Good day, and thank you for standing by. Welcome to the InterDigital Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Raiford Garrabrant, Head of Investor Relations. Please go ahead.

Thank you, Michelle, and good morning, everyone. Welcome to InterDigital's fourth quarter 2024 earnings conference call. I am Raiford Garrabrant, Head of Investor Relations for InterDigital. With me on today's call are Liren Chen, our President and CEO and Rich Brezski, our CFO. Consistent with prior calls, we will offer some highlights about the quarter and the company, and then open the call up for questions. For additional details, you can access our earnings release and slide presentation that accompany this call on our Investor Relations website. Before we begin our remarks, I need to remind you that in this call, we will make forward-looking statements regarding our current beliefs, plans and expectations, which are not guarantees of future performance and are made only as of the date hereof. Forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from results and events contemplated by such forward-looking statements. These risks and uncertainties include those described in the Risk Factors section of our 2024 Annual Report on Form 10-K and in our other SEC filings. In addition, today's presentation may contain references to non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the supplemental materials posted to the Investor Relations section of our website. With that taken care of, I will turn the call over to Liren.

Thank you, Raiford. Good morning, everyone. Thanks for joining us today. A year ago at this moment, I shared our belief that InterDigital has never been better positioned to drive growth. Now sitting here 12 months later, I'm delighted to share that in 2024, we delivered the best business results in our history. And since our technology are more critical than ever to an ecosystem generating roughly $6 trillion in economic value every year, we believe we are just getting started. Today I'll recap the fourth quarter results, summarizing our highlights for the full year and provide more details on our growth path through 2025 and beyond, including a significant development in our video service program. In the fourth quarter, we delivered another outstanding performance. Our revenue increased 140% year-over-year to $253 million, while adjusted EBITDA and non-GAAP EPS nearly quadrupled year-over-year. As we discussed in our last earnings call, we signed a new license agreement with Oppo last quarter covering the worldwide sales of Oppo, Realme and OnePlus devices. We have now licensed top four largest smartphone manufacturers and approximately 70% of annual smartphone shipment worldwide. We also added to the momentum in our smartphone program in the quarter through our renewal agreement with a major Chinese technology company, ZTE and with our announcement that we have entered into binding arbitration with Lenovo to determine the final terms of our license and ended our litigations with them. Looking at 2024 overall, it was another outstanding 12 months for the company. Revenue for the year increased almost 60% to $869 million, the highest annual revenue in the company's history. Thanks to increased momentum across all our licensing programs and the new agreement with some of the world's largest device makers. We also delivered record level adjusted EBITDA and EPS in…

Thanks, Liren. As Liren noted, in Q4 we delivered an outstanding finish to the year. Total revenue of $253 million increased 140% year-over-year, and was above our outlook of $239 million to $249 million driven primarily by new agreements that closed after the prior guidance. Our Q4 revenue included catch-up revenue of $136 million related to our fourth quarter license agreements with OPPO, Lenovo and ZTE. Our adjusted EBITDA for the quarter of $198 million exceeded the top end of the outlook of $180 million to $190 million as the vast majority of the revenue upside flowed through and resulted in an adjusted EBITDA margin of 78%. GAAP EPS for the quarter of $4.09 beat our guidance. Non-GAAP EPS for the quarter of $5.15 came in below our guidance due to greater dilution from the converts on account of our higher share price and lower-than-expected non-GAAP adjustments for Q4. However, for the full year both GAAP EPS of $12.07 and non-GAAP EPS of $14.97 came in at or above the high end of the range. Meanwhile, cash generation for the quarter was exceptionally strong with cash flow operations of $192 million and free cash flow of $169 million. Building on Liren's comments, I'll highlight a few noteworthy metrics from our full year 2024 results and provide the additional perspective of how each item has improved over the last four years. Altogether, these metrics demonstrate our success in progressing towards our objective of delivering $1 billion plus in annual recurring revenue and $600 million plus of adjusted EBITDA by 2030. Total revenue accelerated to $869 million an increase of 58% year-over-year resulting in a compound annual growth rate of 25% over the past four years. Our 2024 revenue included $269 million of CE-IoT revenue more than triple prior year levels. This…

Thanks Rich. Before we move to Q&A, I'd like to mention that we'll be attending a number of investor events in Q1 including the ROTH Conference in Dana Point, California and the Sidoti Conference, which is virtual. Please reach out to your representatives at those firms, if you'd like to schedule a meeting. Michelle, we are now ready to take questions.

[Operator Instructions] Our first question is going to come from the line of Scott Searle with ROTH Capital Partners. Your line is open. Please go ahead.

Hey, good morning. Congrats on the quarter guys. Thanks for taking my questions. Liren maybe just to dive in on the Disney front. I'm wondering if you could put some parameters around the timing of when you would expect this to progress and kind of the milestones there. Also, if you could address your engagement with other video streaming vendors and opportunities as they're ongoing within 2025 like kind of the level of engagement that you're seeing.

Yes. Hi, good morning, Scott. Thanks for the question. So regarding Disney, it's public now in our legal filings. We have engaged Disney for more than 2.5 years in bilateral negotiation and as you know, we prefer to sign most of our deals through amicable discussions. But we have concluded after spending 2.5 years negotiating that enforcement is needed for this particular case. And as you probably know in our reinforcement when we started filing the case, we are fully committed to leading through the course of the lawsuits. But in any other cases also we are always open for negotiation during the lawsuits. So it's difficult for me to predict precisely, how long the lawsuits may last. As you probably know from our smartphone experience, sometimes it can be fairly quickly resolved and sometimes take multiple years to resolve. So as of this case, as of now, I do not really know for sure how long this case will take. So regarding engagement with other license, -- with other streaming service providers, as we have discussed before in our Investor Day, we have engaged with almost all the major players, and we are patient in leveraging our value to them. And we hope to make progress as always through bilateral negotiation.

Okay. Thanks. That's very helpful. Maybe shifting to the annual guidance, I know this is a very difficult one to pin down, but could you provide some color in terms of the range of outcomes how you're thinking about it in terms of catch-up sales versus how we would be exiting the year from a recurring revenue standpoint? I know that there are probably multiple different ways to get there. But if you could kind of help us, frame it a little bit. And as part of that Rich as we're looking to the first quarter and that recurring revenue guidance, I think it's $112 million to $116 million I know there's some expirations this year I think in the K, you talked about seven agreements for a total of $91 million or $92 million. How much of that is layering into the first quarter recurring guidance?

Yeah. Hey Scott, let me take on the majority of the opening opportunities, and then I'll have Rich, adding on the details for the recurring numbers. So if you look at our 2025 major opportunity here. There's -- you know we have three major programs. On the smartphone side with our momentum for signing OPPO, and frankly ZTE and others, we really only have less a handful of major opportunities we need to sign. The largest one is Weibo, as you are aware. Then we need to essentially resolve, Honor and probably Samsung, not necessarily in that order by the way. We are engaging with [indiscernible] in parallel. On the consumer electronic our TV side, we have built a lot of momentum as Rich has covered in his section. We see tremendous amount of growth in multiple verticals. But our priority number one is to frankly signing some of the larger TV makers as well as making progress in different segments of vertical for our team. For the service industry, as we already touched on here we do not take back any material revenue for 2025, but important for us to engaging the major players and build a multiyear negotiating progress. And obviously we already touched on the enforcement with Disney.

Yeah. And Scott, I'll just add to that that in my comments I noted that we ended 2024 with $468 million of ARR and we're looking to -- through renewals and new agreements drive double-digit growth in that ARR number by the end of 2025. As to Q1, you noted correctly that at the end -- or over the course of 2025, and I'll say typically agreements or calendar year based not always but typically that we have $91 million of expirations in 2025 again, typically at the end of the year. So that's really not an impact in the couple of million dollar difference between recurring revenue and Q4 stepping down to Q1. That's really driven by 2024 expirations. I think we noted we had five 2024 expirations totaling $17 million, which that math kind of shows you that that's the majority of that step down.

Great. Very helpful. And lastly if I could just on the capital structure and the convert Rich could you take us through what you're factoring in for the first quarter and how that will progress in terms of interest expense the fully diluted share impact? And also how you're thinking about the capital structure in general? I think when you first initiated a convert years ago, it was to be able to have a robust balance sheet to be able to litigate against potential customers like Disney. Now, given that you've got $500 million of net cash, is that a mechanism and an instrument that you guys need to have in the future going forward? Thanks.

Sure. So, let me take the first part of that question and then I'll get to the kind of structure as we see it going forward. In the first quarter, when we -- we're in any quarter factoring in interest income and interest expense. And we're not really looking at that much differently than we have in recent quarters. We also, as you alluded to, need to factor in any potential dilution from the convert or the related hedge. There that becomes a function of the stock price. Typically, we're looking at what the stock price is around the time that we post that guidance. And I know you're aware of this but for everybody's benefit, in our 10-K as in our Qs, in the footnotes to our financial statements, we have a sensitivity table that shows how that dilution is impacted at different prices. Again there's greater dilution on the convert itself which we reduced through the hedge and on the far right column, you'll see the net dilution from the warrants that we issued. As for the cap structure in general, yes, we, for more than 10 years, have been utilizing converts to help bolster the balance sheet. That enables us to go toe-to-toe with larger customers when necessary if they -- if we need to enforce our rights, while being able to buy back stock and return capital to shareholders. Because we're just in a much different position than even when we did the last convert in the spring of 2022, I think we have more options available to us going forward not to say we make any predictions on what we'll do there. I'm just saying that we enjoy having more optionality in how we look at our cap structure.

Great. Thanks so much. I'll get back in queue.

Thanks Scott.

Thank you. Our next question comes from the line of Arjun Bhatia with William Blair. Your line is open, please go ahead.

Perfect. Thank you guys. I appreciate you taking the question here. Maybe I want to start first on the streaming opportunity. It's good to see that there is kind of litigation and we're somewhat far down the monetization path of your video technology. Liren one question I have on this is for smartphones I think we all kind of understand how the economics work, right? It's largely based on kind of units of smartphones sold with the royalty rate. When we're looking at the streaming opportunity, how should we think about kind of the underlying metric that we should get grounded in for some sort of a royalty rate with Disney for example, right? You mentioned $25 billion in streaming revenue and I think 250 million subscribers. Is it more on the per minute stream? Is it the number of subscribers? Is it a revenue rate? How are you thinking you might monetize this opportunity here?

Arjun, good morning. Thank you for the question. So on the streaming side here, we are actually flexible in negotiating with our customers based on what is the right metric to use. If you look at fundamentally, we bring a set of very important technology that we believe underpin their services. That's both in driving the revenue forward, as well as saving cost on the operating side in terms of storage, power, as well as cooling and Internet services here. So -- and by the way various different streaming services may have different business models. Some of them are subscription-based, some of them may be advertisement sponsor-based. So when we do approach them, fundamentally we try to charge for a very small, but fair price for what we bring to the table that enabled their services. So that can be subscription-based, where we will get a small percentage of the monthly subscription fee times the amount of subscribers. All that can be a fairly small percentage of the overall revenue. We are actually open for both arrangement. Regarding the overall size of market and as we have discussed in our Investor Day, we project based on third-party data that by 2027, the streaming industry overall will be the same size of the smartphone industry. And Arjun, as you are aware, on the smartphone side which as you commented on we have demonstrated a lot of progress and frankly we have shown a lot of solid result in that industry, we are projecting getting about $500 million in recurring revenue from the smartphone. But for the streaming services, even though we believe our technology is just as important to them, because it's relatively new, because we believe we have to demonstrate our patience and so therefore we are in my opinion conservatively setting the target to be about $300 million by 2030 for that market to mature for us over time.

Okay. Understood. Very helpful, thanks, Liren. Wonder if I can follow up just on the recurring revenue outlook for 2025. It sounds like you're baking in some incremental upsell and maybe arbitration agreements. With [indiscernible] agreements in particular, do you have kind of a sense of the range of uplift that you're expecting from Samsung which I think should be coming relatively soon? Like, how should we benchmark the potential uplift that you could see there if that's announced in Q1 or Q2 here?

Yes. Hey Arjun, this is Liren. So I'll cover it first. If there's anything else Rich might be people to chime in. So on the recurring revenue side, Rich commented we will target to grow our recurring revenue in 2025 by at least double-digit growth. But that's also not based on any single deal or any single outcome. So we have a number of opportunities we are pursuing. And by the way, a number of these opportunities carry both recurring revenue as well as cash out payment. So, we really look at all the opportunity holistically and we frankly estimate an outcome for per case, as well as the likelihood that they will be down this year. So this is the same process we took last year. So that's why we frankly added them up into a range of outcomes here. Regarding the Samsung arbitration outcome, as I commented earlier, we have spent substantial amount of effort to boost through the process already. As a matter of fact, the last hearing happened last October already. And at that time, the arbiter told us, they will take time to essentially make their decision writing their conclusion. And due to the holiday season in between, so basically they told us that it will be after New Year. So we are waiting for the outcome. And as I commented earlier here that can be soon, but we don't really know precisely what time. Regarding the outcome of the range, we commented before in our prior calls, we believe strongly that the value of portfolio has gone up substantially due to the last contract. And if you look at the most closest comparable, we believe we should realize in the outpacing of the value. But this is for the arbitrator to decide. And we are currently just waiting for the result.

All right. Wonderful. Thank you.

Thank you. One moment as we move onto our next question. Our next question is going to come from the line of Tal Liani with Bank of America. Your line is open. Please go ahead. Tal, your line might be on mute.

Can you hear me?

We can now sir.

Perfect. Thanks. Once again you're bidding the numbers by a significant amount and I don't think you ever reported a number that is even remotely close to your guidance. It's so hard to predict the numbers. So I want to focus on the recurring part and I have two questions. On the recurring, you said that ARR should grow double digits. Are the trends in revenues different than ARR, meaning is there any deviation between revenue growth and ARR growth? And what could be the reasons for that? And the second question is you noted, $70 million that expired in 2024 and $91 million expected to expire in 2025. What happens with these expirations? Are they renewed before renewed after? How does it go with these expirations of recurring revenues? Thanks.

Okay. Thanks Tal. This is Rich. Let me start with the first question. I think maybe Liren will have a comment for the second question and I may have an additional point to make there. So, yeah, when we -- I guess, the first point to emphasize when we issue quarterly guidance and I mentioned this in my prepared remarks again today, it's difficult for us over a short window to determine what the time period when exactly a new agreement will across the line. Our customers are already using our technology. So it's not like we know that they need to make a decision, so they can produce their product and ship it on a certain deadline. They're already using it. And it's really been a function of when can we reach an agreement to them on the fair amount that they should pay us. So as a consequence on our quarterly guidance, we typically are not including the potential for new agreements. And, therefore, typically on a quarterly basis if we sign a new agreement we'll come in higher. For the full year guidance, we did initiate for the first time full year guidance last year in 2024. We thought that we came out with a very strong number for 2024 and full year guidance. But frankly we just had as we discussed on the call here an outstanding year and we're able to raise it and then beat that. So we're thrilled about the performance we delivered in 2024 and we're very happy to feel confident we can come out with strong numbers again for 2025. So hopefully that helps. As far as recurring revenue versus total, looking back I mentioned on my call over the last four years we've had a double-digit CAGR in total revenue because we have been signing new agreements and been getting catch-up sales along with it. Importantly, we've also had a double-digit CAGR over that time period in ARR. And I like ARR. We've added it to our metrics. One problem with recurring. We signed OPPO in the fourth quarter of 2024 and it contributes one quarter of recurring revenue even though there's catch-up sales associated with it. So I think if you look at 2024 recurring revenue it's not factoring that in. If you look at the ARR where we close 2024 at $468 million that's kind of a better measure in my mind of kind of what we're earning on a recurring basis. So I'll let Liren start with a response to the second comment.

Yes. Tal. Good morning. Thank you for joining us here. So on the recurring versus sometime we have expiration for contract here. I mean number wise it's absolutely normal to have a certain amount of contract expires each year. And frankly because we have signed so many agreements right we have signed 14 agreements this year our average contract length is roughly around five years sometimes it's longer sometimes they be shorter. So on any given year, we will have a few contracts expire. So for last year to this year, we have $17 million of expiration that's 1-7. So it's actually a relatively small number from last year to this year. So we -- our goal honestly is always how to get them renewed, before they expire. And sometimes, those expiration can frankly for end of the year, which happen to be a holiday time, that's difficult for various different reasons to get them down in time. So it can be frankly pulled over to the next year. For this year, for 2025, at the end of this year, I want to make sure you guys are aware, we do disclose our I think 10-K filing, we have about $91 million expiration primarily driven by our Xiaomi contracts that are for renewal at end of this year. So, I won't be able to comment on specific negotiations, because they are covered by NDAs. But what we typically do, Tal, is for major agreement, we start roughly six months to a year ahead of time. We demonstrate the value of technology, the goals for the portfolio, as well as demonstrate to them how they have benefited more, this time compared to the time of the last contract. And then, when it's appropriate, which we have demonstrated through multiple contracts here, we will try to get a higher value in the renewal, if they have benefited more. So, that's the general practice, Tal. And we have demonstrated in the last four, five years we had a good track record of renewing a large contracts including the larger contract for Apple, before they expire. That's what we always target to do. Q – Tal Liani: So when you give the guidance for the year, this year, do you assume that the $17 million that expired last year will be renewed this year? Do you assume, a renewal of the expired ones? Or is it excluded also from the numbers?

So Tal, the way we do new year forecast is, we actually look at all the open opportunities. including unsigned customers as well as renewals. By the way, we are not trying to target for replacing dollar for dollar. We are trying to renew the customer one by one, when they come up due. And as you are aware Tal, some of the customers gain market share over the years, some of them may lose market share. Sometimes, they have a higher mix of 5G devices. They may have gone up in terms of average selling prices. We factor in all those parameters. So therefore, we are not trying to replace every dollar from every customer, but we are trying to renew them and frankly, many benefits more. We try to get a higher valuation out of that new contract. That's normally, how it works. So for this year, when we gave the guidance Tal, as I mentioned earlier, we try to look at all the open opportunities and try to obviously drive them to closure as much as we can. But we also know some of those agreements takes longer to renew than others and some for the first-time customers, frankly, tried to sell their past sales can be a difficult and complex negotiation. So internally, we assign a certain amount of probability and a certain amount of range of outcomes for each of the cases. And then in total, we give ourselves what we call internally multi-path to get to the result by targeting a range.

Yes. Okay. One last question, geopolitics. A lot of your customers are coming from China. All the situation all the geopolitical tension between China and the US, do you expect it to have an impact on your contract elongate them or any other type of impact?

Yeah. Hey, Tal that's a great question. So we all know geopolitics is always in the macro environment we consider. But there are several things to keep in mind. Number one, our technology is global. Our technology is built in the open standard that is frankly developed by industry associations. So that technology itself is open. It's not subject to any export license control. And frankly, not a single government, including the US or Chinese government truly own that standard. So that's always open. That's the starting point. The second one is really most of the open opportunity we are trying to pursue are from large customers, who have international business right? Their sales are driven by many different things. And frankly, if you look at smartphone industry in particular those large customers always value domestic industry, as well as foreign market, and they want it to be big and good. So that's a healthy dynamic for us. The third one which is really important for me is, I spent a substantial amount of time in frankly DCs and Brussels, and other capital, including Beijing and other places here informing policymakers why our business model is pro competition, why our business model is good for them it's good for the country, it's good for the consumers, it's good for the vendors, who are benefiting tremendously from our fundamental innovation. That's what enables this vendor to come in play leveraging what we have developed and becoming a global competitor relatively fast. So frankly, we have done a good job explaining our business model. And I'll tell you Tal that, our support across different countries is actually quite strong.

Great. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Anja Soderstrom with Sidoti. Your line is open. Please go ahead.

Hi. Thank you for taking my question -- actually most of them have been directed already and congrats on the great performance here. When we went into 2024 you gave the guidance or -- yeah, you gave the guidance for the year. And it seemed like you gave a guidance that was a little bit modest going into the year which makes sense. But are you doing the same approach this year you think? Or?

So Anja, let me take the broader question here. I'll ask Rich to chime in if need to be. So, but I explained earlier, right? So we try to take a holistic view of all the open opportunities. And here's our opportunity, we essentially associate the likelihood of completion in the year, as well as the range of possible valuations. And if it's a renewal, we are signed obviously a certain amount of recurring revenue. If it's brand new unsigned customers here, we also have to estimate how much catch-up payment we can get from that deal. And frankly, the timing and the dollar amount are hard to pin down with a long lead time, right? But we obviously wanted to give enough visibility into it. So our process generally beginning of the year, we do the best we can to come up with the range. And then the larger deals happen throughout the year as we have demonstrated last year. And if we have done more or better or faster, we'll provide guidance accordingly to either update or give you the latest information. That's the general approach we take. And so I don't know if there anything Rich wanted to add.

No, I think that covers it.

Okay. And then just a follow-up on the geopolitical environment here with the new administration. Do you feel like the sentiment has changed in any way with your counterparts or...

Yeah, that's a great question. So if you look at the new administration for US, traditionally, as I think many of you guys are aware, Republic are stronger in IP protection in general. And again, I'm not specific commenting on any specific person or anything. So which we believe is generally a good thing for IP licensing. But we are still at the beginning of the new administration. And by the way, we historically have a close working relationship with both administrations in the last decades or more. So we continue to build those relationships. We demonstrate to them why our business is good for US, why our technology leadership is important to US technology leadership as well as in the future of our country. So those are pretty well received, and I expect strong support going forward.

Okay. Thank you. That works out for me.

Thank you.

Thank you. And I would now like to hand the conference back over to Liren Chen for any further remarks. Lawrence Chen

Yeah. Thank you, operator. Before we close, I'd like to thank our employees for their dedication and contribution in InterDigital as well as many partners and licenses for a record year in 2024. I also thank you everyone who joined us today and we look forward to updating you on our progress next quarter.

This concludes today's conference call. Thank you for participating and you may now disconnect. Everyone, have a great day.

Thank you.