Thank you for standing by. At this time, I would like to welcome everyone to InterDigital's Second Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Raiford Garrabrant, Head of Investor Relations.

Thank you, Demi, and good morning, everyone. Welcome to InterDigital's Second Quarter 2025 Earnings Conference Call. I'm 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 and the financial metrics tracker posted to the Investor Relations section of our website. With that taken care of, I will turn the call over to Liren.

Thanks, Raiford. Good morning, everyone. Thanks for joining us today. This week, we announced the conclusion of our arbitration with Samsung, which finalized the largest agreement we have signed in our company history. Under the term of our 8-year license lasting through 2030, Samsung will pay us more than $1 billion, which equals to $131 million per year, and it's an increase of 67% compared to our previous agreement. This excellent result demonstrates once again the value of foundational research, the strength of our IP portfolio and the momentum we have built in our licensing programs. It also increased our annualized recurring revenue to an all-time record of $553 million, an increase of 44% year-over-year. Our new long-term Samsung agreement helped us deliver revenue, adjusted EBITDA and non-GAAP EPS, far exceeding the top end of our guidance. Building on the strength of our second quarter results, the increased business momentum and the opportunity to make more progress over the balance of this year, we have raised the full year 2025 guidance to between $790 million and $850 million, up $110 million at midpoint. Rich will cover the numbers in more detail in his section. We are delighted with the result of this arbitration. It's another validation of how foundational our innovation is to our connected world. Samsung is the world's largest smartphone manufacturer and one of our longest licensees dating back almost 30 years. We look forward to continuing our collaboration with Samsung as we keep on driving innovation forward and sharing our technology through the standard process and through our licensing programs. It's worth noting that the new agreement does not cover Samsung digital TV and display monitors, which are part of a separate license that we announced early last year. Our new license means that the world's 2…

Thanks, Liren. Q2 was an exceptional quarter for InterDigital as we delivered all-time record levels of annualized recurring revenue and non-GAAP EPS. The results for the quarter far exceeded the top end of our guidance range with the upside driven by the favorable conclusion of our arbitration with Samsung, which we just received this week. This conclusion also resulted in a significant step-up in ARR, catch-up revenue and full year guidance for 2025. I'll provide more detail on each of these items in a moment. Revenue for the quarter was $300 million, which far exceeded the top end of our guidance of $170 million and was driven by the Samsung arbitration award and HP license agreement. This compares to revenue of $224 million in Q2 of last year when favorable court rulings and our enforcement against Lenovo helped generate $128 million in catch-up revenue. Let me take a second to discuss the impact of the Samsung arbitration award. Since entering into the agreement, we have been accruing revenue at the level of the prior agreement, which was $78 million per year. We received the arbitration decision just a few days ago in Q3. But since we had not yet closed the books on Q2, GAAP requires us to update our Q2 estimate based on the final decision. As a result, the award contributed $152 million of revenue to Q2. The $152 million of revenue was comprised of $33 million of recurring revenue and $119 million of catch-up revenue to true up the prior 9 quarters from January 1, 2023 to March 31, 2025. Turning to annualized recurring revenue. Our ARR increased 44% year-over-year to an all-time high of $553 million in Q2. This was driven primarily by momentum in our smartphone program, where recent patent license agreements with Oppo, Vivo…

00:16:15 Thanks, Rich. Before we move to Q&A, I'd like to mention that we'll be attending a number of investor events in Q3, including the Jefferies Tech Conference, Evercore Tech Conference and the Midwest IDEAS Conference, all in Chicago as well as the Sidoti Conference, which is virtual. Please reach out to your representatives at those firms if you'd like to schedule a meeting. At this point, Demi, we are ready to take questions.

[Operator Instructions] Your first question comes from the line of Anja Soderstrom with Sidoti.

Congratulations on the strong quarter here and outlook. I'm just curious, the tax rate was a little bit lower. How should we think about that going forward given this new revenue contributions?

Yes. Thanks, Anja, for your comment. Yes, the tax rate was a little bit lower. We are still evaluating the impacts of the new tax legislation, but generally think that they're a net positive. We see our kind of long-term tax rate still in the mid-to-high teens, but maybe a tick below what we might have thought otherwise. But we continue to evaluate that.

Okay. And also, there was some noise earlier this week or last week about some potential legislation that there would be some sort of tariffs or something on the IP. Do you have any comments around that? Or do you have anything built into your contract where you can pass that on or?

Yes, Anja, this is Liren. I believe you're referring to a Wall Street Journal article regarding a potential proposal. We actually don't know any details. We are not exactly certain where it will go. So without any details for the proposal for IP, we don't think it's appropriate for us to comment, but we are watching the situation pretty carefully, and we have a very healthy open dialogue with key policymakers in Washington, D.C.

Okay. And then also your updated guidance for the full year, that assumes some more catch-up payment potentially, right?

Yes, Anja. So when we look at our guidance and the updated guidance is no different than we've done in the past. We typically look at what we call a multipath approach. So there's different combinations of different opportunities that we think we could bring across the line. And some of those opportunities would include catch-up. That's right.

Next question comes from the line of Scott Searle with ROTH Capital.

Congrats on getting Samsung across the finish line. Looking at the wireless market now, you've got 80% of the market under license. You're approaching your $500 million target. I'm wondering how you're thinking about the long-term opportunity now with wireless. You're starting to talk a little bit about 6G, about some AI related to that as well. Are there other avenues to monetize within the traditional wireless market and/or in adjacencies, whether it be Wi-Fi, Bluetooth, other connectivity protocols that you guys are thinking about to drive a figure higher than that $500 million ARR target?

Yes, if you look at our smartphone program here, we are currently at about 80% market penetration. Our ARR, as we just reported is about $465 million. And we still have 3 major accounts we are working on trying to get them signed regarding the top 10 customers. So we feel very good about where we are. As Rich commented here, we feel we are very close to reaching our target on the smartphone side. Regarding the future of wireless, we are very optimistic about the strength of our portfolio, but more important about the way we are leading 6G development. As I commented in my remarks, we believe 6G will open up not just enabling more smartphone growth, but also open up adjacent area for verticals in smart city, industrial IoT, health care and a bunch of other industry where connectivity clearly will drive a lot of more vertical adoptions here. So we are optimistic this will open up new opportunity for us. But as of now, we don't put a number to them yet.

Liren, just to follow up on those comments. Are you starting to invest pretty actively in some of those verticals and particularly smart city, industrial, IoT and health care? Or should we be expecting some incremental dollars in R&D going in that direction? And then just the quick update on the streaming opportunity with the over-the-top players. Can you give us an update in terms of engagements that you're seeing at that level of ongoing dialogue? And maybe if there's any update as it relates to the Disney litigation.

Yes. Scott, the beauty of our business model is we invest in foundational technology, and then we build a very strong and one of the most valuable IP portfolio in the industry. So when we go license different verticals, we actually do not have to incur additional cost into these different verticals other than some licensing activity itself. So that's sort of the 6G development here. Regarding the streaming side here, we are in continuous dialogue with all the major players. And as of today, we don't have any real concrete progress to report yet. Regarding the Disney litigation, we have done a lot of work. As you are aware, it's a multi- jurisdictional enforcement activity. And we have done a lot of early-stage progress and frankly, have got multiple wins on the procedure side. And we have second trial coming up in later this year and early next year. And you can actually see all the details in our 10-Q filing that's on our website.

Liren, maybe just to quickly follow up on that, and then I'll get back in the queue. But given the Disney litigation, is that slowing down dialogue with any of the other players out there? Are they waiting to see the outcome there before they more actively engage and continue in their process? And second, the broad general time lines of when you would expect some sort of resolution, is 2026 the time frame when we could expect an initial deal? Anything from a time line perspective would be helpful.

Yes. Scott, for the first half of your question here, we do not see Disney litigation as impacting our dialogue with other potential customers here. Regarding the time line for Disney, it's hard to predict exactly when a settlement may happen. We are always open for open dialogue even though sometimes we are in enforcement activity. And -- but sometimes certain litigation take longer time and sometimes take shorter. We have seen that on the smartphone side. So -- but as always, when we started an enforcement here, we are prepared to go all the way through, but we are always open for business dialogue in the meantime.

Next question comes from the line of Arjun Bhatia with William Blair.

And I'll add my congrats on the Samsung outcome. Obviously, a big success there. Maybe if we can start there, Liren, I'm curious just if you reflect on the outcome, what it says about your tech, your patent portfolio because the 67% uplift, I think, is well above kind of what we were expecting, a lot of investors were expecting. And obviously, the implied kind of royalty rates in that agreement from an economic perspective are quite strong. So what does it say about, I guess, your technology, how you're investing? And then what might it mean for some of the other negotiations you're having with other smartphone OEMs or you might have in the future like Xiaomi this year or even others that are not under contract yet?

Yes. Regarding the Samsung arbitration result, as we have stated in our press release as well as our earnings remarks here, we are quite pleased with the result. We believe it properly reflects the value of foundational research as well as our IP portfolio. And I do think our team has done a very good job conveying all the value of portfolio with the arbitrator who, in our opinion, properly reached a conclusion. And we also want to thank the Samsung team for their professionalism in this process. Regarding the 67% increase compared to the prior agreement, we think that's very appropriate. Consider the prior agreement was a 10-year agreement at the time didn't really factor in the value of our 5G portfolio as well as a lot of other innovations on videos and AI research we continue to do. I do think this is a very valuable development for our program. And as you know, Arjun, in our program here, a major license agreement tend to be used a comparable license for other customers with time for renewal or sometimes with time to sign up the first customer for the first time. So we believe it will have a positive impact for our overall program, and we are really pleased about the outcome.

Perfect. That's great to hear. And then maybe, Rich, to follow up on that point a little bit. Just as we're thinking about the changes to the model, I think the way you come up with guidance, obviously, it's a bit unique, but I imagine there was some -- whether directly or indirectly, some Samsung catch-up revenue baked into your prior guidance? Is it possible at all to quantify what that was and how we should kind of just reflect on the change in Q3 and Q4 -- or sorry, the Q3 guidance that you provided relative to the prior -- what was prior -- what was previously implied in the back half numbers?

Yes. I mean the way I discuss it or describe it, Arjun, is under that multipath approach, we considered a range of potential outcomes for the Samsung result. And now that we've -- it's no longer a range. It's a point estimate. We have the result, right? And that, along with the other progress that we've made, puts us in a position to update the guidance based on the new multipath that we see going forward.

Okay. Understood. Very helpful. And then sorry, one last one, if I can. Just when you have a big win like this and a kind of a step function change in outcome, can you just talk a little bit about what it means for your cost structure? Is there like a onetime fee that you kind of recognize in expenses that when you get an outcome like this? Or are those costs relatively fixed?

Yes. So Arjun, the thing that I love about our business is that we've made the investment that made this agreement possible over the last years or decades, right? We've been investing for a long time in smartphone in 4G, 5G and the video acquisition and continued video research thereafter. So that's what made that legacy investment as well as the ongoing investment we're already making and would be making anyway is what makes this agreement possible. So there really isn't any incremental cost as a result of this agreement. We true up some performance accruals and things like that, but it's very, very small relative to the size of the agreement. So it's -- as I typically say, a lot of times new agreements or incremental value from renewals are 100% gross margin.

Next question comes from the line of Tal Liani with Bank of America.

I'm trying to take the recurring revenue line and break it down just to understand. So this quarter is $138 million. What was the contribution of Samsung to this? And what was the expectation -- so going in, did you have any expectations of Samsung to be in recurring revenue?

Yes. So we had been booking Samsung at -- based on the prior agreement of $78 million. So we've basically been booking just shy of $20 million a quarter. Based on the new agreement, it's now $33 million of recurring revenue in the quarter.

Got it. As we go into the following quarter, assuming nothing else? Or can you -- just the recurring revenue line, what should we assume going forward in terms of the growth trajectory? And again, I know the way you guide is you don't add any other agreements. So based on the current agreements, what are the expected trends for recurring revenues?

Yes. So that's based on the current agreements, that's really what our guide is limited to at $136 million to $140 million. That's based on our existing recurring revenue. And then anything that we're able to sign or renew or whatever thereafter or above that would be additive.

Right. No, sorry, this is for the following quarter, which is in line with the $138 million this quarter. So I understand it. If I try to forecast for next year and I -- and again, based on the current agreements, what should -- how should recurring revenue trend if -- that's my baseline. So I'm trying to understand my baseline and then do some assumptions about anything else. So how do -- how is the recurring revenue line progresses if you don't get any other contracts?

Tal, let me take this question and see if that makes sense. So if you look at here we are, right, we are end of Q2, we are projecting new deals will be done for the rest of the year. But as Rich has commented here, we don't really know exactly which combination will be. So therefore, as the year progress, and then we will, hopefully, by Q4, having a very clear picture on where we are. Leading into next year, we also disclosed in our filings about a few contracts currently scheduled to expire, and you can see on our website. And so if you take out those expiration contracts, that will be the starting point for next year, assuming the current contract expire. But as you know, we always try to get them renewed and very often, we are successful to get them renewed before they expire. So that's sort of the stepping function for starting of next year.

And normally, again, historically, when contracts expire and you renew them, is there growth or is there contraction in the contract? Like this time with Samsung, there was like 40% -- more than 60% growth or whatever with the recurring quarterly recurring revenue at the renewal of Samsung. What happens normally with renewals?

Yes. Tal, it actually depends on the situation of certain customers. I'll give you a couple of examples here. As you mentioned here, Samsung, the last contract was very long-term contract, didn't factor in 5G. So this time through arbitration, we are able to get a 67% increase compared to the prior one. The other example is the Apple contract. As we have discussed before, the previous Apple contract was longer term, but not as long as Samsung. So we renewed the Apple contract in September of 2022, and that contract on average was 15% higher than the prior contract. So it really depends on the situation, depending on where the vendor is, how stable their business, have they increased volume, have they used more of our technology. It's a combination of different factors, Tal. But based on those 2 examples here, we do have success record in renewing and higher value if that's appropriate.

And that concludes the question-and-answer session. I will now turn the call back over to Liren Chen, CEO, for closing remarks.

Thank you, Demi. Before we close, I'd like to thank our employees for their dedication and contribution to InterDigital as well as our many partners and licensees for a strong quarter. Thank you all to everyone who joined today's call, and we look forward to updating you on our progress next quarter.

That ends today's conference call. You may now disconnect.