InterDigital, Inc. 10-Q

Item 1. FINANCIAL STATEMENTS INTERDIGITAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited) March 31, 2025 December 31, 2024 Assets Current assets: Cash and cash equivalents $ 536,639 $ 527,360 Short-term investments 346,653 430,848 Accounts receivable 304,268 188,302 Prepaid and other current assets 54,636 84,312 Total current assets 1,242,196 1,230,822 Property and equipment, net 27,477 18,544 Patents, net 316,800 308,630 Deferred tax assets 117,414 128,133 Other non-current assets, net 157,957 149,400 Total assets $ 1,861,844 $ 1,835,529 Liabilities and Shareholders' equity Current liabilities: Current portion of long-term debt $ 455,241 $ 456,329 Accounts payable 9,466 12,206 Accrued compensation and related expenses 24,714 42,575 Deferred revenue 175,261 178,009 Dividends payable 15,577 11,557 Other accrued expenses 24,198 25,134 Total current liabilities 704,457 725,810 Long-term debt 16,015 15,443 Long-term deferred revenue 149,117 182,119 Other long-term liabilities 55,371 54,942 Total liabilities 924,960 978,314 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, 70,895 and 70,577 shares issued and 25,976 and 25,682 shares outstanding 708 705 Additional paid-in capital 793,624 808,540 Retained earnings 1,875,398 1,775,823 Accumulated other comprehensive loss ( 202 ) ( 458 ) Treasury stock, 44,919 and 44,895 shares of common stock held at cost ( 1,732,644 ) ( 1,727,395 ) Total shareholders' equity 936,884 857,215 Total liabilities and shareholders' equity $ 1,861,844 $ 1,835,529 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 March 31, 2025 2024 Revenues $ 210,507 $ 263,542 Operating expenses: Research and portfolio development 47,430 49,375 Licensing 17,677 96,589 General and administrative 13,568 13,840 Total operating expenses 78,675 159,804 Income from operations 131,832 103,738 Interest expense ( 9,871 ) ( 11,922 ) Other income, net 10,258 9,247 Income before income taxes 132,219 101,063 Income tax provision ( 16,617 ) ( 19,411 ) Net income $ 115,602 $ 81,652 Net income per common share — Basic $ 4.49 $ 3.20 Weighted average number of common shares outstanding — Basic 25,741 25,510 Net income per common share — Diluted $ 3.45 $ 2.88 Weighted average number of common shares outstanding — Diluted 33,505 28,341 Cash dividends declared per common share $ 0.60 $ 0.40 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 March 31, 2025 2024 Net income $ 115,602 $ 81,652 Unrealized gain (loss) on investments, net of tax 256 ( 495 ) Comprehensive income $ 115,858 $ 81,157 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 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 — — — 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 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Shareholders' Equity Shares Amount Shares Amount Balance, December 31, 2024 70,577 $ 705 $ 808,540 $ 1,775,823 $ ( 458 ) 44,895 $ ( 1,727,395 ) $ 857,215 Net income — — — 115,602 — — — 115,602 Net change in unrealized gain on short-term investments — — — — 256 — — 256 Dividends declared ($ 0.60 per share) — — 450 ( 16,027 ) — — — ( 15,577 ) Exercise of common stock options 100 1 7,314 — — — — 7,315 Issuance of common stock, net 218 2 ( 32,178 ) — — — — ( 32,176 ) Share-based compensation — — 9,498 — — — — 9,498 Repurchase of common stock — — — — — 24 ( 5,249 ) ( 5,249 ) Balance, March 31, 2025 70,895 $ 708 $ 793,624 $ 1,875,398 $ ( 202 ) 44,919 $ ( 1,732,644 ) $ 936,884 The accompanying notes are an integral part of these statements. 6 Table of Contents INTERDIGITAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three Months Ended March 31, 2025 2024 Cash flows from operating activities: Net income $ 115,602 $ 81,652 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 18,213 17,240 Non-cash interest income, net ( 1,533 ) ( 3,661 ) Non-cash change in investments 476 1,247 Change in deferred revenue ( 38,750 ) ( 27,542 ) Deferred income taxes 10,651 11,789 Share-based compensation 9,498 9,386 (Increase) Decrease in assets: Receivables ( 115,966 ) ( 28,337 ) Deferred charges and other assets ( 2,201 ) ( 27,577 ) (Decrease) Increase in liabilities: Accounts payable 1,730 3,522 Accrued compensation and other expenses ( 17,709 ) 13,054 Net cash (used in) provided by operating activities ( 19,989 ) 50,773 Cash flows from investing activities: Purchases of short-term investments ( 86,864 ) ( 167,086 ) Sales of short-term investments 173,029 191,702 Purchases of property and equipment ( 14,508 ) ( 444 ) Capitalized patent costs ( 12,149 ) ( 8,973 ) Long-term investments — 1,576 Net cash provided by investing activities 59,508 16,775 Cash flows from financing activities: Payments on long-term debt ( 1,284 ) ( 1,590 ) Repurchase of common stock ( 5,249 ) ( 28,868 ) Net proceeds from exercise of stock options 7,316 — Taxes withheld upon restricted stock unit vestings ( 32,177 ) ( 8,635 ) Dividends paid ( 11,557 ) ( 10,226 ) Net cash used in financing activities ( 42,951 ) ( 49,319 ) Net (decrease) increase in cash, cash equivalents and restricted cash ( 3,432 ) 18,229 Cash, cash equivalents and restricted cash, beginning of period 551,547 442,961 Cash, cash equivalents and restricted cash, end of period $ 548,115 $ 461,190 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. 7 Table of Contents INTERDIGITAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2025 (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 March 31, 2025, the results of our operations for the three months ended March 31, 2025 and 2024 and our cash flows for the three months ended March 31, 2025 and 2024. 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, 2024 (our “2024 Form 10-K”) as filed with the Securities and Exchange Commission (“SEC”) on February 6, 2025. Definitions of capitalized terms not defined herein appear within our 2024 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 2024 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 three months ended March 31, 2025 and 2024 (in thousands): Three Months Ended March 31, Supplemental cash flow information: 2025 2024 Income taxes paid, including foreign withholding taxes $ 10,204 $ 9,335 Non-cash investing and financing activities: Dividend payable 15,577 10,155 Right-of-use assets obtained in exchange of operating lease liabilities — 2,189 Non-cash acquisition of patents 13,000 — Accrued capitalized patent costs and property and equipment purchases 4,470 ( 1,358 ) Unsettled repurchase of common stock 411 — 8 Table of Contents New Accounting Guidance Accounting Standards Update: Improvements to Income Tax Disclosures In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("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 adopted this guidance as of January 1, 2025, and we will include the necessary disclosures in our annual Form 10-K. The disclosures are required on an annual basis so there was no impact to this Form 10-Q. Accounting Standards Update: Induced Conversions of Convertible Debt Instruments In November 2024, the FASB issued ASU No. 2024-04, "Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments". The amendments in the ASU require disclosures for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. ASU 2024-04 is effective for fiscal years beginning after December 15, 2025, with early adoption allowed. We are currently evaluating the impact of adoption on our consolidated financial statements. Accounting Standards Update: Disaggregation of Income Statement Expenses In November 2024, the FASB issued ASU No. 2024-03, "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses". The amendments in the ASU require disclosures about specific types of expenses included in the expense captions presented on the Consolidated Statements of Income, as well as disclosures about selling expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, 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 months ended March 31, 2025 and 2024 (in thousands): Three Months Ended March 31, 2025 2024 Increase/(Decrease) Smartphone $ 183,991 $ 80,280 $ 103,711 129 % CE, IoT/Auto 26,267 182,543 ( 156,276 ) ( 86 ) % Other 249 719 ( 470 ) ( 65 ) % Total Revenues $ 210,507 $ 263,542 $ ( 53,035 ) ( 20 ) % Catch-up revenues (a) , included above $ 84,785 $ 166,678 $ ( 81,893 ) ( 49 ) % (a) Catch-up revenues represent revenue associated with reporting periods prior to the execution of the license agreement. During the three months ended March 31, 2025, we recognized $ 68.6 million of revenue that had been included in deferred revenue as of the beginning of the period. As of March 31, 2025, we had contract assets of $ 190.9 million included within " Accounts receivable " and $ 3.0 million included within " Other non-current assets, net " in the condensed consolidated balance sheet. As of December 31, 2024, we had contract assets of $ 162.8 million included within " Accounts receivable " in the condensed consolidated balance sheet. 9 Table of Contents Contracted Revenue Based on contracts signed and committed as of March 31, 2025, 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 2025 $ 341,744 2026 362,495 2027 350,978 2028 259,821 2029 206,185 Thereafter 179,697 Total Revenue $ 1,700,920 (a) This table includes estimated revenue related to our Samsung and Lenovo arbitrations. In accordance with ASC 606, these estimates are limited to the amount of revenue we expect to recognize only to the extent we believe 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 consist of money market and demand accounts. The following table provides a reconciliation of total cash, cash equivalents, and restricted cash as of March 31, 2025, December 31, 2024, and March 31, 2024 to the captions within the condensed consolidated balance sheets and condensed consolidated statements of cash flows (in thousands): March 31, December 31, March 31, 2025 2024 2024 Cash and cash equivalents $ 536,639 $ 527,360 $ 440,242 Restricted cash included within prepaid and other current assets 11,476 24,187 20,948 Total cash, cash equivalents, and restricted cash $ 548,115 $ 551,547 $ 461,190 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. Three licensees comprised 87 % and 84 % of our accounts receivable balances of March 31, 2025 and December 31, 2024, respectively. We perform ongoing credit evaluations of our licensees, who generally include large, multinational, wireless telecommunications equipment manufacturers. We believe that the book values of our financial instruments approximate their fair values. Fair Value Measurements We use various valuation techniques and assumptions when measuring the fair value of our assets and liabilities. We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. This guidance established a hierarchy that prioritizes fair value measurements based on the types of input used for the various valuation techniques (market approach, income approach and cost approach). The levels of the hierarchy are described below: Level 1 Inputs — Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets. Level 2 Inputs — Level 2 includes financial instruments for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets with insufficient volume or infrequent transactions (less active markets) or model-driven valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data, including market interest rate curves, referenced credit spreads and pre-payment rates. 10 Table of Contents Level 3 Inputs — Level 3 includes financial instruments for which fair value is derived from valuation techniques including pricing models and discounted cash flow models in which one or more significant inputs are unobservable, including the Company’s own assumptions. The pricing models incorporate transaction details such as contractual terms, maturity and, in certain instances, timing and amount of future cash flows, as well as assumptions related to liquidity and credit valuation adjustments of marketplace participants. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy. We use quoted market prices for similar assets to estimate the fair value of our Level 2 investments. Recurring Fair Value Measurements Our financial assets are generally included within short-term investments on our condensed consolidated balance sheets, unless otherwise indicated. Our financial assets and liabilities that are accounted for at fair value on a recurring basis are presented in the tables below as of March 31, 2025 and December 31, 2024 (in thousands): Fair Value as of March 31, 2025 Level 1 Level 2 Level 3 Total Assets: Money market and demand accounts (a) $ 509,097 $ — $ — $ 509,097 Commercial paper (b) — 100,297 — 100,297 U.S. government securities (c) — 171,296 — 171,296 Corporate bonds, asset backed and other securities (d) — 113,667 — 113,667 Total $ 509,097 $ 385,260 $ — $ 894,357 Fair Value as of December 31, 2024 Level 1 Level 2 Level 3 Total Assets: Money market and demand accounts (a) $ 535,745 $ — $ — $ 535,745 Commercial paper (b) — 78,870 — 78,870 U.S. government securities (c) — 230,561 — 230,561 Corporate bonds, asset backed and other securities (d) — 137,219 — 137,219 Total $ 535,745 $ 446,650 $ — $ 982,395 ______________________________ (a) Primarily included within cash and cash equivalents. (b) As of March 31, 2025 and December 31, 2024, $ 23.1 million and $ 4.1 million of commercial paper was included within cash and cash equivalents, respectively. (c) As of March 31, 2025, $ 5.1 million of U.S. government securities was included within cash and cash equivalents. (d) As of March 31, 2025 and December 31, 2024, $ 10.4 million and $ 11.7 million of corporate bonds, asset backed and other securities was included within cash and cash equivalents, respectively. Fair Value of Long-Term Debt Convertible Notes The principal amount, carrying value and related estimated fair value of the Company's Convertible Notes reported as of March 31, 2025 and December 31, 2024 was as follows (in thousands). The aggregate fair value of the principal amount of the Convertible Notes is a Level 2 fair value measurement. March 31, 2025 December 31, 2024 Principal Amount Carrying Value Fair Value Principal Amount Carrying Value Fair Value 2027 Senior Convertible Long-Term Debt $ 460,000 $ 455,241 $ 1,236,963 $ 460,000 $ 454,739 $ 1,166,155 11 Table of Contents Technicolor Patent Acquisition Long-term Debt The carrying value and related estimated fair value of the Technicolor Patent Acquisition long-term debt reported as of March 31, 2025 and December 31, 2024 was as follows (in thousands). The aggregate fair value of the Technicolor Patent Acquisition long-term debt is a Level 3 fair value measurement. March 31, 2025 December 31, 2024 Carrying Value Fair Value Carrying Value Fair Value Technicolor Patent Acquisition Long-Term Debt $ 16,015 $ 16,067 $ 17,033 $ 17,102 4. OTHER ASSETS AND LIABILITIES The amounts included in " Prepaid and other current assets " in the condensed consolidated balance sheet as of March 31, 2025 and December 31, 2024 were as follows (in thousands): March 31, 2025 December 31, 2024 Prepaid assets $ 23,134 $ 38,952 Tax receivables 16,947 16,691 Restricted cash 11,476 24,187 Other current assets 3,079 4,482 Total Prepaid and other current assets $ 54,636 $ 84,312 The amounts included in " Other non-current assets, net " in the condensed consolidated balance sheet as of March 31, 2025 and December 31, 2024 were as follows (in thousands): March 31, 2025 December 31, 2024 Tax receivables $ 95,056 $ 88,619 Goodwill 22,421 22,421 Long-term investments 19,375 19,851 Right-of-use assets 14,545 15,218 Other non-current assets 6,560 3,291 Total Other non-current assets, net $ 157,957 $ 149,400 The amounts included in " Other accrued expenses " in the condensed consolidated balance sheet as of March 31, 2025 and December 31, 2024 were as follows (in thousands): March 31, 2025 December 31, 2024 Accrued legal fees $ 10,240 $ 9,571 Other accrued expenses 13,958 15,563 Total Other accrued expenses $ 24,198 $ 25,134 The amounts included in " Other long-term liabilities " in the condensed consolidated balance sheet as of March 31, 2025 and December 31, 2024 were as follows (in thousands): March 31, 2025 December 31, 2024 Deferred compensation liabilities $ 21,161 $ 19,969 Operating lease liabilities 15,055 15,772 Other long-term liabilities 19,155 19,201 Total Other long-term liabilities $ 55,371 $ 54,942 12 Table of Contents 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 June 30, 2025, 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 March 31, 2025 and December 31, 2024. 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 ("2027 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 ("2027 Warrant Transactions"), whereby we sold warrants to acquire, subject to customary anti-dilution adjustments, approximately 5.9 million shares of common stock. As of March 31, 2025, the warrants under the 2027 Warrant Transactions had a weighted average strike price of $ 106.14 per share, subject to adjustment, and mature beginning September 2027 through April 2028. 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. 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. We also entered into privately negotiated warrant transactions (collectively, the "2024 Warrant Transactions" and, together with the 2024 Note Hedge Transactions, the "2024 Call Spread Transactions"), whereby we sold warrants to acquire, subject to customary anti-dilution adjustments, approximately 4.9 million shares of common stock at an initial strike price of approximately $ 109.43 per share, subject to adjustment. During second quarter 2022, we repurchased $ 273.8 million in aggregate principal amount of the 2024 Notes in privately negotiated transactions concurrently with the offering of the 2027 Notes. In connection with the partial repurchase of the 2024 Notes, we entered into partial unwind agreements that amended the terms of the 2024 Call Spread Transactions to reduce the number of options corresponding to the principal amount of the repurchased 2024 Notes. The unwind agreements also reduce the number of warrants exercisable under the 2024 Warrant Transactions. As a result of the partial unwind transactions, approximately 3.3 million shares of common stock in the aggregate that were covered under each of the 2024 Note Hedge Transactions and the 2024 Warrant Transactions were unwound. On June 1, 2024, the 2024 Notes matured and we repaid the remaining $ 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. Additionally, the 2024 Warrant Transactions settled, on a net-share basis, during September through December 2024 resulting in the issuance of 0.5 million shares. 13 Table of Contents The following table reflects the carrying value of our Convertible Notes long-term debt as of March 31, 2025 and December 31, 2024 (in thousands): March 31, 2025 December 31, 2024 3.50 % Senior Convertible Notes due 2027 $ 460,000 $ 460,000 Less: Deferred financing costs ( 4,759 ) ( 5,261 ) Net carrying amount of the Convertible Notes 455,241 454,739 Less: Current portion of long-term debt ( 455,241 ) ( 454,739 ) Long-term net carrying amount of the Convertible Notes $ — $ — The following table presents the amount of interest cost recognized, which is included within " Interest expense" in our condensed consolidated statements of income, for the three months ended March 31, 2025 and 2024 relating to the contractual interest coupon and the amortization of deferred financing costs of the Convertible Notes (in thousands): Three Months Ended March 31, 2025 2024 2027 Notes 2027 Notes 2024 Notes Total Contractual coupon interest $ 4,025 $ 4,025 $ 631 $ 4,656 Amortization of deferred financing costs 502 465 151 616 Total $ 4,527 $ 4,490 $ 782 $ 5,272 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 made certain payments to Technicolor and Sony and agreed to contribute cash to fund certain capital reserve obligations under the arrangement in exchange for a percentage of future revenues, specifically through September 11, 2030 in regard to the Technicolor patents. Upon our assumption of Technicolor’s rights and obligations under the Madison Arrangement, our relationship with CPPIB Credit meets the criteria in ASC 470-10-25 - Sales of Future Revenues or Various Other Measures of Income ("ASC 470"), which relates to cash received from an investor in exchange for a specified percentage or amount of revenue or other measure of income of a particular product line, business segment, trademark, patent, or contractual right for a defined period. Under this guidance, we recognized the fair value of our contingent obligation to CPPIB Credit, as of the acquisition date, as long-term debt in our condensed consolidated balance sheet. This initial fair value measurement was based on the perspective of a market participant and included significant unobservable inputs which are classified as Level 3 inputs within the fair value hierarchy. The fair value of the long-term debt as of March 31, 2025 and December 31, 2024 is disclosed within Note 3, " Cash, Concentration of Credit Risk and Fair Value of Financial Instruments. " Our repayment obligations are contingent upon future royalty revenues generated from the Madison Arrangement and there are no minimum or maximum payments under the arrangement. Under ASC 470, amounts recorded as debt are amortized under the interest method. At each reporting period, we will review the discounted expected future cash flows over the life of the obligation. The Company made an accounting policy election to utilize the catch-up method when there is a change in the estimated future cash flows, whereby we will adjust the carrying amount of the debt to the present value of the revised estimated future cash flows, discounted at the original effective interest rate, with a corresponding adjustment recognized as interest expense within “ Interest Expense ” in the condensed consolidated statements of income. The effective interest rate as of the acquisition date was approximately 14.5 %. This rate represents the discount rate that equates the estimated future cash flows with the fair value of the debt as of the acquisition date and is used to compute the amount of interest to be recognized each period based on the estimated life of the future revenue streams. During the three months ended March 31, 2025 and 2024, we recognized $ 0.3 million and $ 0.6 million, respectively, of interest expense related to this debt. This was included within “ Interest Expense ” in the condensed consolidated statements of income. Any future payments made to CPPIB Credit, or additional proceeds received from CPPIB Credit, will decrease or increase the long-term debt balance accordingly. We made $ 1.3 million in payments to CPPIB Credit during the three months ended March 31, 2025, and $ 1.6 million in payments were made during the three months ended March 31, 2024. 14 Table of Contents Technicolor Contingent Consideration As part of the Technicolor Patent Acquisition, we entered into a revenue-sharing arrangement with Technicolor that created a contingent consideration liability. Under the revenue-sharing arrangement, Technicolor receives 42.5 % of future cash receipts from new licensing efforts from the Madison Arrangement only, subject to certain conditions and hurdles. As of March 31, 2025, 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 In fourth quarter 2024, the Company reached an agreement with Lenovo Group Limited and certain of its subsidiaries (“Lenovo”) to enter into binding arbitration to determine the final terms of a new paten t license agreement, which will be effective from January 1, 2024. On November 6, 2024, the Company filed a request for arbitration with the International Chamber of Commerce. On March 19, 2025, the International Chamber of Commerce confirmed the full tribunal for the arbitration. 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 tribunal for the arbitration. The two-week arbitration hearing was held in July 2024 , and closing arguments were held on October 23, 2024. We expect a decision soon . 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. A hearing on costs and permission to appeal was held on 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. The appeal he aring was held on December 2-3, 2024, and on March 6, 2025 the UK Court of Appeal upheld the lower court's decision and re fused Tesla’s request for permission to appeal. On April 3, 2025 Tesla filed an application for permission to appeal to the Supreme Court. The Company filed its response on April 29, 2025 . Disney US Central District of California Proceedings On February 3, 2025, the Company and certain of its subsidiaries filed a claim in the Federal District Court of the Central District of California against The Walt Disney Co. and certain of its subsidiaries. The claim alleges infringement of certain of the Company’s patents relating to video coding and video streaming technologies. The Company is seeking, among other relief, damages to prevent further infringement of the asserted patents. Brazil Proceedings On February 3, 2025, the Company and certain of its subsidiaries filed a claim in the Regional Business Court of Rio de Janeiro against The Walt Disney Co. and certain of its subsidiaries. The claim alleges infringement of certain of the Company’s patents relating to video coding technologies . The Company is seeking, among other relief, damages and injunctive relief to prevent further infringement of the asserted patents. 15 Table of Contents Germany Proceedings On February 3, 2025, the Company and certain of its subsidiaries filed patent infringement claims in the Munich Regional Court against The Walt Disney Co. and certain of its subsidiaries. The claims allege infringement of certain of the Company’s patents relating to video coding and video streaming technologies . The Company is seeking, among other relief, injunctive relief to prevent further infringement of the asserted patents. UPC Proceedings On February 3, 2025, the Company and certain of its subsidiaries filed patent infringement claims in the Mannheim Local Divisional Court and Dusseldorf Local Divisional Court against The Walt Disney Co. and certain of its subsidiaries. The claims allege infringement of certain of the Company’s patents relating to video coding and video streaming technologies. The Company is seeking, among other relief, injunctive relief to prevent further infringement of the asserted patents. 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 March 31, 2025, except as noted above. 7. INCOME TAXES In the three months ended March 31, 2025 and 2024, the Company had an estimated effective tax rate of 12.6 % and 19.2 %, respectively. The change in effective tax rate is due to an increase in the amount of Foreign Derived Intangible Income deduction benefit available to the Company and tax benefits related to share-based compensation. In addition, the Company is subject to a decrease in the Global Intangible Low-Tax Income inclusion derived from the increase in French revenue. During both the three months ended March 31, 2025 and 2024, the Company recorded discrete net benefits of $ 3.9 million and $ 1.7 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 three months ended March 31, 2025 and 2024, the Company paid approximately $ 3.2 million and $ 9.3 million, respectively, in foreign source creditable withholding tax. 16 Table of Contents 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 March 31, 2025 2024 Net income $ 115,602 $ 81,652 Weighted-average shares outstanding: Basic 25,741 25,510 Dilutive effect of stock options and RSUs 1,275 889 Dilutive effect of warrants 2,819 — Dilutive effect of convertible securities 3,670 1,942 Diluted 33,505 28,341 Earnings per share: Basic $ 4.49 $ 3.20 Dilutive effect of stock options and RSUs ( 0.17 ) ( 0.10 ) Dilutive effect of warrants ( 0.38 ) — Dilutive effect of convertible securities ( 0.49 ) ( 0.22 ) Diluted $ 3.45 $ 2.88 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 March 31, 2025 2024 Warrants 3,136 7,488 Total 3,136 7,488 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. 17 Table of Contents 9. SEGMENT PERFORMANCE MEASURES AND EXPENSES Our chief operating decision maker (“CODM”), who is our Chief Executive Officer, assesses company-wide performance and allocates resources based on consolidated financial information. Consequently, we view the entire organization as one reportable segment and the strategic purpose of all operating activities is to support that one segment. Our CODM evaluates company-wide performance based on multiple performance measures, including, but not limited to, net income. Our CODM does not generally evaluate our performance using asset or historical cash flow information. The table below provides the calculation of net income, which is the performance measure that is most consistent with GAAP, and the significant operating expenses included in this performance measure (in thousands): Three Months Ended March 31, 2025 2024 Revenue $ 210,507 $ 263,542 Less: Departmental expenses (a) 41,337 44,466 Depreciation and amortization 18,213 17,240 Intellectual property enforcement 6,978 19,744 Share-based compensation 9,498 9,386 Revenue share costs 2,649 68,968 Other non-operating (income) expense, net (b) ( 387 ) 2,675 Income tax provision 16,617 19,411 Net income $ 115,602 $ 81,652 (a) Includes personnel-costs, consulting costs, outside services, administrative costs, and other operating expenses. (b) Includes interest income, interest expense, and other non-operating income and expenses 10. OTHER INCOME, NET The amounts included in " Other income, net " in the condensed consolidated statements of income for the three months ended March 31, 2025 and 2024 were as follows (in thousands): Three Months Ended March 31, 2025 2024 Interest and investment income $ 9,264 $ 11,778 Other 994 ( 2,531 ) Other income, net $ 10,258 $ 9,247 18 Table of Contents