding our current beliefs, plans and expectations, including, without limitation, the matters set forth below. Words such as "believe," “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “forecast,” "goal," "could," "would," "should," "if," "may," "might," "future," "target," "trend," "seek to," "will continue," "predict," "likely," "in the event," and variations of any such words or similar expressions contained herein are intended to identify such forward-looking statements. Forward-looking statements are made on the basis of management’s current views and assumptions and are not guarantees of future performance. Although the forward-looking statements in this Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements concerning our business, results of operations and financial condition are inherently subject to risks and uncertainties. These risks and uncertainties include, but are not limited to, the risks and uncertainties described in Part I, Item 1A of our 2023 Form 10-K and the risks and uncertainties set forth below: • unanticipated delays, difficulties or accelerations in the execution of patent license agreements; • our ability to leverage our strategic relationships and secure new patent license agreements on acceptable terms; • our ability to enter into sales and/or licensing partnering arrangements for certain of our patent assets; • our ability to enter into partnerships with leading inventors and research organizations; • our ability to identify and pursue strategic acquisitions of technology and patent portfolios and other strategic growth opportunities; • our ability to commercialize our technologies and enter into customer agreements; • the failure of the markets for our current or new technologies to materialize to the extent or at the rate that we expect; • unexpected delays or difficulties related to the development of our technologies; • changes in our interpretations of, and assumptions and calculations with respect to the impact on us of, the 2017 Tax Cuts and Jobs Act, as well as further guidance that may be issued regarding such act; • risks related to the potential impact of new accounting standards on our financial position, results of operations or cash flows; • failure to accurately forecast the impact of our restructuring activities on our financial statements and our business; • the resolution of current legal proceedings, including any awards or judgments relating to such proceedings, additional legal proceedings, changes in the schedules or costs associated with legal proceedings or adverse rulings in such proceedings; • the timing and impact of potential regulatory, administrative and legislative matters; • changes or inaccuracies in market projections; • our ability to obtain liquidity through debt and equity financings; • the potential effects that macroeconomic uncertainty could have on our financial position, results of operations and cash flows • changes in our business strategy; • changes or inaccuracies in our expectations with respect to royalty payments by our customers; and • risks related to our assumptions and application of relevant accounting standards, including with respect to revenue recognition. You should carefully consider these factors before making any investment decision with respect to our common stock. These factors, individually or in the aggregate, may cause our actual results to differ materially from our expected and historical results. You should understand that it is not possible to predict or identify all such factors. In addition, you should not place undue reliance on the forward-looking statements contained herein, which are made only as of the date of this Form 10-Q. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law. 32 Table of Contents Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . There have been no material changes in quantitative and qualitative market risk from the disclosures included in our 2023 Form 10-K.