Q2 2024 InterDigital Inc Earnings Call

Operator: Good day, everyone, and thank you for standing by. Welcome to InterDigital's second quarter 2024 earnings call.

Operator: Good day, everyone, and thank you for standing by.

Operator: Welcome to InterDigital 2nd quarter, 2024 Earnings School. At this time, all participants are in a listen-only mode. After this speaker's presentation, there will be a question-and-answer session. To participate, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 1-1 again. Please be advised. That today's conference is being recorded.

Speaker Change: Good day everyone and thank you for standing by. Welcome to InterDigital's second quarter 2024 earnings call.

Operator: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 11 on your telephone. You will then hear a message advising that your hand is raised. To withdraw your question, simply press star 11 again. Please be advised that today's conference is being recorded. I will hand the call over to the head of investor relations, Raiford Garrabrant. Please go ahead.

Speaker Change: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To participate, you will need to press star-one-one on your telephone. You will then hear a message advising your hand is raised.

Speaker Change: To withdraw your question simply press star 1 1 again. Please be advised that today's conference is being recorded. I will hand the call over to the head of investor relations, Raiford Garrabrant. Please go ahead.

Carmen: I will hand the call over to the Head of Investor Relations, Raiford Garrabrant. Please go ahead.

Raiford Garrabrant: Thank you, Carmen.

Raiford Garrabrant: Thank you, Carmen. Good morning to everyone and welcome to InterDigital's second quarter 2024 earnings conference call. I'm Raiford Garrabrant, head of investor relations for InterDigital. With me on today's call are Liron Chen, our president and CEO, and Rich Brezski, our CFO.

Raiford Garrabrant: Good morning to everyone, and welcome to InterDigital 2nd quarter, 2024 earnings conference call. I am Raiford Garrabrant, Head of Investor Relations for InterDigital. With me on today's call, our leader in 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.

Raiford Garrabrant: Thank you, Carmen. Good morning to everyone and welcome to InterDigital's second quarter 2024 earnings conference call. I am Raiford Garrabrant, head of investor relations for InterDigital.

Speaker Change: With me on today's call are Liron Chen, our President and CEO , and Rich Brezski, our CFO .

Raiford Garrabrant: Consistent with prior calls, we will offer some highlights about the quarter and the company and then open the call up for questions. 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 2023 annual report on Form 10-K and in our other SEC filings.

Speaker Change: Consistent with prior calls, we will offer some highlights about the quarter and the company, and then open the call up for questions.

Raiford Garrabrant: For additional details, you can access our earnings release and slide presentation that a company does call on our Investor Relations website.

Speaker Change: For additional details, you can access our earnings release and slide presentation that accompanied this call on our investor relations website.

Raiford Garrabrant: Before we begin our remarks, I need to remind you that in this call, we will make forward-looking statements regarding our current policies, 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 2023 Annual Report on Form 10-K and in our other SEC filings.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: These risks and uncertainties include those described in the risk factors section of our 2023 annual report on Form 10-K and in our other SEC filings.

Raiford Garrabrant: In addition, today's presentation may contain references to non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is included in the supplemental materials posted to the Investor Relations section of our website.

Raiford Garrabrant: 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 Larry.

Speaker Change: In addition, today's presentation may contain references to non-GAAP financial measures.

Speaker Change: 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.

Lawrence Chen: With that taken care of, our term will call over to Larry. Thank you, Revert. Good morning, everyone. Thanks for joining us today. I'm pleased to share that we have delivered two results at $223 million that far exceeds the top end of our guidance for the quarter. A record first half revenue of $487 million. And we have raised our 2024 full year revenue guidance by $70 million to a new range of $690 million to $740 million, but the result of the continued positive momentum in the business. Our financial result, which will cover in more detail, was driven by a new device license with Google and the multiple courtments in our litigation with Lenovo.

Lawrence Chen: Good morning, everyone. Thanks for joining us today. And we have raised our 2024 full-year revenue guidance by $70 million to a new range of $690 million to $740 million as a result of the continued positive momentum in the business. It renews the agreement we already had with Google for 4G and expands Google's license to cover a growing portion of 5G assets, covering our 4G and 5G assets, as well as our Wi-Fi and HEVC video pad.

Speaker Change: With that taken care of, I will turn the call over to Larry.

Larry: Thank you, Raiford. Good morning, everyone. Thanks for joining us today.

Larry: I'm pleased to share that we have delivered Q2 results at $223 million, that far exceeds the top end of our guidance for the quarter.

Speaker Change: a record first-half revenue of $487 million.

Speaker Change: And we have raised our 2024 full-year revenue guidance by $70 million to a new range of $690 million to $740 million as a result of the continued positive momentum in the business.

Rich: Our financial results, which Rich will cover in more detail, were driven by a new device license with Google and multiple court wins in our litigation with Lenovo.

Lawrence Chen: In addition, we continue to drive our innovation forward, and so our video portfolio confirmed was one of the highest quality in the world. Our new license with Google is an example of the importance of innovation to a wide array of consumer devices. The agreement license a range of device, including Pixel smartphones and feedback variable devices to our cellular, Wi-Fi, and HEVC radio pass. It renews the agreement we already had with Google for 4G and expands Google's license to cover our growing portfolio of 5G assets. In addition to Google, this morning we also announced a new license agreement with Panasonic covering our 4G and 5G assets, as well as our Wi-Fi and HEVC video patents.

Speaker Change: In addition, we continue to drive our innovation forward, and so our video portfolio confirmed as one of the highest quality in the world.

Rich: Our new license with Google is an example of the importance of our innovation to a wide array of consumer devices.

Rich: covering our 4G and 5G assets as well as our Wi-Fi and HEVC video patterns.

Lawrence Chen: Next, let me highlight several positive developments on the litigation ground. In our dispute with Lenovo, the UK Court of PO handed us a resounding victory in the appeal of our friend licensing judgment. The court increased the amount of Lenovo mass pay for a license for our cellular patents through the end of 2023 by more than $55 million to just over $240 million. The court also confirmed that Lenovo must pay for all the past sales going back to 2007, and the court required Lenovo to pay our legal expenses for the appeal. While I believe there are multiple reasons, the value of cellular innovation is even higher; we have placed that the Court of PO decision has significantly increased the licensing fee Lenovo must pay.

Lawrence Chen: Next, let me highlight several positive developments on the litigation front. In our dispute with Lenovo, the UK Court of Appeal handed us a resounding victory in the appeal of our friend's licensing judgment. The court increased the amount Lenovo must pay for a license for cellular patents through the end of 2023 by more than $55 million to just over $240 million. The court also confirmed that Lenovo must pay for all the lost sales going back to 2007, and the court required Lenovo to pay hourly legal expenses for the appeal.

Rich: In our dispute with Lenovo, the UK Court of Appeal handed us a resounding victory in the appeal of our friend's licensing judgment.

Rich: The court increased the amount Lenovo must pay for a license for our cellular patents through the end of 2023 by more than $55 million to just over $240 million.

Rich: and the court required Lenovo to pay our legal expenses for the appeal.

Lawrence Chen: While I believe there are multiple reasons the value of cellular innovation is even higher, we are pleased that the Court of Appeal decision has significantly increased the licensing fee than the world must. This decision is important, not only in terms of our ongoing negotiations with Lenovo but also because of its potential impact on other licensees, FGP licenses. We believe that paying in full for part sales could help us receive fair compensation for the user innovation from other licenses, removing the incentive for implementers to hold out and delay in taking our license.

Rich: While I believe there are multiple reasons the value of cellular innovation is even higher, we are pleased that the Court of Appeal decision has significantly increased the licensing fee that the world must pay.

Lawrence Chen: This decision is important, not only in terms of our ongoing negotiations with Lenovo, but also because of its potential impact in other licensees, SAP licensees. We believe that paying in for past sales could help us receive further compensation for the user innovation from other licensees, removing incentive for our implementers to hold out and delay in taking our license. While the Court of PO ruling gave us a litigation win in our dispute with Lenovo, it's important to keep in mind that this decision only covers a cellular license through the end of 2023. You may, according to Germany, award a digital and injunction against Lenovo's infringement of our cellular patents.

Rich: This decision is important, not only in terms of our ongoing negotiations with Lenovo, but also because of its potential impact in other licenses, SAP licenses.

Rich: We believe that paying in full for part sales could help us receive fair compensation for the user innovation from other licenses, removing incentive for our implementer to hold out and delay in taking our license.

Lawrence Chen: While the Court of Appeal ruling gave us a litigation win in our dispute with Lenovo, it's important to keep in mind that this decision only covers a federal license through the end of 2023. In May, a court in Germany awarded InterDigital an injunction. The German court heavily criticized Lenovo's behavior through the course of our negotiations and ruled that InterDigital had acted in a friendlier manner at all times.

Rich: In May, a court in Germany awarded InterDigital an injunction against Lenovo's infringement of our cellular patents.

Lawrence Chen: The German court heavily criticized Lenovo's behavior through the course of our negotiations and ruled that InterDigital has acted in a friend manner at all times.

Lawrence Chen: Thus, we are pleased with our litigation wins. We remain committed to sign a forward-looking agreement with Lenovo that fairly reflects the value of fundamental innovation in values, value, and AI. Our arbitration to decide the monetary terms of our license with Samsung for mobile devices continues to be on track. In July, we completed a two-weeks-long arbitration hearing, and we hope to have a final decision by the end of this year. Thus, a reminder, Samsung already agreed to take a license to our portfolio from January 1 of 2023, and this binding agreement will determine the final value of the license.

Lawrence Chen: As we are pleased with our dedication wins, we remain committed to signing a forward-looking agreement with Lenovo that fairly reflects the value of fundamental innovation in wireless, radio, and AI. Our arbitration to decide the monetary terms of a license with Samsung for mobile devices continues to be on track. In July, we completed a two weeks long arbitration hearing, and we hope to have a final decision by the end of this year.

Rich: As we are pleased with our dedication wins, we remain committed to sign a forward-looking agreement with Lenovo that fairly reflects the value of fundamental innovation in wireless, radio, and AI.

Lawrence Chen: As a reminder, Samsung already agreed to take a license to our portfolio from January 1st, 2023, and this binding agreement will determine the final value of the license. This license is in addition to the agreement we signed with Samsung at the start of this year, which covers Samsung's digital TV and display. While many of the details or dedications we follow are case specific, one common thread is that Quartz has consistently recognized the quality of wireless radio and AI innovation and confirmed that we conduct licensing negotiations in a friendly manner.

Lawrence Chen: The license is in addition to the agreement we have signed with Samsung at the start of this year, which covers Samsung's digital TV and display. While many of the details or deductions we found are case specific, one common thread is that course has consistently recognized the quality of RARDIS video and AI innovation and confirm that we conduct licensing negotiations in a friend manner.

Rich: While many of the details or dedications we follow are case-specific, one common thread is that Quartz has consistently recognized the quality of wireless radio and AI innovation, and confirmed that we conduct licensing negotiations in a friendly manner.

Lawrence Chen: Our innovation pipeline has never been stronger; not only do we own one of the leading 5G portfolios, where we are in the top 5 worldwide, we analyze both quality and quantity, but we are also among the leaders in video innovation. We are one of the largest and highest quality portfolios in HEVC, the video compression standard that is the codec of choice for a growing range of devices and services. Our strength in video is also clear in Versatile Video Coding or VVC, the latest redo compression standard, which was finalized a few years ago, and now it's in early stage of deployment.

Lawrence Chen: Our innovation pipeline has never been stronger; not only do we own one of the leading 5G portfolios where we are in the top five worldwide when we analyze both quality and quantity, but we are also among the leaders in radio innovation. We are one of the largest and highest quality portfolios in HEVC, the video compression standard that is a codec of choice for a growing range of devices and services.

Rich: Our innovation pipeline has never been stronger.

Rich: Not only do we own one of the leading 5G portfolios, where we are in the top 5 worldwide when analyzing both quality and quantity.

Lawrence Chen: Our strength in video is also clear in versatile video coding, or VVC. A recent report from LexisNexis confirmed that we are among the top five owners of HDVC and VVC patents when assessed in terms of both quantity and quality. Video is also one of the areas we are among the leaders in the application of AI to make video networks more efficient. The depth and breadth of our video innovation is why we believe our video portfolio will be a long-term driver of shareholder value across a broad array of devices and services, given our all-time record revenue for the first half of the year and our increasing momentum across the business. We are raising our financial, our full-year revenue guidance by $70 million to between $690 million and $740 million. With that, I'll hand you over to Rich, who will talk through the numbers in more detail.

Lawrence Chen: Our recent report from Lexus Nexus confirmed that we are among the top 5 owners of HEVC and VVC patents that assess in terms of both quantity and quality. What its name suggests, one of the cornerstones of VVC is its worst ability and its ability to support a wide range of occasions in the area such as augmented and worst reality, and we are excited about its potential to open new use cases for our video innovation. Video is also one of the areas where we are among the leaders in application of AI to make video network more efficient.

Lawrence Chen: The depth and breadth of our video innovation is why we believe our video portfolio will be a long-term driver of shareholder value across a broad array of devices and services. This includes what we believe is a considerable greenfield opportunity in cloud-based video services where we continue to make progress.

Lawrence Chen: In summary, our performance in the second quarter far exceeded the outlook and highlights how we continue to execute our strategy and strengthen our innovation pipeline to support long-term growth. Given our all-time record revenue for the first half of the year and our increasing momentum across the business, we are raising our financial, our full-year revenue guidance by $70 million to be between 690 million and 740 million dollars.

Rich: and highlights how we continue to execute our strategy and strengthen our innovation pipeline to support long-term growth.

Rich: Given our all-time record revenue for the first half of the year and our increasing momentum across the business, we are raising our financial, our full year revenue guidance by 70 million dollars to between 690 million and 740 million dollars.

Richard Brezski: With that, I'll hand you over to Rich, who will talk through the numbers in more detail. Thanks, Lear. I'm pleased to share that in Q2, we delivered revenue, adjusted EBITDA, and non-GAAP EPS, all far exceeding the high end of our guidance reach. Total revenue of 223 million increased 120% year-over-year. As Lear and discussed, the UK Court of Appeal rolling increased the lump sum royalty Lenovo must pay for a cellular license through 2023 from 185 million to just over 240 million dollars.

Richard Brezski: I'm pleased to share that in Q2, we delivered revenue, adjusted EBITDA, and non-GAAP EPS, all four exceeding the high end of our guidance range. Total revenue of $223 million increased 120% year-over-year. As Liren discussed, the UK Court of Appeal ruling increased the lump sum royalty Lenovo must pay for a cellular license through 2023 from $185 million to just over $240 million. Meanwhile, higher recurring revenue from CE and IOT mostly offset the 2023 expiration of our Huawei agreement while we continue to negotiate that renewal. Non-GAAP EPS came in at a robust $4.57 per share. As Lyra noted, we had a record first half.

Speaker Change: As Liren discussed, the UK Court of Appeal ruling increased the lump sum royalty Lenovo must pay for a cellular license through 2020 trade from $185 million to just over $240 million.

Richard Brezski: Awards. In 2023, we deferred recognizing a portion of the prior award as a conservative measure pending the appellate process. The UK Court of Appeal ruling, together with our latest Google agreement, drove our catch-up revenue in the quarter. Meanwhile, higher recurring revenue from CE and IoT mostly offset the 2023 expiration of our Huawei agreement, while we continue to negotiate that renewal. Our adjusted EBITDA for the quarter of 158 million equates to an adjusted EBITDA margin close to 71%, as the vast majority of the revenue upside flowed through to adjusted EBITDA. Non-GAPEPS came in at a robust $4.57 per share.

Rich: In 2023, we deferred recognizing a portion of the prior award as a conservative measure pending the appellate process.

Speaker Change: non-GAAP EPS came in at a robust $4.57 per share.

Richard Brezski: As we are noted, we had a record first half. In fact, each of our first two quarters this year rank in the top five of the company's history in terms of revenue, combining for a total of $487 million of revenue and delivering an aggregate $288 million of adjusted EBITDA and $8.14 of non-GAAP EPS. These results provide further demonstration of the power of our business model. Our investments in fundamental technologies drive cop-line growth, while the reuse of those technologies across multiple verticals delivers high margins and drive cash flow.

Richard Brezski: In fact, each of our first two quarters this year ranked in the top five of the company's history in terms of revenue. These results provide further demonstration of the power of our business model. Our investments in fundamental technologies drive top-line growth while the reuse of those technologies across multiple verticals delivers high margins and drives cash flow. Moving on to capital allocation.

Speaker Change: Our investments in fundamental technologies drive top-line growth, while the reuse of those technologies across multiple verticals delivers high margins and drives cash flow.

Richard Brezski: Moving on to capital allocation. In Q2, we repaid the $126 million of remaining principal on our 2024 notes. We also issued a net $324,000 shares to cover the conversion premium. However, the resulting delusion was fully offset by corresponding options we held and exercised under our related note hedge transactions. We had partially funded the purchase of those options through the sale of ones with an initial strike price of $109, which will expire over the balance of this year. NetNet, based on the closing stock price at settlement, the note hedge spared us roughly $37 million of delusion.

Richard Brezski: In Q2, we repaid $126 million of the remaining principal on our 2024 notes. We also issued a net 324,000 shares to cover the conversion premium. However, the resulting dilution was fully offset by corresponding options we held and exercised under our related note hedge transaction, through the sale of warrants with an initial strike price of $109, which will expire over the balance of this year. Net-net, based on the closing stock price at settlement, the note hedge spared us roughly $37 million of dilution.

Speaker Change: Moving on to capital allocation. In Q2, we repaid $126 million of remaining principal on our 2024 notes.

Speaker Change: However, the resulting dilution was fully offset by corresponding options we held and exercised under our related note hedge transactions.

Speaker Change: through the sale of warrants with an initial strike price of $109, which will expire over the balance of this year.

Richard Brezski: In late July, we collected the additional $55 million payment from 1.0, though, plus the reimbursement of a portion of our legal expenses. We expect this and other receipts from existing licensees alone will drive close to 100 million of free cash flow in Q3. Our strong cash flow, combined with a cash balance of over $750 million, supports our continued return of capital to shareholders. In Q2, we repurchased approximately 300,000 shares for $35 million, bringing our year-to-date total to over 600,000 shares for $64 million. And we still have more than $230 million left on the current buyback authorization.

Speaker Change: In late July , we collected the additional $55 million payment from Lenovo, plus the reimbursement of a portion of our legal expenses.

Richard Brezski: We expect this and other receipts from existing licensees alone will drive close to $100 million of free cash flow in Q3. This strong cash flow, combined with a cash balance of over $750 million, supports our continued return of capital to shareholders. In Q2, we repurchased approximately 300,000 shares for $35 million, and we still have more than $230 million left on the current buyback authorization. In that time, we've reduced our outstanding share count by almost 45 percent from more than 45 million shares to just over 25 million shares. Of course, any additional agreements we sign in Q3 would be additive to those amounts. We now expect full-year adjusted EBITDA of roughly $400 million at the midpoint, with a margin of 55%.

Speaker Change: Our strong cash flow, combined with a cash balance of over $750 million, supports our continued return of capital to shareholders.

Speaker Change: In Q2, we repurchased approximately 300,000 shares for $35 million.

Richard Brezski: Since we paid our first dividend in 2011, we have now returned over $1.8 billion to shareholders through share-backed buybacks and dividends. In that time, we reduced our outstanding share count by almost 45% from more than 45 million shares to just over 25 million shares. We exit Q2 with recurring revenue of $96 million based only on existing customers. For Q3, we are currently guiding to adjust the diva of about 38 million and non-GAAP earnings per share of 75 cents. In each case, at the midpoint. Of course, any additional agreements we sign in Q3 would be additive to those amounts.

Speaker Change: Since we paid our first dividend in 2011, we have now returned over $1.8 billion to shareholders through share buybacks and dividends.

Speaker Change: In that time, we reduced our outstanding share count by almost 45% from more than 45 million shares to just over 25 million shares.

Speaker Change: Of course, any additional agreements we sign in Q3 would be additive to those amounts.

Richard Brezski: As Lear mentioned, we are increasing our full year 2024 guidance by $70 million and expected deliver revenue in the range of $690 to $740 million. We now expect full year adjusted diva of roughly $400 million at the midpoint, with a margin of 55%. This compares to our prior midpoint of about 325 million with a 50% margin. Furthermore, we now expect non-GAAP earnings per share of more than $10 and 30 cents per share at the midpoint, representing an increase of more than $2 and 20 cents per share compared to our prior guidance.

Speaker Change: As Laren mentioned, we are increasing our full year 2024 guidance by $70 million and expect to deliver revenue in the range of $690 to $740 million.

Speaker Change: Furthermore, we now expect non-GAAP earnings per share of more than $10.30 per share at the midpoint, representing an increase of more than $2.20 per share compared to our prior guidance.

Raiford Garrabrant: With that, I'll turn it back to Rayford. Thanks, Rich.

Raiford Garrabrant: Before moving to Q&A, I'm excited to announce that we'll be hosting an Investor Day in New York City on Tuesday, September 10th. This will be our first Investor Day under the current management team, and we are excited to update investors on our business and our longer term vision for continued growth. We hope that you can make it in person or join virtually. Please see today's press release for registration details.

Speaker Change: This will be our first Investor Day under the current management team, and we are excited to update investors on our business and our longer-term vision for continued growth. We hope that you can make it in person or join virtually.

Operator: We hope that you can make it in person or join us virtually. Please see today's press release for registration details. In addition to our Investor Day, we'll be attending a number of conferences in Q3, including the V of the virtual SMIC conference. Now, Carmen, we are ready to take questions. Thank you, Anna.

Raiford Garrabrant: In addition to our investor day, we'll be attending a number of conferences in Q3, including the B of A virtual summit conference, the BWS conference in New York, the Jefferies and Evercore Tech conferences in Chicago, and the D's virtual small cap conference. Please reach out to your representatives at those firms if you'd like to schedule a meeting.

Speaker Change: Please see today's press release for registration details.

Speaker Change: In addition to our Investor Day, we'll be attending a number of conferences in Q3, including the BofA Virtual Smith Conference.

Speaker Change: the BWS Conference in New York, the Jefferies and Evercore Tech Conferences in Chicago, and Sodoti's Virtual Small Cap Conference.

Carmen: Now, Carmen, we are ready to take questions. Thank you, and as our reminder, if you would like to ask a question, press the star key and then one one on your telephone and wait for your name to be announced. To remove yourself from the queue, press star one one again. Please time by while I would be compiled a Q&A roster. One moment for our first question, please.

Operator: Thank you, and as a reminder, if you would like to ask a question, press the star key and then 1-1 on your telephone and wait for your name to be announced. One moment for our first question, please.

Speaker Change: Thank you, and as a reminder, if you would like to ask a question, press the star key and then 1-1 on your telephone and wait for your name to be announced.

Speaker Change: To remove yourself from the queue, press star 11 again. Please stand by while I compile the Q&A roster.

Arjun Bhatia: And he comes from the line of Arjun Batia with William Blair. Please proceed. Perfect. Thank you, guys, and congrats here on a nice quarter.

Speaker Change: And it comes from the line of Arjun Bhatia with William Blair. Please proceed.

Lawrence Chen: Lauren, maybe one for you to start out with: very interesting commentary on the VVC patterns and maybe potential for new use cases there. When you think about the application of your portfolio for VR, AR use cases. Can you just give us a little bit more detail? Would those be new licensees that you're signing agreements with, with those existing ones? And just when you think about timing of when that might come in, how far do you think those sort of agreements might be?

Speaker Change: Can you just give us a little bit more detail? Would those be new licensees?

Speaker Change: that you're signing agreements with, would those be existing ones? And just when you think about timing of when that might come in, how far do you think those sort of agreements might be?

Lawrence Chen: A.R.

Lawrence Chen: Hey, Arjun, good morning. Yes, so what I was referring to is that we have a lot of strengths in the VVC portfolio, which is the latest video codec. When we talk about the XRO, the AR versus VR use cases here, keep in mind a fairly large portion of our portfolio would be applicable to that use case in addition to the VVC. For example, our HEVC patent will be applicable to them, as well as our core patents in connectivity, the wireless connectivity, either over cellular 5G or over Wi-Fi, will be applicable to them.

Lawrence Chen: Gen.

Lawrence Chen: Good morning. Yes, so what I was referring to is we have a lot of strengths in the VVC portfolio, which is the latest video codec. When we talk about the XRO, you know, the AR versus VR use cases here, keep in mind, a fairly large portion of the portfolio would be applicable to that use case, in addition to the VVC. For example, our HCVC pattern will be applicable to them, as well as, you know, our core patterns in connectivity. The wireless connectivity either were cellular 5G or were, you know, a Wi-Fi pattern portfolio available to them.

Speaker Change: When we talk about the XRO, you know, the AR versus VR use cases here

Speaker Change: Keep in mind a fairly large portion of our portfolio will be applicable to that use case.

Speaker Change: In addition to the VVC, for example, our HEVC patent will be applicable to them, as well as, you know, our core patents in connectivity, you know, the wireless connectivity, either over cellular 5G or over, you know, Wi-Fi patent portfolio will be applicable to them.

Lawrence Chen: Regarding whether they will be standard loan licenses versus, you know, a combination of others, it really depends on who are the makers of those devices. There are existing, you know, large customers who make XRO devices, you know, addition to other devices. And in those contacts, we will most likely negotiate in combination of, you know, other devices. And there's also in other vendors who, you know, let's see, only make XRO devices. So it's hard to say generally how this will play out, but we, as usual, will try to get a fair return for our important innovations.

Speaker Change: And in those contexts, we will most likely negotiate in combination of

Speaker Change: of other devices, and there's also other vendors who, let's say, only make XR devices.

Speaker Change: So it's hard to say generically how this will play out, but we, as usual, will try to get a fair return for our important innovations, and frankly, try to make a deal under the FRAN obligations and make sure the customer gets a good value of what they are building on top of our innovation.

Lawrence Chen: And frankly, try to make deal and other fan applications and make sure, you know, the customer gets a good value of what they are, you know, building on top of our innovation.

unknown: Okay.

Operator: Okay, helpful, understood. And then I had a couple questions on Lenovo if I could. One for you, Laren, and one for Rich.

unknown: I hope you understood. And then I had a couple of questions on the unlearnable detector. One for you learned, and one for Rich.

Lawrence Chen: But just, it seems like there's some lady back at fourth on price and still, you got the power core decision in your favor, but I don't think there is a go-forward agreement signed yet. Can you just give us your perspective on where you stand on, you know, what the royalty rate should be for that contract.

Speaker Change: It seems like there's some maybe back-and-forth on pricing still. You got the the appellate court decision in your favor, but I don't think there is a go-forward agreement signed yet. Can you just give us your perspective on

Operator: It seems like there's some maybe back and forth on pricing still. You got the appellate court decision in your favor, but I don't think there is a go-forward agreement signed yet. Can you just give us your perspective on where you stand on what the royalty rate should be for that contract? And then, for Rich, just wanted to double-check, is there any more either cash flow or catch-up REVREC left from that Lenovo contract that we should expect in the back half of 24 or go forward? Thank you.

Rich Brezski: where you stand on what the royalty rate should be for that contract. And then for Rich, just wanted to double-check, is there any more either cash flow or catch-up?

Richard Brezski: And then for Rich, I just wanted to double-check, is there any more either cash flow or catch-up reverack left from that Lenovo contract that we should expect in the half of 24 or go forward? Thank you. Yes.

Lawrence Chen: Yes. Hey, Arjun, let me take the first question here.

Lawrence Chen: Hey, Arjun, let me take the first question here. So our, as you refer into back-and-forth meetings with Lenovo, there are multiple pieces. The first one is what I just started opening with a Court of Appeal decision. This is really a, you know, appeal case that come from the initial trial case, frankly, what decided last year. And we win overwhelmingly in the appeal case; frankly, we win all the issues. And where the court raised, you know, the award from the trial court case, we also win on the past sales issue, which is a very important issue as I refer to goes beyond just Lenovo.

Speaker Change: As you refer to back and forth, there are multiple pieces.

Lawrence Chen: So our, as you refer to back and forth, really gives us a chance to know what there are multiple pieces. The first one is what I just started opening with the Court of Appeal decision. This is really an appeal case coming from the initial trial case, frankly, was decided last year. And we win overwhelmingly in the appeal case. Frankly, we win all the issues. And where the court raised, you know, the award from the trial court case, we also win on the path sales issue, which is a very important issue, as I refer to, goes beyond just Lenovo.

Speaker Change: The first one is what I just started opening with, the Court of Appeal decision. This is really an appeal case that comes from the initial trial case, frankly, that was decided last year.

Speaker Change: and we win overwhelmingly in the appeal case. Frankly, we win on all the issues. And where the court raised the award from the trial court case, we also win on the path sales issue, which is a very important issue, as I referred to, goes beyond just Lenovo.

Lawrence Chen: So, in that context here, I am, by the way, the court also issued legal expenses for Lenovo to pay for the legal appeal that we cost for the appeal case. So, in that context, that's the research of the decision. It's also important to know that particular decision only covers sales up to the end of 2023, right? We obviously in 2024 now, so Lenovo is on license for cellular patents. And that's why we were seeking, you know, history injunctions against some in Germany, which we win of May of this year. So currently, they are enjoying from setting cellular devices that include their cell phones and their cellular enabled tablets and laptops in Germany.

Speaker Change: So, in that context here, and by the way, the court also issued us legal expenses, order Lenovo to pay for the legal bill that we caused for the appeal case.

Lawrence Chen: So in that context, that's essentially the decision. But it's also important to know that this particular decision only covers sales up to the end of 2023, right? We are obviously in 2024 now, so Lenovo is unlicensed for our cellular patents.

Lawrence Chen: So that's already been; it's also worth noting that we did have a separate license agreement where they are paying us for our HEVC pass. And frankly, there are other portfolios, other assets in our portfolio; they continue to be infringing, including our Wi-Fi patents and other implementation patents. So we currently have a case against them in ITC, in US, where we are searching multiple patents against them. So there are absolutely multiple pieces here. But as I continue to, you know, repeating on this particular issue, our goal is always to get a forward-looking license, going forward. And that's fairly reflecting the, you know, different assets we have in the portfolio.

Richard Brezski: That's users of the current status; we still have no more. And Arjun, regarding the cash, I mentioned in my prepared remarks that we collected the 50, the additional 55 million that was awarded, actually last month, along with the fee reimbursement that was part of that order, where one of the had to reimburse part of our litigation expenses. As far as going forward revenue, you know, the full process, you know, could play out further with potentially a request to appeal to the UK Supreme Court. So, until it's fully resolved, or accounting at this point, you know, fundamentally represents the estimate.

Speaker Change: and Arjun, regarding the cash, I mentioned in my prepared remarks that we collected the additional $55 million that was awarded actually in the last month.

Speaker Change: along with the fee reimbursement that was part of that order where Lenovo had to reimburse part of our litigation expenses.

Speaker Change: As far as going forward revenue, the full process could play out further with potentially a request to appeal to the UK Supreme Court. So until it's fully resolved, our accounting at this point fundamentally represents an estimate. As before, it's a conservative estimate, just updated for the facts as they exist today.

Richard Brezski: As before, it's a conservative estimate just updated for the facts as they exist today.

unknown: All right. Perfect. Thank you again. Thank you.

Lawrence Chen: All right, perfect. Thank you again.

Operator: Thank you. And as a reminder, it's star 11 to get in the queue if you do have a question. One moment for our next question, and it comes from the line of Anja Sonderstrom with Sidoti. Please proceed.

Operator: And sorry, Minder is star one, one to get in the queue. If you do have a question.

Speaker Change: All right, perfect. Thank you again. Thank you. And as a reminder, it's star 11 to get in the queue if you do have a question.

Operator: One moment for our next question.

Richard Brezski: It kind of implies you will see the recurring revenue decline. Can you just remind us of the puts and takes there?

Anja Söderström: And he comes from the line of Anja Sundarstrom, which is dirty. Please proceed.

Speaker Change: and he comes from the line of Anja Sunderstrom with Sidoti. Please proceed.

Anja Söderström: Thank you for taking my questions, and congratulations on the progress here and the panophonic when you announce today. Is that included in the third quarter guidance, or?

Anja Söderström: I know we were having a little trouble here, and I think you were asking about the Panasonic announcement today and whether or not that was factored into the Q3 guidance.

Richard Brezski: Is that correct? Yes, thank you.

Richard Brezski: Yes, yes, it is.

Richard Brezski: Okay, thank you. And so then the full year guidance. It kind of implies you will see the recurrent revenue decline. Can you just remind us of the puts and takes there? Yes, so the full year guidance, which we increased by 70 million to 690 to 740 million, does it, you know, bake in some new business growth there? Just as our prior guidance had, of course, with the results that we delivered in Q2 that already drove us above that prior range, so that warranted the increase.

Anja Sunderstrom: Yes, thank you

Anja Sunderstrom: Okay, thank you. So then the four-year guidance...

Anja Sunderstrom: It kind of implies you will see the recurring revenue decline. Can you just remind us of the puts and takes there?

Richard Brezski: Yeah, so the full-year guidance, which we increased by $70 million to $690 million to $740 million, does, you know, bake in some new business growth there, just as our prior guidance had. Of course, with the results that we delivered in Q2, that already drove us above that prior range, so that warranted the increase.

Speaker Change: Yes, so the four-year guidance, which we increased by $70 million to $690 to $740 million, does

Anja Söderström: Yes, thank you.

Anja Söderström: That was all for me.

unknown: Thank you.

Operator: Thank you. As I see no further questions in the queue, I will turn the call back to CEO Lawrence Chen for closing remarks.

Lawrence Chen: As I see no further questions in the queue, I will turn the call back to see all Liren Chen for closing remarks. Thank you, operator.

Speaker Change: Okay, thank you. That was all for me.

Speaker Change: Thank you. As I see no further questions in the queue, I will turn the call back to CEO Liron Chen for closing remarks.

Lawrence Chen: Thank you, Operator. Before we close, I'd like to thank all our employees for their dedication and contribution to InterDigital, as well as our many partners and customers for an all-time record-setting first half of 2024. Thank you everyone for joining today's call, and we look forward to seeing you all at our investor day.

Lawrence Chen: Before we close, I like to thank our employees for their dedication and contribution to introduce us as well as our many partners and customers. For all time records, adding first half of 2024.

Liron Chen: Thank you, Operator. Before we close, I'd like to thank all our employees for their dedication and contribution to InterDigital, as well as our many partners and customers, for an all-time record-setting first half of 2024.

Lawrence Chen: Thank you everyone who joined InterDiscope, and we look forward to seeing you all at our even last year's date.

Operator: And thank you all for participating in today's conference. You may now disconnect.

Speaker Change: Thank you everyone for joining today's call and we look forward to seeing you all at our investor day. And thank you all for participating in today's conference. You may now disconnect.