InterDigital, Inc. Aktie

Good afternoon, everyone. Thank you for joining us. On my left, we have Liren Chen, the CEO and President of InterDigital, and also Rich Brezski, the CFO. Thank you so much, guys, for making the time. It is not every day that you get to spend time with the company that literally touches every single aspect of our day to day. So it's especially exciting to have you guys. I know this is your first appearance at the JPMorgan TMC conference. So welcome.

Because it is your first time, let us get started by giving us an overview of the business, what exactly does InterDigital do? Who are your top customers, the geographic reach, things like that, just get us started on that.

Yes. Good afternoon, actually. Thank you for having us. And my name is Liren Chen, CEO for the company. And I joined the company 5 years ago, but InterDigital as a company was founded in 1972. So we are a company of 54 years old, and we focus on foundational research in wireless, video, video compression and artificial intelligence, foundational research. Over the multiple decades, we built some of the most important innovations that benefit the whole industry. But equally important, we built one of the largest and most valuable patent portfolio in the world. And then we share the technology primarily through open standard. We have our engineers participating and over time leading some of the most important standard creation that by participating and leading the standard process, we have some of our patent technology that's adopted to be part of the standard process and over time being widely adopted into billions and billions of devices and many, many billions of user experience over the years.

And then we monetizing by licensing the patent and we take the revenue we generate from licensing back into R&D so we can create the next generation of technology either for wireless, video and artificial intelligence that just benefit the whole industry going forward. That's our business model.

It's very interesting. Who are your top customers?

Yes. Our largest customers so far are currently in the smartphone industry. We have licensed 8 of the top 10 smartphone vendors in the world. Those include Apple, Samsung, Xiaomi, Oppo, Vivo, Honor, Lenovo and others. So we have about 85% of the smartphone industry under license, but we also have some of the largest consumer electronic vendors, TV makers, PC makers and also increasingly the connected car industry licensed. That's our current licensing customers.

That's incredible. 85% of the smartphone market is amazing. Just going back on your point, so just walk us through the process of you inventing something, filing a patent for it? And then how does that become part of a standard package? Or how does that become a standard?

Yes. So everything in our company starts with innovation. So we employ some of the best engineers in the industry, and we are geographically distributed, by the way. We have 15 different sites in 7 different countries. Generally speaking, they are right around major universities. We recruit some of the most brilliant PhD students where we work with them, sponsoring their research and over time, employ some of the best system engineers in the industry.

We solve the most difficult problems end-to-end, and we file patents along the way, but that's only half the story. Then we go to open standard development organization that can be in cellular space, that's called 3GPP. That can be in the Wi-Fi space, IEEE primarily. And then we go to MPEG and others to drive the video standard forward. By participating to begin with and also our engineers over multiple decades has gained the trust over our peer company. So in those standard development organization, it's open, it's collaborative. And very often, over time, there will be leadership role coming up and that leadership role is selected through election. So our peer company will elect our engineer to be the chair or the co-chair or sometimes vice-chair of the organization. And over time, we have built an incredible amount of leadership in the SDOs. I'll give you a couple of numbers.

As of today, we have more than 110 leadership roles in the standard development organization. And as a case in point in 3GPP, which is the standard organization defining 5G and going forward, 6G, there's only 15 working groups, which means it's a dedicated group working on a certain area of technology. We are 1 of the 3 companies in the world, one of the only company in the United States that has more than 1 chair. We are 2 chairs of the 15 3GPP leadership role. That just demonstrates how much our engineers being respected and how our role of leading the industry is benefiting everything that come out of it.

In terms of how our technology become part of the technology standard, that process is a collaborative process. So what tends to happen is we will bring our technology solution to those meetings. We will demonstrate with our peer competency why our solution is better. By better, I mean, faster, more efficient, more reliable, lower delays and hopefully convincing our peers, this solution offers so much technology advancement to adopt the technology to be part of the standard. That's really generally how it works. We work on every single day, every single meeting. And over the course of multiple decades, we have built a very incredible leadership in this role.

That's incredibly interesting. Rich, I know you set out a $1 billion target for the end of the decade. Just walk us through all the different steps that you need to achieve and the targets -- internal targets that you need to hit to be able to achieve that.

Yes. So our target for the end of the decade is $1 billion or $1 billion or more of ARR. We're already at about $560 million, a significant growth from the roughly $400 million that we ended 2 years ago. And we announced that goal in September 2024 at our Investor Day. So since our Investor Day, we've had a lot of growth in smartphone. Our smartphone ARR goal is $500 million. We're almost there now. We just had a record level of smartphone ARR in the first quarter of this year. So we're really pleased with the progress we've made there.

We've also made a lot of progress over the years on consumer electronics and IoT. That's $200 million of the $1 billion ARR goal.

And then finally, the big, big opportunity for us is in video services, cloud and content more broadly. But by 2030, our goal is to have $300 million or more of ARR from video services. Now presently, we're at 0, but it's important to recognize that, that doesn't mean that we're at the starting point because we've already developed the technology. It's already used by all the major subscription and advertising video-on-demand models. And really, it's now a matter of getting paid for that use.

Yes, there's a long tail of usage that you haven't monetized yet.

That's right.

It makes sense. You talked about smartphones a little bit, and I know you already have 85% of the market share. The last super cycle was obviously 5G, and we are coming up on the cusp of 6G. So just talk us through what are some of the strategies around 6G? What are the drivers that you see, how you plan to monetize that?

Yes. So if you look at our technology-wise, in our company, it always start with innovation. For 6G, our engineers have been working on 6G for multiple years now. And by the way, 6G is scheduled to be finalized by 2029, generally speaking, and then widely adoption is expected to be about 2030. And if you look at the main pillars of 6G, there's multiple of them. One is native AI, built-in AI for the wireless connectivity level, integrated sensing and together with communication, which means you build the network for 6G more than just communication network. It will be a physical sensing network because if you think about RF signal to certain degree just like radar. If you build the network to be built in with sensing capability, you are merging the physical world together with the logic world for the communication network. That's a very powerful use case.

And then we are also working on technology people nonterrestrial based, basically combining cellular communication primarily with satellite communication, not just for emergency [indiscernible], for the high-speed connectivity. Those are some of the examples that our engineers have been leading. And it started with fundamental research, but we have already built a fairly large patent portfolio, and we hope over time, will be applicable to 6G, but it also boil down to our leadership in the 6G standard development organization, which is the 3GPP, as I referred to earlier. So all these things will come together, and we are hoping 6G will not only unlock the smartphone use case, which we know it will, but we will enable so much more based on connectivity, based on intelligence and based on this immersive user experience that built on sensing and, frankly, communicating with them.

Yes, makes sense. I do have a question on connected devices. But before we go there, even when 6G comes, is it true that you will continue to monetize some of the 4G, 5G innovations that you've made and companies will continue to use and deploy those technologies in their devices. Is it true that you continue to generate some sort of revenue from that long tail like really inclusivity in the technology? And also, there are some geographies where 6G may not appear on day 1. It will take a few years to get there. So just talk us through all of that.

That's absolutely true, by the way. The same dynamic exists in every end-to-end plus G transition. If you look at it, right, we are currently already built most of the 5G and pretty much most of the device, if not all the devices sold in the United States are 5G enabled, right? But it's important to know that this phone is a 5G phone. At the same time, it's still connecting and supporting 3G and 4G, right? It's a multimode device. So the same dynamic will happen by end of the decade when people started selling 6G phones and that 6G phone will, at the same time, support 4G and 5G and maybe even a little bit 3G.

The reason is exactly what you have mentioned here is a carrier would not deploy a network overnight that's supporting the latest generation technology. It takes them time to deploy it. And when you are using your phone, particularly when you're traveling, the phone has to be supporting different generation of technology at the same time. That to us, from a licensing perspective, it is actually a good thing because we will be licensing our multi-generation technology to them. And hopefully, we will be demonstrating value to our customers to say with the latest generation, frankly, we are providing you even more value of what I call the IP content in the device, right?

But keep in mind, the cellular connectivity is just one piece. In the meantime, we are driving Wi-Fi evolution with every generation of Wi-Fi that's getting in, we are also driving video codec, which itself had a similar evolution of more advanced technology being developed over time. And we are one of the few companies that can put together everything together into a coherent user experience that's end-to-end. So that's the power we bring to the table.

Yes. So it's not just the infrastructure of the technology itself. It's also what you consume on the devices, videos, for example, that you're also working on technologies for. It's very interesting.

That's absolutely true. That's true on the device side. But frankly, that's also true on the service side that Rich has referred to earlier.

Okay. Switching gears to connected devices. There are a number of devices that are -- have in-built communication or sometimes now you see laptops that have the ability to put a SIM card in, autonomous cars are going to be a huge thing. Recently, there was this photograph of a robotaxi with a satellite device connected to it. There will be humanoids in the future as well. So just talk us through what you're seeing from the demand from that space and how do you plan to address that?

Yes. Look, I think it's very fair to say that our technology has never ever been more important. it's frankly easier for me to name the device that's not using our technology than try to name every single thing, right? Think about it. Our technology are foundational to the wireless connectivity world. It's foundational to the delivery of video capture, delivery and decoding video end-to-end. Very few things that you think about that's important to you are not connected already. If they are connected, chances that they are wireless connected because nobody want to be tethered to a wall or a socket.

And most users prefer and craving immersive user experience that generally driven by video, right? Not just by 2D video over time, it will be driven by 3D video by surrounding video, all kind of stuff here. And then the human needs for more intelligent connectivity for everything to be pieced together for very low tolerance of latency of delayed use case. It's just all driving the whole thing together, right? You're talking about humanoid robots, you're talking about the different use case for the industrial side and you're talking about smart agriculture, smart manufacturing, you're talking about, frankly, satellite versus cellular versus local area connectivity. It's just enormous amount of use cases here.

And the few cases that Rich has identified is not all the use case people are deploying our technology. It's simply as we are talking today, those are the major use cases. I'm certain that we will evolve our frankly, licensing model over time. There will be brand-new use cases that we frankly think about it as of now going forward that become more obvious for us.

Yes. Makes sense and very exciting. So you make an innovation, you file a patent, that patent becomes part of the standard essential patent that everyone is now required to use or supposed to use for the broadest reach. Sometimes you sign multiyear contracts. And then when the contracts end, sometimes customers, you have to renegotiate those contracts. And so just talk us through how that process is. And sometimes when customers don't realize that they're infringing on your patents, you pursue an injunction against them. And you've won 6 out of the 6 recent injunctions, which is great because it sort of snowballs from there. How do you think about using injunctions and just using the legal system as a way to enforce your patents and then also make sure that you get a recurring revenue out of it?

And then the second part of the question is just talk us through the legal reputational aspects of pursuing a strategy like that.

Absolutely. So that's a really complex question. So allow me to unpack it, right? So to begin with, how do we license our technology. We license our patent, but most importantly to think we are licensing patents that protect the technology that people are using. So generally speaking, in our business, we are a B2B business model, okay? Our customers, generally speaking, are extraordinarily large and sophisticated vendors who knows how they are benefiting from our technology, right? I mean, literally, our largest customers, companies like Apple and Samsung and a number of very large smartphone makers, all the consumer electronics maker, all the service providers, we service, I mean streaming service, they are very large companies, very often much bigger than we are. And they frankly understand how they are benefiting from our technology.

And by the way, in case they don't, we spend a lot of time informing, educating and discuss with them. Our licensing cycle, generally speaking, is fairly lengthy. We will send engineers and patent attorneys and sometimes even with outside counsel explain to them, here's our contribution to the industry, here's the technology we have created. This is our patent portfolio. And by the way, let me prove it to you, here's how our patent cover those technologies. So we will demonstrate to them, right? And that's somewhat lengthy process. And generally speaking, once we license a vendor, and then we license them over the term of the contract. By the way, our term of contract is roughly around 5 years. We try to look for a long-term contract because it's a sweet spot of our technology is very foundational. I mean, frankly, they have been using it for a long time, very often. And we also want to make sure we don't sign too long or too shorter contract in terms of how long you need to negotiate a contract versus how much a vendor or industry may go up and down regarding volume and direction, right? So we need to find a sweet spot.

So once we have done it, and generally speaking, our customers in the existing industry stay with us for a long time. I'll share with you our Samsung agreement started mid of 1990s, right? They have been a customer for us for like 30-plus years, right? That just means, they know the benefit of our technology. And frankly, our Apple agreement started before they even shipped the very iPhone, the very first iPhone, right? So again, in the existing industry, we are frankly well established. And as we said earlier, due to the standard sort of the layering effect, we generally speaking, will demonstrate our customers how we are adding value over time, okay?

Moving to a brand-new industry. Now we are frankly trying to demonstrate our value and proving that the benefit to the streaming industry. We are at some stage. We are not to 0, but we are not the finishing line yet. So we are demonstrating value to this industry. By the way, we have been negotiating with the major player for multiple years and we did, as you mentioned earlier, filed a number of patent enforcement action against Disney February of last year. But as we have disclosed in our frankly, litigation filings before that, we have negotiated for multiple years. We have demonstrated to them the value of our innovation, contribute to our engineers, how we have created the most important foundational layer that they benefit from for multiple tens of billions of dollars per year in revenue and frankly, increasing profitability already over time. So that's already done. However, we couldn't get a deal done because, frankly, we couldn't agree on the value of the patents.

So in United States as well as in most other jurisdictions, a patent holder need to take the positive action to enforce its IP right for the patent to be enforceable. It's on the burden of the patent holder. IP holder, generally speaking, have to demonstrate the ability to protect our IP, okay? So which is what we have done. And we are -- as you mentioned here, we are asking for damages, basically they need to pay us for the past use of the particular patent we are enforcing. We are also asking for court to issue injunction after the court has decided the patent is valid and enforceable and being infringed, by the way. So it's not up to us. It's up to the court to make that decision. So back to your comments earlier to say, hey, if you are seeking injunction, do you worry about "reputational damage" -- the answer is absolutely not. The reason being IP right is the right to protect your innovation unless other people pay a license for it.

The opposite is -- if I'm a valuable IP holder, I keep on seeding for my IP, right, without ability to defend it, then frankly, over a long period of time, your business is not sustainable. You -- as a valuable IP holder, you have to do it because that's the only way for us in that particular instance to get a deal done properly and also to be fair to other paying customers over time, right? But one last comment I'll add, it's not lost on me that a company like Disney is an IP company itself. If you think about the value of Disney, even though it's much, much bigger than we are, which, by the way, I have enormous respect for Disney. Currently, Disney is enforcing its IP right against other AI companies. If you do a search for, you'll find it. And if you dig a little bit deeper, you will notice Disney is asking for money damages as well as injunction against AI company for their IP right, okay? So that just means having the protection of IP is really important to their business and being able to enforce IP for damages and injunctions are absolutely normal course of business for IP-centric company.

Yes. No, it totally makes sense. Switching gears. So I had the investment banking version of a VIBE coding. I spent the last week just talked to ChatGPT just trying to understand how video compression works in the traditional systems. And what you've done with the AI-based video compression is actually really interesting. So can you just give us an overview of how does the technology work? And what do you see as opportunity in that space? Maybe it's a question for you as well, Rich. You mentioned that there's a lot of revenue opportunity there. And so just talk us through that as well.

Yes. So first of all, we, as a company, are a huge believer for AI. We have been working on AI for multiple decades, and we are one of the very few companies in the world who has deep expertise in video, wireless and AI technology and the power of combining them is enormous, okay? It's enormous. So in terms of research-wise, we are focused on several different things here. We are focused on applying AI into wireless system and make the network more intelligent from the ground up. As I said earlier, 6G, one of the main pillar for 6G research is native AI built in. That's just one example for it.

We are, frankly, at the same time, applying AI technology into video codec. And on that note here, we have acquired a start-up company that's based in London, this company called Deep Render, where they have worked on some software solution that try to compress video codec, video signals into something much, much smaller and more intelligent using AI that's different from traditional video codec. And the reason we acquired them is their current technology, honestly speaking, has too much complexity, and it's still a proprietary solution. What we try to do is work with the engineering team to simplify the solution and ideally enable some of the solution into the next generation of video codec standard. By doing standardize, we are enabling AI video codec to a much broader audience. We are not guaranteed to be successful, but we are trying really hard, right? But that's only half of the puzzle. The other half of the puzzle, we have redesigned the wireless system as our video codec for AI use case. Let me give you a couple of examples, right?

Traditional wireless system, particularly cellular system is built to support much more download traffic than uploading traffic. Downloading traffic just means you're browsing the Internet, you are watching YouTube videos. Most of the traffic is downloaded from network to you. When people have deployed currently the edge AI, the physical AI, once they get wider adoption, the traffic will be shifted differently. There will be much more uploading traffic as you are doing real-time training, you're doing inference, among others with the AI distributed model. So our engineers are working with our peer company to reshape the network architecture to allocate more resource on uplink traffic for the next generation. That just making the network overall more adaptive for the machine-driven traffic pattern than people driven traffic pattern, right? That's a part of the network research we're doing really active on.

The other real interesting research we are currently doing is to create a brand-new codec that's for machine use. So currently, most of our research are doing is creating a next-generation codec, but the assumption was a human being will be the user for the codec, right, for us to watch the video. A human being has our limitations, right? We have how many frame we can detect versus how many color we can tell with a certain spectrum of the light we simply couldn't be able to read. Once you remove human from the interface from the part of the system, you can design the whole machine video codec much more effectively and much more efficiently. And that has very important use case, such as autonomous vehicle driving, right?

If you are having a car with multiple camera, look at the road, the processor for that video signal is not the driver anymore. It's actually the computer system. So by redesigning the codec, we can make this whole codec for AI use case a lot more effectively. So as you can tell, there's actually multiple angles of how we are applying AI to solve wireless video problem. We also redesigned the video and wireless system better for AI machine as part of the key user in that system, and our engineers is doing, frankly both.

Yes. And there's immense opportunity both in video streaming as well as autonomous driving, as you said. And these are all streams that are not fully monetized today, and there's a massive opportunity to monetize that in the future.

That's right.

You're one of the world's 100 most innovative companies consistently across all benchmarks. You have a 40,000-plus IP portfolio. I read somewhere that you file like 7 patents a day on an average. What are some -- how do you balance quality versus which projects to prioritize on? How do you identify, okay, this problem is going to be really fundamental, and this is what we should be working on? Like how does the prioritization framework operate?

Yes. First of all, we are extraordinarily proud of our innovation, quality and heritage. So what you're referring to is this leading research company, frankly, they are specializing in vetting IP portfolio, this company called LexisNexis. They have published an annual report that ranking all the company in the world, not by industry, not by even United States, all the company in the world, they have ranked us consistently top 100 most innovative company in the world 5 years in a row. The reason we are only ranked 5 years in a row for the research is they only publish that report for 5 years, okay? So we basically have been ranked from day 1 they publish a report every single year, every single year. And they specific comment on the quality of our innovation and then the future applicability of our IP portfolio. That is a quality research. It's not just by number of patents, right? But in the meantime, number matters, okay? I'm not saying number doesn't matter. But you also mentioned here, every single day on average, we get 7 new patents granted to us every single day, including weekends, right?

We have a very robust innovation and then we keep on adding to it. So back to your question, how do we make sure the quality of our patents over time become even stronger, Again, back to a few things here. We want to make sure we have the best people. One thing I didn't mention so far yet, which is super important is we are a company of new inventors, right? So we are not gigantic by headcount, but we try to attract some of the best people in the world. We open and operate research center primarily around major universities. We attract the best PhD students. We, over time, build one of the most advanced research team in the world. Actually by sheer size-wise, I believe we are the largest pure research company in the world.

And one thing that really separates us from any other company is 90-plus percent are engineers and scientists are inventors. So think of us as doing only groundbreaking research work, right? In most other companies, that percentage is in single-digit percentage, 1%, maybe 3%, but we are 90-plus percent. So that's first thing.

Second thing is really we only work on the most difficult problem in the system level. We are not trying to repeat because our product is IP, it's intellectual property, it's patent. You can only get a patent by solving a problem that has never been solved before. So we are not interested in repeating other people's solution. We are interested in doing groundbreaking work.

And thirdly, which is really important to know is despite most people's perception, innovation is a team sport. We actually build project. We have some of the most brilliant people working together. We challenge each other. We make sure they bring their expertise, sometimes in different domain field, by the way. As I referred to earlier, we want the wireless people to work with AI expert. We want the AI expert to work with video people. We want the video people to work with wireless by pushing those experts to work together, very often we can find the best solution end-to-end. And then hopefully, we don't jump the ball by patenting our innovation once we create the innovation. So all the stuff coming together give us the best chance of building a valuable patent portfolio.

That's amazing. Rich, the business seems to be firing on all cylinders. You're consistently growing double digit despite managing a machine of innovation and researchers, you're doing it very efficiently as well. The business generated more than $500 million of free cash. There was also a big uptick in the EBITDA margin. So just talk us through the drivers there and how do you see that trending in the future?

Yes, that's right. One thing I love about the business is we make these long-term investments, right, the long-term investments in research. And then when we hit on those investments, it means that, as I described before, it's going to be massively adopted. And then when we get licensing revenue from the use of our technology, it generally come -- with a few exceptions, it comes in with basically 100% gross margin. So as you're growing the top line, you have even higher growth on your profit margin because why is that? We've made that investment in the past 5 or more years ago oftentimes. So now when somebody is already using my technology and I license them, there's no additional cost, okay? I'm just bringing in the revenue, getting paid for what they were already using.

Okay. Got it. In many ways, it's also a revenue diversification/ you're already working on the next problem. And so all the investments that you're making currently are sort of revenue that you will see in the next few years.

That's right.

Makes sense. You've also paid down debt. You continue to return immense amount of capital to shareholders, about $800 million. You've reduced your share count by about 15%, 16% in the last 5 years. So how do you think about just capital returns, shareholder distribution, deploying capital towards organic versus inorganic. You are sitting on a big amount -- a big balance of about $1 billion of cash.

That's right. And for us, cash is a strategic asset. We are so excited about the opportunities that we have. The #1 thing that I think about is making sure that we do everything we can to achieve that -- so it's not opportunity, it becomes reality, right? And as Liren mentioned, we do have to enforce our rights against very large companies that use our technology from time to time. And having a strong balance sheet is important in that regard. Having said that, we do generate a lot of cash, as you noted, and we want to be good stewards of that capital and return that capital to shareholders, and that's resulted in $800 million return of cash over the last 5 years.

Okay. Let me just take a quick pause and see if anyone in the audience has any questions.

I was just wondering if you could maybe touch on the streaming side of things, specifically, any updates on the Disney and Amazon fronts?

Yes. So as I said earlier, we believe we have created some of the most valuable technology that enable the whole industry, including Disney and Amazon. And we have negotiated for multiple years and try to get to, frankly, a deal that's fair to both parties. And so far, we have not been able to reach a deal, but we are continuing to negotiate. In the meantime, we have filed a multi-jurisdictional enforcement for patents against Disney February of last year. And a number of the patent has gone to trial. And so far, those 5 patents gone to trial, 2 in Brazil and 3 in Germany. Of the cases that have been decided, we have win on all of them, right? The court has decided our patents are being infringed. And the court in all those 5 cases that ordered either preliminary injunction or injunction against them. We are in the process of enforcing them.

And in the meantime, though, there's also a number of other patents are coming to trial. right? That can be in Germany. And we also have patents that gone through the first hearing in UPC. It's a Unified Patent Court that applied to multiple countries, up to 18 countries in Europe. And we have, frankly, a number of patents coming to trial in United States that's currently scheduled for February of next year. So again, as I said earlier, I'm very happy with the quality of our portfolio, and we are very pleased of the progress we have made so far. But as I also said earlier, litigation is not our end goal. litigation, frankly, enforcement is part of our campaign to get a deal done in this case. So we are hopeful that we can get a deal done that reflect the value of our portfolio.

And if you look at our history as a company, streaming industry is relatively new for us. But in other cases, when we enforce our patents, we always end up getting a deal done, right, in different industries that we have done before.

For the Amazon litigation, it's a bit different. Amazon actually litigated against us first. We had a small licensing deal on the device side last year, and Amazon litigated against us before that deal expired. So we basically are responding to their litigation. They suit us in September, if I remember right, and we countersuit in November of last year. So relatively speaking, time line-wise, this case a little bit behind the Disney.

Anyone else? Okay. Thank you so much, Liren and Rich. Any final thoughts, messages that you would like the audience to take away and investors in general to take away with them?

Look, we are very excited about the opportunity. Thank you for having us, and we love to engage with investors. And by the end of the day here, I feel very strong about our position. Our value to the industry have been demonstrated over and over and over again. And I feel good about where we are, and we'll keep on asking.

Amazing. Thank you. On behalf of the entire JPMorgan team, thank you so much again.

Absolutely.

Thank you.

Hello, and thank you for standing by. My name is Mel, and I will be your conference operator for today. At this time, I would like to welcome everyone to the InterDigital First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Raiford Garrabrant, Vice President of Investor Relations. Sir, please go ahead.

Thank you, Mel, and good morning, everyone. Welcome to InterDigital's First Quarter 2026 Earnings Conference Call. I'm Raiford Garrabrant, VP 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 2025 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. We have made a very strong start to 2026 with continued momentum across our licensing programs, our research and innovation pipeline, our standard development leadership and our patent portfolio growth. Revenue, adjusted EBITDA and EPS were all above the top end of our guidance. Our annualized recurring revenue is now at $567 million, up 13% year-over-year. New license, we have a productive quarter with 6 new agreements. We renewed our agreement with Xiaomi through bilateral negotiation. Xiaomi is the world's third largest smartphone manufacturer behind Apple and Samsung. This renewal helped drive annualized recurring revenue in our smartphone program to a record $492 million.

With the Xiaomi renewal, we now have 8 of the top 10 global smartphone manufacturers under license, covering approximately 85% of the market. We also have the world top 3 smartphone vendors under license through the end of the decade. Our success in our smartphone program provides a strong base from which to drive additional growth. In consumer electronics, at the start of the year, we completed a new license with LG Electronics. LG is one of the top global TV manufacturers and the new agreement was reached through our joint TV licensing program with Sony. We also renewed our license agreement with Sony itself, which is one of our long-term licensee, added a new agreement with Buffalo Americas and new agreements with DTV manufacturers related to our extensive video portfolio. All these deals were done through bilateral negotiations.

Overall, the total contract value of the agreements that we have signed since 2021 is about $4.7 billion. In our video service program, we continued to make good progress during the quarter. We were awarded our fourth injunction against Disney by German court, which ruled that Disney infringed our InterDigital patent related to HEVC compression technology. We are also moving forward in our enforcement action against smartphone manufacturer Transsion. In late March, a court in Brazil awarded us an injunction against Transsion after court ruled that Transsion infringed our two 5G patents in suit and that our licensing offer to Transsion was fair and reasonable. Combined with our Disney case, this makes 6 out of 6 wins in our recent patent injunction proceedings.

In Q1, we also launched multi-jurisdictional enforcement action against TCL and Hisense, 2 of the world's largest TV manufacturers. As I mentioned before, we always prefer concluding license deals through bilateral negotiation and that most of the deals do get done this way. But we will rigorously pursue fair value for decades of investment in our research and defend the value of the intellectual property, which will allow us to continue to invest in the next generation of technology that benefits the whole industry and consumers worldwide in the future. Through our history, when we enforce our IP, we have a strong track record of ultimately reaching agreements that are fair for both parties.

Our research engine and our leadership in global standard continue to be a major competitive advantage for us. During the quarter, one of our top wireless engineers was reelected to a chair position within 3GPP, the standard body leading the development of 6G. We are already active contributing to 6G technology research and as this election demonstrates, we are ideally positioned to lead in the development of 6G standard, which is expected to roll out in 2029 with wide commercial deployment in 2030. With this reelection, we remain one of the only 3 companies in the world to hold multiple chair position within 3GPP.

Since the start of this year, 7 of our engineers and standard leads have been reelected or appointed to new leadership position in center-related organization, brought our total standard leadership growth to more than 110 positions. In the quarter, we also named our 2026 investor of the Year, Samir Ferdi with a senior engineer in our wireless lab. Samir is a key contributor to cellular standards and one of our most prolific inventors. Inventor of the Year is one of the most prestigious awards we make each year, and it speaks to the culture of innovation at InterDigital and our success as a company is built on the work of our inventors and the quality of their research. The cellular wireless industry is moving towards 6G and our research team at the center of that transition.

At Mobile Congress in March, 6G was at the heart of several demonstrations, including the development of AI native networks, new integrated sensing and communication and showcase of the world's first collaborative cellular and Wi-Fi sensing demonstration using our prototype 6G architecture. In our video research, we launched a Haptic Excellence Center in partnership with gaming technology company, Razer. This initiative brings together InterDigital's expertise in immersive media with Razer's leadership in gaming and immersive hardware to advance haptic technology as a core component of the video experience. With haptic well established in gaming, we are now actively expanding it to new use cases. For example, at Mobile Congress, we partnered with Razer to demonstrate how haptic-powered technology can make streaming TV shows and video at home [ add ] even more immersive returns. With more than 4 billion haptic-enabled devices already in use, this is an important area of research, and we believe it's a significant opportunity for us.

Staying with video, we have developed a new energy-efficient video streaming technology, which expand our work in reducing the energy footprint of video-driven devices and services. As video consumption grew across network and devices, making that delivery more energy efficient is the kind of impactful research that our team do so well. While we combine our foundational research across wireless, radio and AI with our leadership in global standard, we believe the results speak for themselves in the quality and reach of our patent portfolio.

In the latest European Patent Office ranking for patent application in 2025, we are ranked among the top 5 U.S. companies alongside Qualcomm, Microsoft and Alphabet. Our portfolio is also consistently recognized as among the highest quality in the world. For fifth year in a row, we were included in LexisNexis Innovation Momentum, the Global Top 100 report, which analyzing the company's patent portfolio according to the quality of their innovation. This ranking reflects the sustaining investment we make in our research and the discipline of our patent team in translating that research into a world-class portfolio of IP assets. Before I finish, I want to highlight that we have recently been promoted to S&P MidCap Index in a clear reflection of the growth we have delivered in recent years.

With that, I'll hand it over to Rich, who will talk you through the quarter financial performance in more details.

Thanks, Liren. I'm pleased to report that we delivered another strong quarter to start 2026 with revenue, adjusted EBITDA and EPS all above the high end of our guidance range. The upside was driven by new licenses signed during the quarter. Total revenue for the quarter was $205 million, above our guidance range of $194 million to $200 million. Total revenue included $64 million of catch-up revenue. Annualized recurring revenue or ARR for the quarter was $567 million, including a record $492 million of smartphone ARR. It is worth noting that our smartphone ARR is based in part on a guaranteed level of revenue under a hybrid agreement.

Under this agreement, there is a guaranteed fixed fee and additional royalties will become due if our customer shipments exceed a certain volume. Adjusted EBITDA for the quarter was $112 million, above our guidance range of $101 million to $110 million. Our adjusted EBITDA margin of 54% was above the midpoint of our guidance. GAAP diluted EPS for the quarter was $2.14, above our guidance range of $1.61 to $1.86. Non-GAAP EPS for the quarter was $2.57, above the midpoint of our guidance range of $2.39 to $2.68. Cash from operations was $16 million, even as cash due from new agreements drove a $139 million increase in accounts receivable. We expect collections of these new accounts receivables will drive strong cash flow in Q2.

As Liren said, we have signed new agreements with total contract value of $4.7 billion over the last 5 years. This demonstrates the strength of our IP-as-a-Service model. The long-term fixed-fee nature of most of these agreements provides visibility into our business, supports ongoing investment in research and portfolio development and helps us pursue further growth across our licensing programs. Consistent with our capital allocation priorities, we continue to maintain a fortress balance sheet, invest for growth and return excess capital to shareholders. During the quarter, we paid down $88 million of our debt and returned $26 million to shareholders. Even with these distributions, we ended the quarter with cash and short-term investments in excess of $1 billion.

And after accounting for additional repurchases in April, we have $108 million remaining on our share repurchase authorization. We have a portion of our license agreements come up for renewal every year-end. Our ability to renew many of those agreements and add new agreements in Q1 demonstrates the resilience of our model and the opportunity we see to drive additional ARR growth over time through renewals, new agreements and enforcement outcomes. Looking forward to Q2, we expect revenue from our existing contracts will be in the range of $139 million to $143 million, which is generally consistent with our Q1 ARR. Again, these revenue expectations are based only on existing contracts.

So any new agreements and/or enforcement action results over the balance of the quarter would add to these expectations. But based only on existing contracts, we expect adjusted EBITDA of $67 million to $73 million or an adjusted EBITDA margin of about 50%, diluted EPS of $0.80 to $0.97 and non-GAAP diluted EPS of $1.41 to $1.60. We are maintaining our full year guidance at the levels we issued on our Q4 earnings call. For full year guidance, we continue to think about our results through a multipath approach with different combinations of new agreements and enforcement outcomes that can deliver financial results within those ranges.

With that, I'll turn it back to Raiford.

Thanks, Rich. Before we move to Q&A, I'd like to mention that we'll be attending a number of investor events in Q2, including the William Blair Growth Stock Conference in Chicago, the Needham Tech Conference in New York, the J.P. Morgan Tech Conference in Boston and the Evercore TMT Conference in San Francisco. Please reach out to your representatives at those firms if you'd like to schedule a meeting. Now we are ready to take questions.

[Operator Instructions] First question comes from the line of Arjun Bhatia from William Blair.

Liren, maybe if we can just start, I would love to get a little bit of like sort of a state of the union on where we are in the streaming opportunity. We've seen sort of positive results in the litigation against Disney. But I'm curious sort of what all the injunctions mean for Disney? Have they had to alter their service? And if you could just maybe give us a sense of what your expected time line is from here, that would be great.

Regarding Disney, as you are aware, we filed a multi-jurisdictional injunction and patent litigation process February of last year. We are roughly a year plus into it. And so far, we have 5 patents being decided by courts in Brazil and Germany, and we win 5 out of 5 and not only our patents found to be infringed, the court has issued injunction against them in each of the cases. So regarding what Disney did to these cases, it is a case-by-case base. Sometimes they claim they have worked around it. Sometimes we are in the process of enforcing them.

And so it's hard to tell directly how everything will play out. It's also worth noting that we have at least half a dozen more patents coming to trial, including the cases we have in UPC that's coming in May and June and July of this year. So it's really coming up in the coming months. And we also have cases in the United States pending against them. So we feel very strong about where we are. And so far, obviously, 5 out of 5, it's extraordinary.

And maybe going to the smartphone side, you have a long-term target out there for $500 million in smartphone revenue from your ARR base. You're essentially there already. So where do we go from here? And it seems like there's obviously upside as the 6G cycle kicks in, but that's maybe still a few years away, as you pointed out. So what should we look out for in terms of catalysts or additional potential outcomes to watch for in the smartphone business through '26 and '27?

Yes. Arjun, as in my prepared remarks, we have so far licensed 8 of the top 10 smartphone vendors with ARR about $492 million and about 85% of the market under license. As you pointed out, we are very close to our $500 million ARR. And so we do expect to license the remaining unlicensed customers. And frankly, once we license them, we will double check where we are.

It's also important to note that not only we are very close to the ARR target, but top 3 customers we have in the smartphone space, which is frankly, Apple, Samsung and Xiaomi, they are all licensed to end of the decade. So we really have multiyear runway with those major, major customer under contract. So we feel very strong about that program, and we'll frankly provide periodic updates as we -- adding new customers.

[Operator Instructions] Next question comes from the line of Anja Soderstrom from Sidoti.

I have some modeling question. In terms of the licensing expense, it went up quite a bit in the first quarter. How should we think about that?

Anja, yes, the licensing expense did go up quite a bit in the first quarter. There was a significant amount of catch-up revenue on the revenue line related to our new consumer electronics agreement with LG. And with that comes some corresponding rev share tied to that catch-up revenue. So that was the primary driver. And if we're looking year-over-year, there was also some increase in our enforcement costs.

And then also as you expand your licensing portfolio, how should we think about the fixed fee portion of your revenue?

Yes. So on that, Anja, our experience thus far have been certainly in smartphone and also in consumer electronics, the largest customers tend to prefer fixed-fee agreements. That's been our experience. Going forward, as we look to grow in video services, I'm not sure exactly what form those contracts will take place, but we're going to make sure that we get the right value through whatever form.

[Operator Instructions] Next question comes from the line of Scott Searle from ROTH Capital.

Maybe just quickly on the renewals front, I think in the K was about $31 million of expiring contracts at the end of '25. I'm wondering where we are through the first quarter, a number of different deals. How much of that has been recovered at this point? I'm sure you're in negotiations with all of them. And second, to follow up on the earlier comment related to smartphones, most of your deals are fixed fees, but it seems like some of them have royalty-based and minimums. I'm wondering, given the headwinds that you're seeing from a memory standpoint in the marketplace really affecting, I think, the lower end of the marketplace, how much exposure do you have on that front to unit volume softening in 2026 versus the fixed fee deals? Which I think you have as part of all of your -- at least these 3 larger customers there who constitute the majority of the volume.

Yes. So Scott, I'll take the first part of your question, and then maybe Liren will address the second. On the expirations for the end of 2025, we've renewed roughly 2/3 or maybe a little more than 2/3 of what's expired so far. And again, Liren mentioned, a key part of that was our renewal of Xiaomi, the third largest smartphone customer in the world.

Yes. Scott, regarding your second part of the question, as you are aware, historically, our largest customer tend to prefer fixed-fee agreement. I think in our disclosure for prior quarter, we have 94% of the revenue coming from fixed-fee agreement. But it's also worth noting in Rich's prepared remarks and also in our 10-Q filing, we did mention a hybrid agreement that give us guaranteed payment and with some upside for -- if the volume exceed certain threshold.

While we cannot identify which contract it was due to confidentiality agreement, and this is a way for us to frankly deal with a certain amount of market uncertainty as well as difficulty to project volume over a long period of time. So we feel that's fair to both parties for us to capture certain amount of upside when the market rebound over time.

And if I could, Liren, maybe to just follow up in terms of some other markets that you guys are thinking about at Mobile World Congress, you continue to feature a lot of different technologies from haptics and sensing as it relates to 6G as well as AI. I'm wondering any kind of high-level thoughts you have in terms of time line and monetization opportunities within some of those markets.

Yes. So 6G, as I mentioned here, which is shared by some of our peer company in the industry, we expect 6G to be finalized, standardized by '29 with smaller deployment also in '29. And we do see wide adoption of 6G in 2030, and frankly, that adoption is projected to be pretty fast. So that's 6G. As I said in my prepared remarks, we feel we are leading in 6G standard development. We indent a few things in the Mobile Congress demonstration, including the native AI integration of sensing as well as communications in those demonstration.

Regarding other collaboration here, I think I highlighted a couple of things in my prepared remarks. We were looking quite a bit in the haptic research, and we also did a joint excellence center with Razer, which is a leading gaming company. What we are trying to do with Razer is not only to enable Razer haptic devices for Razer devices, but really to build this end-to-end gaming as well as the entertainment experience, including streaming video.

And so we are really excited about this opportunity. We also feel we are one of the very few companies who can combine the connectivity, AI and video experience and be able to introduce them into the standard process is also a major competitive advantage we have. So that's essentially my high-level overview. But some of the use case, honestly speaking, will take time to play out.

That will conclude our question-and-answer session. And I will now turn the call over back to Liren Chen, our COO (sic) CEO.

Thank you, Mel. I was appointed to the CEO for InterDigital almost exactly 5 years ago. Since then, we have strengthened InterDigital foundation, driven growth across different business and build an even stronger pipeline of innovation for future growth. I'd like to take the opportunity to thank our employees for their continued dedication and all their contributions to what has been a period of historic success of the company and for positioning the company to deliver even more shareholder values going forward. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good morning, everyone, and thank you for standing by. My name is Gail and I will be your operator for today. At this time, I would like to welcome each and everyone of you to the InterDigital's Fourth Quarter 2025 Earnings Call. [Operator Instructions]

I will now turn the call over to Raiford Garrabrant, Head of Investor Relations. Please go ahead.

Thank you, Gail, and good morning, everyone. Welcome to InterDigital's Fourth 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 2025 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.

At the beginning of 2025, we set aggressive goals to grow our company, including building on the momentum of smartphone licensing program to drive revenue growth with a special focus on increasing annualized recurring revenue and margin expansion, building a strong licensing pipeline by advancing our video service licensing program, expanding our AI research capability and growing our standard leadership and patent portfolio at a critical stage in the development of 6G and the next-generation video codecs. I'm pleased to say that we have exceeded our goals on all these fronts.

We finished 2025 with a strong fourth quarter delivering revenue and EPS above the high end of our outlook, build strong momentum across our licensing programs, completed a key acquisition to strengthen our AI research, and added new invention to our patent portfolio, reaching a new record breaking high.

This rounded off an excellent year where revenue for the full year was $834 million, the second highest in our history. We increased our annualized recurring revenue to $582 million, up 24% year-over-year. The adjusted EBITDA was $589 million, and our non-GAAP EPS was more than $15, both at all-time highs.

Today, our focus on progress throughout the year and why we believe we are well positioned to drive shareholder value in 2026. Rich will then talk you through our fourth quarter financial performance and our '26 outlook in more details.

In our Smartphone program, we had a record-setting year in 2025. We completed Samsung smartphone licensing contracts that extended one of our longest customer relationship all the way to the end of 2030. We signed a new deal with two more top 10 global smartphone vendors, Vivo and Honor. With these additions, we have now licensed 8 of the top 10 largest smartphone manufacturers, covering about 85% of the overall market.

Our new agreement with Samsung is the most valuable license in our history, continuing our win-win relationship that stretches back to the 1990s. In 2025, we also renewed an agreement with Sharp and Seiko. For the year, our smartphone revenue was just below $680 million, up 14% year-over-year to an all-time high. This strong momentum has continued into 2026, as we renewed our license with Xiaomi at the beginning of the year. We now have the three largest smartphone vendors, Apple, Samsung and Xiaomi licensed through the end of the decade, providing a strong foundation for the company to build on future organic growth.

In our CE and IoT program, we continue to make good progress. In 2025, we signed new agreement with HP, the world's largest PC manufacturer. We now have licensed about half of the global PC market. In the fourth quarter, we signed a CE device license agreement with a significant social media company, covering our video coding and WiFi patents. At the start of 2026, we completed a new license with LG Electronics, covering the company's digital TV and computer display monitors. LG is one of the top global TV manufacturers, with strong sales in the premium part of the market. We are thrilled to add it to our CE licensing program.

Including the latest deals, we have now licensed over 50 license agreement with a total contract value of more than $4.6 billion since 2021. We also continue to make good progress in our video service program, and our focus on licensing some of the world's largest streaming platforms. We believe that this space continues to represent an excellent growth opportunity for us.

Initially, our focus is on streaming services, but we also see opportunities in other video-driven platforms where our innovation in areas like video compression is central to the efficient processing and delivery of video content and to the consumer experience overall. At the beginning of 2025, we launched our enforcement campaign against Disney+, Hulu and ESPN+ streaming services.

We received two preliminary injunctions in Brazil and two in Brazil, and two injunctions in Germany against Disney. And in the fourth quarter, we launched an enforcement proceedings against Amazon. These are important steps towards our goal of signing a long-term agreement with both companies.

As I said many times before, we always prefer getting license deal down through bilateral negotiation, but we will rigorously pursue fair value for years of investment in our research and deepen the value of our intellectual property, which allows us to continue to invest in the next generation of technology. And when we enforce our patent right, we have a strong track record of ultimately signing a license that's fair to both parties. The central role we play in the connected world is only possible because we have built and continue to expand our research pipeline, which provide us with a strong foundation of assets we license today and which ensure that we have a platform that drive growth cross-licensing program through 2030 and beyond.

In 2025, we placed particular emphasis in deepening our AI expertise and strengthening our leadership in developing AI-based solutions for the next generation of standardized technologies. Through our standard contributions and our technology leadership, we drive much deeper use of AI to make network more efficient and reliable to make video better quality and more energy efficient, and we lead in the development of advanced wireless network to better support the rapid growth use of AI across devices and services.

Our recent acquisition of AI startup, Deep Render, which we completed in Q4 is a perfect example of how we strengthened our engineering team to lead research in AI and video compression in years to come. In our wireless research, we are already active contributing to 6G standard development, which is due to be the first native AI wireless standard. As AI impacting wireless and video growth, the leadership position that we hold in multiple standard group become even more important.

In 2025, one of our senior engineers was reelected Chair of a key working group within 3GPP, the standard organization, which is leading the development of 6G. We also hold multiple leadership position in AI working group in several other standard organizations. The strength of our research and our expertise in building a world-class patent portfolio to protect our innovation are key drivers behind our business success.

In 2025, our portfolio grew by 14% year-over-year and passed 38,000 granted patents and applications. Our portfolio is one of the largest across wireless, radio and AI and more importantly, it is also ranked as one of the highest quality in the world according to several independent third-party reports. Through 2025, our success was recognized by multiple third parties, including by Newsweek, which named us one of America's greatest companies, by Fortune, which include us among American's fastest-growing companies and B Time, which recognized us as one of American's growth leaders.

More recently, another sign of our momentum at the start of 2026, Forbes recognized us as the #1 most successful mid-cap companies in America for 2026. In its analysis, Forbes look at long-term performance and this award reflects our success in building a foundation for the future and delivering even greater shareholder value going forward.

Before I hand it over to Rich, I want to let you know that next month will be back at Mobile Congress in Barcelona, where we'll be demonstrating some of our cutting-edge technology including how 6G will reshape connectivity, our innovation -- our innovative application of AI and on how we're leading the development of more immersive video. We also present a demo alongside gaming technology pioneer razor, continuing our track record of showcasing cutting-edge innovation alongside industry partners. Please get in touch if you'd like to meet at the show.

And with that, I'll pass you over to Rich.

Thanks, Liren. Q4 was a strong finish to an excellent year as we delivered revenue, adjusted EBITDA and non-GAAP EPS in Q4 that all exceeded the high end of our outlook. The upside was driven primarily by the new CE device license agreement with a significant social media company that Liren mentioned earlier.

Total revenue of $158 million exceeded the high end of our outlook of $144 million to $148 million and included $13 million of catch-up revenue. ARR increased 24% year-over-year in Q4 to $582 million. Our adjusted EBITDA for the quarter of $88 million exceeded the high end of our outlook of $68 million to $76 million, resulting in an adjusted EBITDA margin of 56%.

GAAP EPS for the quarter of $1.20 exceeded the high end of our outlook of $0.72 to $0.95. Non-GAAP EPS of $2.12 for the quarter exceeded the high end of our outlook of $1.38 to $1.63. Cash generation for the quarter was robust with cash from operations of $63 million and free cash flow of $48 million. Building on Liren's comments, I'll highlight a few key metrics from our full year 2025 results and provide the additional perspective of how each item has improved over the last 4 years.

First, total revenue for full year 2025 was a near record at $834 million, roughly 2x the 2021 levels of $425 million. Next, adjusted EBITDA for full year 2025 reached a record high of $589 million, which is almost 3x the 2021 level of $208 million.

Finally, for full year 2025, we delivered record non-GAAP EPS of $15.31 per share, more than 4x the $3.73 per share we reported in 2021. The dramatic gains in these metrics reflect both strong execution and the operating leverage in our business model. Over the past 4 years, roughly 2x revenue growth has delivered nearly 3x growth in adjusted EBITDA and more than 4x growth in non-GAAP EPS, all of which was driven by our recurring long-term investment in research.

Turning to our outlook. We have guided to another very strong year in 2026 with expectations for total revenue in the range of $675 million to $775 million. Adjusted EBITDA of $381 million to $477 million and non-GAAP diluted earnings per share of $8.74 to $11.84. For Q1, we expect revenue will be $194 million to $200 million from existing contracts, including catch-up sales of $55 million to $60 million. Based only on existing contracts, we expect an adjusted EBITDA margin of 52% to 55% and non-GAAP diluted earnings per share of $2.39 to $2.68.

Entering 2026, we saw a step down in ARR from year-end expirations, but we have already renewed about 2/3 of the $92 million that expired at the end of 2025, and we expect additional renewals and new agreements will drive further increases in ARR, keeping us on pace to reach $1 billion by 2030.

Before I turn it back to Raiford, I want to reiterate that our quarterly guidance for Q1 '26 does not include the impact of any new agreements or arbitration results we may sign or receive over the balance of the first quarter. This is because it is harder to predict the timing of new agreements in short windows. In contrast, our full year guidance includes potential contributions from both new agreements and arbitration results. As was the case last year, we believe we can achieve financial results within our full year guided range through different combinations of new agreements and arbitration results.

With that, I'll turn it back to Raiford.

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 Dan Point, California, and the Sidoti Conference, which is virtual. Please reach out to your representatives at those firms who would like to schedule a meeting

Now we are ready to take questions.

[Operator Instructions] Your first question comes from the line of Scott Searle with ROTH Capital.

Congrats on a nice quarter and outlook. Rich, maybe just to dive in quickly on the guidance. I think I heard the number in terms of the $194 million to $200 million in the first quarter, that's got $50 million to $55 million of catch-up. So it kind of implies that recurring has gone down or at least the immediate outlook of contracts in hand is down sequentially from the December quarter.

Now I know that there are expirations that go along with it, but I'm wondering -- excuse me, the start of any year, and I believe the number is about $32 million according to the K as we enter 2026. So I'm wondering if you could provide a little bit of color if that's the right ballpark in terms of where we're starting with recurring fees and the outlook and the expectation of resigning some of those contracts that I believe I thought Xiaomi was one of them, but Samsung TV, et cetera. what -- how we should be thinking about that over the course of the next couple of quarters?

Yes, Scott, that's right. So as we disclosed coming a year ago that we had roughly $90 million of expirations at the end of '25, and we updated that disclosure in the current K but as noted, we did renew Xiaomi. So about 2/3 of that was covered. And then we also had the LG agreement, which is contributing recurring revenue as well. So net-net, we haven't recovered all of it yet. We're still working on other renewals and certainly look to get new agreements to drive further increases in ARR over the course of the year.

Got you. Very helpful. And then I'll jump in on the litigation front. I'm wondering, Liren, if you could provide a little bit of color just in terms of potential time lines as it relates to Disney. You've had some positive outcomes in terms of Brazil and Germany. But is there an expected time line of when you start to get some more, I guess, court feedback on that front? Similarly, the updated time line with Amazon.

And Rich, on the litigation cost front, I know it was elevated this past quarter. I think the number was about $19 million, which is the highest in recent memory. But given the events and the litigation that's ongoing, how should we think about that going forward into the first, second quarter and course of 2026?

Scott, this is Liren. So on the litigation side, we could not be happier with where we are with Disney case. As I said in my prepared remarks, we filed the litigation at the beginning of '25. We already got really positive results from Brazil and Germany.

Of the four patents being decided, we essentially win on all of them regarding being infringed, and we already got preliminary injunction and injunctions in two different countries. And -- but that's not all, right? We have more than a dozen patents asserted.

And therefore, we still have a majority of the case coming to trial in even bigger jurisdictions like American, United States as well as UPC -- and those are starting in the summertime and also second half of this year. We have to have disclosed each cases in our 10-K filings. So we are confident about our case, and we wait for the outcome of those decisions.

Regarding Amazon case, as I said in my prepared remarks, the assertion was frankly starting in Q4. As you might recall, Amazon actually litigated against us first. And so the case was filed in our side on Q4. So it's trading a little bit behind on the timing, but we are asserting multiple cases in 4-plus jurisdiction plus ITC and Amazon also have devices that we are also asserting against. So we will take time to go through each one of them. Again, there's more disclosure in our 10-K filing.

Yes. And Scott, on litigation cost. Well, the first thing I'd say is you can infer from our guidance that we have some uptick in expenses going into Q1. Without being too granular, let me give you the broad strokes there.

We have rev share on the new Madison agreement we signed, roughly, call it almost half of the catch-up sales for Q1. And then even accounting for that, expenses are still up a little bit, and that's mostly driven by an expectation for increased litigation expense as we do expect it to be higher in Q1 and broadly for 2026, that's all factored into the '26 full year guide as well. And then beyond that, we continue to invest in our research and portfolio so we have some -- a little bit of an increase there as well.

Question come from the line of Kevin Garrigan with Jefferies.

Congrats on the strong results and all the progress. Just wondering if you can talk a little bit more about the consumer electronic device agreement with the social media company. I mean, do you guys see that being a high-volume agreement?

Yes. Kevin, this is Liren. So of that particular agreement, it's a device agreement and it's licensed our video assets and WiFi. So it's actually not a huge volume agreement, neither does they apply on the service side. So that's as far as I can see on that agreement.

Okay. Got it. That makes sense. And then just looking at a litigation question, I mean, what I know you guys had a, as you said, a strong start to 2025, positives on Disney and you're working on Amazon. I mean, what do you guys kind of see are the biggest threats on the litigation front. Is it really just kind of the budgets that Disney and Amazon have?

Can you clarify by threat, you mean threat to us?

I guess, just threat to potentially them not signing or the court cases not going your way?

Got you. Yes, Kevin, as I mentioned earlier, we are being very careful in terms of our litigation strategy. We always prefer negotiation for deal making. However, on both cases here, after frankly, lengthy negotiations, we decided it's the right thing to do is for us to enforce our patent right. As you can also probably tell in our disclosures here, it's a multi-jurisdictional enforcement campaign.

In either case, we are asserting more than a dozen different patents, even though there's potential risk for each patent litigation, I mean, any litigation carries the own inherent risk. But our patents are really high quality and some of the patent has already been tested regarding durability and other issues. So we are doing really, really well.

And so therefore, our whole litigation campaign is not really dependent on winning every single patent assertion, but we feel very strong about the value of our portfolio, and we feel that the right thing for us to do is to get fairly compensated so we can keep on funding R&D. So that's our global enforcement campaign as a broader speaking. And you should know that in most of those cases, when we assert them, we ask both for past damages for the infringement as well as injunction if we win

Your next question comes from the line of Alinda Li with William Blair.

With the focus on R&D. How should we think about M&A as part of the effort to expand and deepen the patent portfolio here?

Yes, so we take a pretty broad approach in our R&D investment. As I said in prior calls, we believe strongly we have one of the most advanced R&D engine in the industry. We have some of the best innovators led by our CTO, Rajesh Pankash, which is widely recognized as one of the most brilliant mine in our industry.

But having said that, though, we are also having the luxury of having resources, having the industry reputation that we can engage leading companies like Deep Render, and it allows us to fill certain gaps in our research and frankly, allows us to accelerate some of the areas that we are quite strong already. So we are pretty open-minded, and we have a fairly broad funnel. We are considering them as they come.

Yes. That makes sense. And then from a litigation for streaming services, that side of it, is there anything that's fundamentally different from a litigation perspective as compared to the litigations with the smartphones and also the CEs and IoTs?

Yes. That's a great question. So as I said earlier, we always prefer bilateral negotiations. And obviously, one of the differences in the smartphone industry, we have been licensing for multiple decades, and we have some of the longest relationship, as I said earlier, including the Samsung relationship that goes all the way to 1990.

On the streaming platform side, this is a relatively new industry for us, even though our fundamental technology have been used by those vendors for many, many years now, but it does take a bit extra time for us to demonstrate the strength of our portfolio to convince them this should be a fair price. So I'll say we are on the early stage of the industry. So therefore, that's where I see the customer engagement takes a bit extra time.

Thank you, everyone, and that concludes our Q&A session for today. I will now turn the call over back to Liren Chen, InterDigital's CEO, for the closing remarks. Please go ahead.

Thank you, Gail. Before we close, I'd like to thank all our employees for their dedication and contributions to InterDigital, as well as our many partners and licensee for a very strong quarter and a record-breaking 2025. Thank you to everyone who join today's call, and we look forward to updating you on our progress next quarter.

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect. Have a nice day ahead, everyone, and keep safe always. Thank you.

All right. We're going to go ahead and get started. So I'm so excited to have Rich with me here today from InterDigital. And I have to give a small anecdotes that I've been with NASDAQ for 15 years. And in my junior life, I covered InterDigital at NASDAQ, took a 5-year break to go run a different business at NASDAQ and just came back. And wow, were you guys successful over the last 5 years? I pull this doc chart and you guys have been busy. So it was fun to come back and see -- I need a recap on what you guys have been up to because it clearly is paying off. So I'm very excited to have a conversation today and to learn about everything that I've missed.

So for those less familiar with your success, can you give us an overview on InterDigital? And given your tenure, I'd love to hear more about how you've seen InterDigital change over the years and how the current organization differs from the 2000s.

Yes. So I'm Rich Brezski, CFO at InterDigital. And InterDigital, if you take nothing away from today's discussion, please understand that we're a research company. A lot of times, people refer to us as a patent licensing company. And it's true, we make our money by licensing the patents that were generated by InterDigital researchers. But we generate almost all the patents in-house. We've been doing that since 1972. So we have a long history, originally around digital telephony. That was the first couple of decades. But then we expanded -- before the pandemic, we acquired Technicolor's entire research team in video.

So now we're in fundamental technologies like not only cellular and WiFi, but also video, including video compression. And that expansion of our research breadth, along with some -- we had a great management team before. But in the current iteration, Liren Chen joined us in 2021 from Qualcomm. So for the last 5 years, Liren has been leading some of the success you're referring to, brought on Rajesh Pankaj, our CTO from Qualcomm. Rajesh at Qualcomm led their entire corporate R&D department. So we really up-leveled across the organization, and you see that in the results.

That makes sense. I mean you gave you some fun anecdotes about flying on planes to get to the office right in the middle of COVID and the most are clearly dedicated and committed. And so I know that you're a frequent flyer of the London program. So you've been on the stage for many, many years. So we're going to touch a little bit about conversations that we had last year and hope that investors are just getting up to speed on the latest. And one of the things we talked about last year was a foundational knowledge about your business, and that's the difference between standard essential patents and implementation patents. For those of us that do not live in that world, like myself, can you go into what the difference is and what the current patent portfolio is made up of?

Yes. So we have -- although we're a small company by headcount, we have some of the brightest people in the world and the foremost experts in the fundamental areas I talked about, wireless and video, especially as well as AI in support of those 2 technologies. A lot of the work that we do is around wireless standards like on the cellular side, 5G, okay, 2G, 3G, 4G, 5G, new iterations of the standard. There are similar standards in WiFi, WiFi 6. And then in video codec, there's standards as well. So all around us, we live in a world of standards.

If I took a light bulb out of that light fixture, I don't need to figure out who the manufacturer the light fixture to figure out how to replace the bulb. I just know that any manufacturer can produce a bulb that will fit in that socket because it's a standard. In a similar way, our cell phones all work on the same network, whether it's an Apple or a Samsung phone because they're all built to the same standard. And InterDigital is key to developing those standards that I referenced. And that creates this multi-operator, multi-manufacturer environment.

And when we get our technology into the standards for us, it ensures that, that technology is going to be massively adopted, 1.2 billion smartphones sold every year. And we currently are getting compensated -- we're in 100% of them. We're getting compensated for 85% of the 1.2 billion smartphones sold around the world every year. So standard essential patents are those that are required and need to be used to basically deploy and use the technology.

Got it. Understood. Understood. I'll never look at a light. So last year at your Investor Day, you laid out a plan to $1 billion in recurring revenue by 2030. Walk us through the pieces of that plan and what are the key assumptions to achieving it and how you feel you're progressing toward it now that we're in 2025?

Yes. So it was just a little over 14 months ago, we had our Investor Day, set out this $1 billion target for ARR. At the time, our total ARR was around $400 million. So it was a pretty lofty goal, pretty strong goal. But we've made great progress since. In just that 14-month time period, we've grown it from roughly $400 million to $588 million in ARR. So making very good progress there. The assumptions or components around that, $500 million from smartphone. And that goal, although the $1 billion was a 2030 goal, that's our longest tenured market, our most mature market. So it was $500 million by '27 for that aspect.

The other half was split between consumer electronics and IoT, which is $200 million and then streaming, which is another $300 million plus. So since that time, we've signed OPPO, Vivo, Lenovo and Honor on the smartphone side. So we've taken that smartphone revenue from $350 million thereabouts up to just shy of the $500 million, about $490-plus million just in the last 14 months.

Wow. All right. So let's -- you just mentioned OPPO. Let's drill into that a little bit. So in what has traditionally been a more challenging market in China, you've seen success. And how do the company -- how does your company strategy vary by geography? And does macro or geopolitics come into play when you try to close those types of deals like OPPO?

Yes. So however you want to characterize the environment, the geopolitical tensions and so forth over the recent time period, we've obviously been able to be successful within it with the growth that I'm discussing. At the end of the day, whether it's OPPO, who's a Chinese-based manufacturer or Apple in the U.S. or Samsung in Korea, these are all global players, have global sales, and we run a global program. Our innovations are contributed to these standards, which are global standards. We file our patents all around the world. So there's not really an issue per se dealing with any specific country because we're really dealing on a global stage.

Got it. Got it. So I think what's so interesting and what has changed in the last 5 years since I've talked to you guys is your venture into the gaming space. So I'm excited to talk about that for a little bit. So when you think about streaming in the gaming markets, can you talk about how they fit into your long-term growth plans? And what you think are the key catalysts to growth within this market?

Yes. So that's the $300 million plus that I referred to. At this point, our revenue is 0, but it's not for lack of adoption. So like if we think about the streamers, whether it's advertising video-on-demand or subscription video-on-demand, they're all using our technology, video compression, which, again, it's a standard to deliver their content to you, to deliver it on your phones, on your TVs, whatever devices you're using. And similarly, gaming, video conferencing, a lot of other verticals and streaming markets are using it as well. But our initial goal of $300 million plus is focused on the AVOD and SVOD players.

Again, the adoption is there, but it is a new market that we haven't licensed before. Historically, we've been licensing devices. This is actually licensing a service. So we're making good progress. We've kicked off the program a number of years ago. This past year, we've launched our first litigation after negotiation with Apple -- excuse me, Amazon and Disney. We're now in litigation to enforce our rights and try to collect fair royalties for the use of the technology.

Yes. Great. Great. Well, good luck with that. So let's put your CFO hat back on nice and tight. And let's talk about the balance of growth, margin, biggest drivers for each and how you're thinking about that with that CFO lens?

Yes. So we enjoy very strong operating margins. We've been operating at 60-plus percent adjusted EBITDA margins. We do have a goal of 60% adjusted EBITDA associated with that $1 billion to $600 million of adjusted EBITDA. And when we announced that goal, some people said at Investor Day, well, Rich, you're already kind of there. Shouldn't it be higher if incremental revenue is 100% gross margin. I said, in theory, yes, it should. I mean you should just expand that margin with new top line growth, but we're allowing some room for further investments so we continue to grow beyond the $1 billion. Having said that, if I have to weight the 2, knowing that we kind of have in our business model built-in leverage, I'm focused on driving that top line, knowing that's going to translate to continued growth in our operating margins.

Right, right. That makes sense. That makes sense. Okay. Well, we could not be on stage here at the London Conference in 2025 if we don't talk about AI. It's kind of a requirement. So let's talk about how GenAI has impacted your company in the markets and where you see it impacting you in the future, positive, negative hurdles, obstacles and tailwinds.

Yes. I think we're probably no different than anybody else. It's an opportunity and a threat. For us, we've been -- as I mentioned, I think before, acquired the AI lab from Technicolor back in 2018, 2019 before people were talking about it the way -- AI the way they are today. So it's been pretty fundamental in our video research and more recently, our cellular research. It's how those standards and how those networks are going to continue to improve and get gain in the future. We're like everybody else, deploying it in the back office, trying to be more efficient. I mentioned we're relatively few in headcount, but AI is exciting because it's not always just addressing scale, it's addressing complex problems. So in that way, it can be very useful for us.

And then when we think about how it's going to affect the markets that use our technology, you think about Gen AI, we hear large language models, but there's large video models as well. So those video models need to ingest video. They need to store whoever will create video that will need to get distributed. So these are new use cases for our technology as well.

That's interesting. That's interesting. Got it. Got it. So we talked about -- the first thing that you sit on stage which I thought was really important is that you're a research company, right? You're not a patent litigation company.

Research company.

Research companies, that's stuck in my head because I think you're right. I think there is a misconception. Let's dive into that a little bit more strongly. So what is the biggest investor or market misconception about InterDigital? And we already heard you say that. So if you want to dig in deeper or address it in a more broad way.

Yes. So I would say it's just that. It's the business model. But I'd say, if I wanted to expand on that, we -- as I mentioned, we're in litigation right now with Disney and Amazon. The vast majority of our licenses are concluded without the need for litigation. Since Liren joined 4 or 5 years ago, we've signed more than 50 license agreements, driving over $4 billion of total contract value. Only a handful were the result of litigation. So 90-plus percent of those agreements were resolved just through bilateral negotiation.

Unfortunately, we do have to enforce our rights from time to time. We wish that weren't the case, but we need to make sure that our shareholders are fairly compensated for -- I mean, we make a big investment in research every year, and it's a long-term investment. The research dollars we're spending today are around 6G, which won't be in your phones until 2030. It's around future versions of video codec, which won't be streaming until even beyond that. So we're making these very long-term investments. We want to make sure that we're getting fair compensation where we need to, we'll enforce our rights, and we've been quite successful in doing so.

I love that. I love that. Okay. So we talked about your 2030 vision that you've disclosed at your Investor Day. But let's talk more broadly about the next 5 years and what really makes you excited both in the marketplace overall with emerging technology and also with the business at InterDigital.

Yes. What I'm just so excited about is -- and I've been with the company since 2003, CFO since 2012. And never in that time period, have we had such opportunity to grow not just on what's before us, that $1 billion of ARR, but all the places we can go from there. 10, 20 years ago, we were very focused on the smartphone market. And it was comparatively harder to envision how we were going to grow beyond that. Now through the Technicolor acquisition, we've expanded it's cellular, it's WiFi, it's video, not just video compression, but technology in HDR and other video use cases. So there's just so many different opportunities for that technology set, so many different combinations to bring it to market. But we've also demonstrated our ability to add new fundamental technologies onto our platform and be successful in licensing them.

Right. Right. That's great. That's great. And I'm going to take a pause now. We're a little bit over halfway through. Are there any questions from the audience before we continue? Just if you can hold on one second for the microphone. This is where we pause for a water break.

Very helpful on the 2030 ARR targets. Can you just help us understand the kind of the revenue cadence until then? It looks like the Street has you jumping around a bit.

Yes. So one thing to emphasize is that's an ARR target, right? When we sign a new license with a customer that has not been licensed before, typically, they've already been using our technology. Remember, I said the key for our growth is an adoption. It's already adopted in many of these markets. It's really just getting folks under license, getting a fair royalty for that use. So when we sign a new license agreement, we typically have catch-up sales is the term that we use. It's basically what they're paying us for the prior infringement before entering into that agreement. We're very focused on getting a fair royalty rate going forward, but we want to be compensated in some way for that past as well.

So what that results in can be a choppy top line. And sometimes year-over-year comparisons can throw you off as well. So for example, in the first quarter of 2024, we signed Samsung TV as well as some other new licenses, and that drove well over $100 million of catch-up sales in that quarter alone. So when you look at first quarter 2025, it was a very strong quarter, higher ARR, but you have to adjust for the fact that we had so much catch-up sales in Q1 '24. On a similar basis, when you look year-over-year and you look at the trajectory to $1 billion, we expect to see ARR growth along the way, not necessarily linear. We still tend to have step functions as we bring on new contracts that will elevate the ARR. It's -- these are -- tend to be concentrated markets. So it's not like you're adding 100 customers a quarter. It might be a couple, and some of those will result in more of a step function increase. But I think when you look at the overall trend, know that there'll be catch-up sales on top of it, and that will make the overall top line a little bit choppier.

That makes sense.

Just a simple question. I don't hear your company very well, but other instances where you have had an exploration or [indiscernible] on that type risk or a patent becomes, say, obsolete because of a new technology.

Yes. So the interesting thing, obsolescence and exploration are -- tend not to be issues because -- and let's just take the cellular industry, right? Each generation has -- comes out like maybe 8- to 10-year cycles. So -- and the phones that we use today, and I have an iPhone, it's a 5G phone, but it's also 4G and 3G and 2G, it's backwards compatible. So the way I think about it is each generation kind of moves over time from kind of first chair where 5G is now to second chair where 4G is to third chair where 3G is. And it gets less valuable as it ages because there's more valuable new technology that comes online.

But we're, as I said, constantly investing in research and driving the adoption of the new technology. We actually lead some of the standards. So in the 3GPP standards that set 5G and are now working on 6G, we lead 2 of the 15 working groups that are actually responsible for coming up with what 6G is. So we're only 1 of 3 companies that has multiple chair positions in that. So it's a way that we know we're being recognized by our peers as having a lot of influence and having strong contributions to the evolving ecosystem that is the cellular technology.

That was a good question. Anyone else before we continue? Great. Two phenomenal questions. So thank you, guys. So Rich, when we're thinking about companies who have not yet signed licenses, what are your strategies to conversion? And how often -- you talked about how often you take legal steps, but talk a little bit more about the strategies to conversion.

Yes. So I mean, first and foremost, as I said, we're always focused on getting a license concluded through bilateral negotiations. So we're ready to sign licenses on fair terms at any point. It's really just a matter of getting the other side to a point where they recognize that, that's in their best interest as well. If we find out that -- if we believe that they don't have an interest in paying at a fair rate and the negotiation is not progressing in a way that would suggest we're going to get to that endpoint, then we have to consider enforcing our rights through litigation.

Again, not often do we -- are we forced to take that step. But it's important that when we do that we're successful. I think the market looks and they can see that we're willing and capable of enforcing our rights. And frankly, that willingness, that capability helps ensure that we don't have to litigate....

Yes. like that's flywheel and that -- yes, that's great. That's great. So we talked about traction in other areas besides what we've already talked about in consumer electronics, Internet of Things and auto markets. So can you talk about -- we haven't talked about those at all yet? And how are they different than your success in mobile?

Yes. So they're similar in that in those technologies, again, it's not -- in those verticals, it's not a matter of adoption, okay? They're all using our -- in different combinations, cellular, WiFi and video technologies. It's just about getting fairly compensated for that use. On the consumer electronics, I mentioned before, the goal there was $200 million. We're about halfway, just shy of $100 million of ARR today. That's actually been one of our fastest-growing areas. I think when Liren joined in '21, it was maybe $20 million or less. So we're about 5x that level today, looking to double it by 2030. Automotive is a component of that. And we're one of the founding members of what's called the Avanci platform, along with Qualcomm, Nokia, Ericsson and others.

So there, it's a go-to-market where we pool the collective patent resources and automotive customer signs a single license agreement to gain access to that technology. So that's been growing as well. And then IoT is probably the most fragmented of those. There are so many different verticals within IoT, tend to be a little bit smaller companies. So you don't have the step function changes that I referred to before in smartphone within those markets. But there is an opportunity to sign smaller -- more smaller agreements and have them aggregate.

Got it. Got it. And then going back to mobile again very quickly, 85% penetration, is that right?

Yes, that's right.

So what is your plan on addressing the 15% and the limited upside and what's next?

Yes. So we -- again, 100% use the technology. So it's a theoretical outcome that we could get to 100%, but I don't know that even Qualcomm, Nokia and Ericsson can get -- have gotten there. We certainly believe we can further penetrate that. We can continue to grow in mobile. We have 8 of the top 10 mobile manufacturers under license smartphone manufacturers. The 2 that are not are Transsion and Huawei. And we are currently in litigation that's another area we're enforcing our rights is against Transsion.

So let's take -- we've talked a lot about business, and let's take a step back and kind of end on 2 questions. Let's talk about core drivers and just overall philosophy of InterDigital, right? You've been there for a long time. You see the company through a lot of global changes in the marketplace, globalization of the economy in general. So can you talk about some core drivers and philosophies as a company where you see the most value creation and what steps you're taking to continue to build on your market position?

Yes. So I think it starts with solving the hardest problems. We have incredibly talented engineers and scientists and physicists, et cetera. And the problems that we solve in, for instance, cellular, there's a lot of other wireless communications, Bluetooth, ZigBee, et cetera, that are much more simple. That's not as fertile an opportunity for what our strengths and capabilities are. For us, it's what are the hardest problems and making sure that we have a pipeline of talent of the smartest people in the world to solve them.

High risk, high reward.

Yes. And long cycles.

Yes, long cycles, patience.

That's right.

Yes as you've learned through your tenure there. Yes. So we're about wrapped up, but I'd love to just end on covering anything I forgot to ask and then also just some overall things that you're excited about in 2026. You talked about your 2030 plan. We've talked about some other expectations for long-term growth, but it doesn't have to be about growth and drivers. It can be just about '26 in general.

Yes. No, I'm just -- again, I've never been as excited today or before as I am today. I've been with the company a long time, but we have a great team. And I think not only do we have great opportunities to grow, but we've really demonstrated our ability to execute. So I just look forward to continuing that progression and look forward to another great year.

Yes. Yes, us too. So I am so excited to be back in the InterDigital universe again, and congratulations on all the success. We're so excited to welcome you back to London next year.

Okay.

Thanks, everyone.

Thanks.

Good morning, and welcome to InterDigital's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded.

I would now like to hand the conference over to Raiford Garrabrant, Head of Investor Relations. Please go ahead.

Thank you, Haley, and good morning. Welcome to InterDigital's Third Quarter 2025 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 [Technical difficulty].

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 sections of our 2024 annual report on Form 10-K and in other such [Technical difficulty] 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.

This was another outstanding quarter for InterDigital. We completed Samsung smartphone arbitration and signed 4 new license agreements. We increased our annualized recurring revenue by 49% year-over-year to an all-time high of almost $590 million. We appointed a new Chief Licensing Officer. One of our senior wireless engineer was reelected to a chair position to lead the development of next-generation wireless standard, including 6G. And this morning, we announced that we completed the acquisition of an AI start-up to add significant expertise to our research teams and accelerate our AI native video research.

Our business success was also recognized in recent high-profile rankings from Newsweek, Fortune and Time Magazine. Revenue for the third quarter was up 28% year-over-year to $165 million. Adjusted EBITDA and non-GAAP EPS were up 62% and 56% respectively year-over-year. In the quarter, we also increased our dividend by 17% to $0.70 per share. And over the course of the year, we have returned more than $130 million in capital to shareholders.

As with previous calls, Rich will dig deeper into the numbers while I recap our recent business highlights and how we are executing our long-term growth strategy. Last month, we announced the appointment of Julia Mattis as our Chief Licensing Officer. Over the last 15 years at InterDigital, Julia has served in a series of leadership roles within the licensing team, including Chief Licensing Counsel, Head of Smartphone Licensing and most recently as our Interim Chief Licensing Officer. She has played a critical role in negotiating many of our largest license, including Apple and Samsung. I'm thrilled about this appointment, and I'm confident she has the right skill set and experience to thrive in her new role.

At the beginning of Q3, we announced that we have completed the Samsung smartphone arbitration valued at more than $1 billion over 8 years. Together with Apple, we have 2 largest smartphone manufacturers licensed through the end of this decade. As a reminder, after announcement of Samsung license, we raised our annual guidance by $110 million to $820 million at the midpoint.

Also in the third quarter, we signed a new license with Honor, a top 10 smartphone vendor based in China. The agreement follows our recent agreement with OPPO and Vivo. We now have 8 of the top 10 smartphone vendors and around 85% of the total market under license.

The license also increased our annualized recurring revenue by $26 million to a record setting of $588 million. Of the $588 million in ARR, our smartphone program now accounts for over $490 million, putting us very close to our midterm goal of $500 million in recurring revenue from smartphone by 2027.

Following the conclusion of our Honor agreement, we are taking active steps to license the 2 remaining top 10 smartphone vendors. These include initiating enforcement proceeding against Tencent in court in UPC, India and Brazil. As I have said before, while we always prefer to complete licensing deal through bilateral negotiation, we will take all necessary steps to ensure we receive fair value for our foundational innovation.

In the third quarter, we also closed renewal with Sharp and Seiko in our smartphone program and with an EV charging company in our consumer electronic and IoT program. The agreement with the EV charging company is another example of how our horizontal technology has broad applicability across different industry verticals. Overall, the total contract value for license that we have signed since 2021 is now well over $4 billion.

In our video service program, we are making more progress in enforcing efforts with Disney. Last month, a court in Brazil granted us a preliminary injunction against Disney. After a court appointment, independent experts found that Disney infringed our 2 patent suit related to video including technology. The independent expert report contained a detailed analysis of our innovation and the role it plays in enabled Disney's various streaming platforms, validating our belief that our portfolio is a critical enabler for the video service sector.

The preliminary injunction in Brazil is an important early step in our multi-jurisdictional enforcement campaign with Disney. As I mentioned before, we always prefer bilateral negotiation to get deals done and only use enforcement as a last resort. High-value litigation like this can be lengthy, but when choosing to enforce -- when we choose to enforce our right, we have a very strong track record of ultimately signing long-term agreement with the prospective licensee.

So as we drive our growth strategy across devices and services on the video side, we continue to strengthen our research and innovation team. Earlier today, we announced our acquisition of AI start-up Deep Render, which specializes in the application of AI to make video compression more efficient.

Let me explain why we believe the deal is such a great thing. This acquisition added our existing AI talent pool in our research and innovation team. It accelerates our AI native video research. It strengthens our position in foundational research as the next video compression standards started to take shape and build on our current leadership in HEVC and VVC CUDA, and it has depth in our IP position with Deep Render's AI and video patent portfolio.

I will also add this is a great cultural match. Much like InterDigital, Deep Render is a company of researchers and inventors who are dedicated to solve some of the most complex technical challenges in video and AI. With the consumption of video booming across smartphones, consumer electronics and video services, such as streaming, we believe that our video innovation will become an even more significant driver of our growth strategy.

Staying with our research teams, in the third quarter, one of our senior wireless engineers were reelected to lead a key engineering group within 3GPP, the organization, which set cellular wireless standards. This shows not only how we lead 5G, but also means that we are ideally positioned to lead the development of 6G ahead of the expected rollout of next-gen mobile network devices and services in 2030.

Shortly after the end of the quarter, we also announced that we have been awarded a contract by National Spectrum Consortium in partnership with the U.S. government to lead research and conduct demonstrations on how to better manage the use of spectrum in the United States by both civil and military applications.

This project reflects one of InterDigital's unique strength in solving complex technical challenges to improve connectivity for consumers and in price and enhancing national security across communication ecosystem. There are very few companies worldwide that can take on this sort of challenge, and I'm delighted that United States has turned to our engineering team for help.

As we continue to execute on our growth strategy, our progress are recognized by third parties. Newsweek recently named us as one of American's greatest companies, Fortune recognized as one of American's fastest-growing companies and Time Magazine listed us among American's Growth Leader of 2025. This award reflects the dedication and strong contributions from our employees and why we believe our platform has never been stronger to deliver more growth and even more shareholder value.

And with that, I'll hand you over to Rich.

Thanks, Liren.

I'm pleased to report that our strong growth momentum continued in Q3 with revenue, adjusted EBITDA and non-GAAP EPS all exceeding the high end of our guidance range. Our Q3 performance was powered by our Samsung arbitration result and new license agreements, including a license with Honor, a top smartphone manufacturer based in China.

These new agreements helped drive total revenue of $165 million, an increase of 28% year-over-year. This exceeds both our initial top-end guidance for Q3 total revenue of $140 million and our updated increased top-end guidance of $159 million that we announced at the time we signed Honor. The upside we delivered compared to our increased guidance was driven by additional license agreements we signed since then.

Our annualized recurring revenue, or ARR, increased 49% year-over-year to another all-time high of $588 million in Q3. This year-over-year growth was driven primarily by new agreements signed over the intervening year in our smartphone program, including license agreements with OPPO, Vivo, Lenovo and most recently, Honor.

In this time, we increased our share of the smartphone market under license from about 50% to roughly 85%. These agreements, together with our excellent Samsung arbitration result, increased our smartphone ARR 65% year-over-year to $491 million in Q3, almost at the level of our smartphone midterm ARR goal of $500 million.

In CE and IoT, ARR increased to $97 million in Q3, also an all-time high. Our new license with an EV charger company is another example of the growth opportunities that exist beyond the smartphone market, and we believe we can more than double ARR from CE and IoT by 2030.

Our subscription-based IP-as-a-Service model offers a high level of visibility and provides a reliable source of cash flow even in the face of an uncertain economic environment. This enables us to continue to fuel our innovation engine and drive future revenue growth. Based on the strength of our intellectual property and the huge markets built upon it, we believe we are on track to grow ARR at a double-digit CAGR towards our 2030 target of $1 billion plus.

And it's important to remember that while ARR is a great metric to track the growth of our business, there is economic value above ARR alone. Over the last 10 years, we have recognized $1.5 billion of catch-up revenue. This has been tremendously valuable because we have used the majority of that money to fund share repurchases over that time period. Today, we continue to have a lot of catch-up opportunity remaining, which tends to be 100% gross margin as we pursue our goal of 100 -- excuse me, $1 billion of ARR by 2030.

Our adjusted EBITDA for the quarter of $105 million increased 62% year-over-year and equates to an adjusted EBITDA margin of 64%, an increase of 14 points compared to 50% a year ago. The significant increase in adjusted EBITDA margin year-over-year demonstrates the leverage inherent in our model.

You might remember that on our last earnings call, I said strong free cash flow over the second half of the year would drive free cash flow for the full year of 2025 above $400 million or close to double 2024 levels. I am happy to report we did, in fact, collect large payments during the quarter, driving free cash flow to $381 million for the quarter and $425 million year-to-date.

Finally, non-GAAP EPS rose 56% year-over-year to $2.55 and exceeded our increased guidance of $2.08 to $2.27 per share. Consistent with our capital allocation priorities, we continue to maintain a fortress balance sheet, invest for growth and return excess capital to shareholders.

In Q3, we increased our dividend by 17% and returned $53 million to shareholders through $35 million in buybacks and $18 million through dividends. In October, we bought back another $15 million of stock, bringing total return of capital to more than $130 million year-to-date. In just the last 3-plus years, we have repurchased more than $0.5 billion of stock, and we expect to continue to buy back shares over the remainder of this year.

Looking forward to Q4, we expect recurring revenue will include $144 million to $148 million of revenue from existing contracts. That means we expect full year revenue from existing contracts will be $820 million to $824 million. So before adding any potential contributions from new agreements we may sign over the next 2 months, we expect to meet or beat the midpoint of the increased full year guidance we issued last quarter.

Of course, revenue from any new agreements we may sign over the balance of the quarter would be additive to these amounts. Based again only on existing contracts, in Q4 we expect an adjusted EBITDA margin of about 50% and non-GAAP diluted earnings per share of $1.38 to $1.63. For the full year, again based only on existing contracts, we expect an adjusted EBITDA margin of 70% and non-GAAP diluted earnings per share of $14.57 to $14.83 for the full year.

With that, I'll turn it back to Raiford.

Thanks, Rich.

Before we move to Q&A, I'd like to mention that we'll be attending a number of investor events in Q4, including the RBC Tech Conference and the ROTH Tech Conference, both in New York City; the Southwest IDEAS Conference in Dallas; and the NASDAQ Investor Conference in London. Please reach out to your representatives at those firms if you'd like to schedule a meeting.

At this point, Haley, we are ready to take questions.

[Operator Instructions] Our first question comes from the line of Kevin Garrigan from Jefferies.

Congratulations on the strong results. I just want to drill in on the consumer IoT side. So just wondering if you can walk us through your biggest prospects as we look for the rest of the year and into 2026. And your first agreement with an EV charging manufacturer, do you guys see that -- see the EV charging space being a significant contributor to ARR growth?

Kevin, this is Liren. Regarding the consumer electronic IoT space, if you look at -- this is really a class of multiple opportunities. Our largest single opportunity under the consumer electronics is smart TVs where we continue to make progress. We have licensed the largest TV maker, Samsung. We are currently working on with multiple use, the next few players, including LG, Hisense and TCL. So that's our largest opportunity.

Regarding IoT opportunities here, we also have quite a different collections, including automobile, EV charging as we announced today and a few other consumer-driven IoT platforms. One more thing I also want to emphasize is in our consumer electronics also include PCs and desktops. So if you go our supplemental deck on our IR website, we have to try to break it down what the size of market where we are in each segment.

Regarding your question for EV charging, we do think that it's an interesting market for us. It's growing because some of the charging market is consumer-driven, some of them is commercial driven, and they have different technology in there. Some of them is Wi-Fi enabled and some others that we have cellular connectivity, and we try to get a value that's fair towards the technology that's incorporated in those devices -- those stations.

Got it. Okay. That makes sense. And then as a follow-up, can you just explain a little bit more on how you plan to integrate Deep Render with your own video codec technology and not to give away any plans, but are there other companies out there that you're looking into to kind of complement your streaming business?

Kevin, yes, good question. This morning, we announced the closing of Deep Render. Deep Render is a start-up company. They are headquartered in London. And what they have been focusing on is this thing called native AI for video CUDA end-to-end. So it's really a more different way of solving the problem end-to-end by incorporating the AI function from bottom up.

So we introduced an AI team. We have been working on video space for, frankly, many, many years. And the native AI function is one of the areas we have been working on. But by acquiring this team, we added a lot of really strong expertise, speed up our AI capability for the native AI video research. And interesting enough, it's also a critical juncture of time for next generation of video standard that's coming under discussion.

So we feel we have a strong chance of integrating some of the AI feature into the next video standard. And then lastly, as part of the acquisition, we bought the different IP patent portfolio team and patent portfolio. So there are some AI patents and video patents, and we are in the process of integrating. So it's a strategic acquisition, and we feel very good about it.

Regarding other opportunities, we frankly have a very robust pipeline. We are looking at all kinds of different opportunities and have a dedicated team passing through them and -- but I don't have anything else to report at this time.

Our next question comes from the line of Scott Searle from ROTH Capital.

I apologize, Liren, if this was covered earlier, I got on the call a little bit late. But in terms of the Disney injunction, I'm wondering if you could give us an update in terms of what next steps there are that we should be looking for as you go forward. And how this is impacting conversations and discussions with other streaming vendors?

Yes. So regarding Disney injunction, in my prepared remarks, we received the injunction by the court in Brazil. The injunction was supported by third-party independent expert the court has appointed, which frankly support our position on all the important issues. The trial court issued the injunction and Disney actually appealed the injunction. And in the appeal court, we restated the injunction. So the injunction is currently in effect, but the court has given Disney until end of November to comply, November 30, if I remember right.

So needless to say, we are watching monitor situation quite carefully, and I don't want to speculate on what Disney will do from there. But it's also worth noting that the Brazil PI injunction is just one step of a multi-jurisdictional enforcement we have been taking on.

As we disclosed in the 10-Q filing with a lot of details, we have multiple cases coming up for trial in Germany, in UPC and in the United States, every starting this month, starting October. So there's over a dozen patent cases that are going to trial between now and mid of next year. So needless to say, we feel good about the position we are in. And -- but in the meantime, we are always open for negotiations.

Got you. And just to follow up on that. Has that actually improved the dialogue with Disney or impacted any other conversations you're having with other streaming vendors?

Yes, Scott, I can't get into the discussions with specific vendor. We're mostly under NDA. But I can assure you that the industry is paying attention and every progress we made with different enforcement, I do think it is giving us an even stronger position in a lot of negotiations.

Got you. Two more and then I'll get back in the queue. Just in terms of a deep under to dive down a little bit more, do you see this as helping with the existing streaming customers in terms of enhancing your product portfolio there and really being able to get monetization across the goal line? Or is this going to predominantly open up some other opportunities? There's a lot of Edge AI that goes on, which sounds like some of the Deep Render patent portfolio would seem to cover. So I'm wondering, is it for existing core opportunities? Or does this really expand the product breadth that you've got now within the video codec and streaming market?

Yes. Scott, for the Deep Render opportunity, they are currently in a stage of start-up. So when we acquire them, they don't really have revenue obtaining customers. However, we are super excited about the technology. The technology, as I explained earlier, was really based on this native AI end-to-end. We actually believe it's a new paradigm to solve the video delivery problem across Internet.

As you are aware, video is super important for many use cases. About 80% of Internet traffic on every single day is driven by video. So be able to come up with a brand-new way of solving that problem is super exciting for us.

So regarding how we plan to monetizing it, frankly, we believe we have multiple options. But as of today, we are not really trying to determine exactly how we're going to make money other than solving the most difficult problems, making sure our technology is leading the industry and obviously making sure we build a strong patent portfolio built on what we already have and the different patent portfolio they are merging with our portfolio as well as new IP we continue to do that.

Got you. And then maybe I'll just throw in too quickly at the end. AI in general, you guys have been investing not just with Deep Render, but organically within the organization in terms of AI capabilities, which have, I think, from a 5G and 6G standpoint, kind of facilitated your core business there. But is there an explicit opportunity to license AI as it is as a stand-alone?

And then second, from an M&A standpoint, you guys have not been particularly acquisitive in recent history outside of Technicolor. Now you've added Deep Render to that. Are there -- how aggressive are you thinking about the opportunities as you go forward over the next several years? It sounds like there's a pipeline of opportunities there, but is it really a stated goal to close some things as we look out over the next 2 to 3 years?

Thanks, Scott. Yes, as you acknowledge, we have very deep depth in AI expertise. We have a dedicated team. We've been working in AI field for multiple decades. And our CTO, Rajesh Pankaj, is actually industry recognized AI leader, spans wireless AI and video space. So our current main sort of leverage of AI technology to apply AI to solve foundational problem in wireless and video systems. As you are aware, upcoming 6G standard, the native AI built in wireless is a key research area that we are leading.

Regarding monetization strategy here, Scott, I really think there will be multiple opportunities for us to monetizing AI technology, but we have a very robust existing technology-driven standard-driven IP licensing model, but I believe AI could give us new opportunity as we keep on driving the technology forward.

Regarding the M&A pipeline here, as I referred a little bit earlier, we have a dedicated team internally actually led by our Chief Growth Officer, Ken Kaskoun. And we process a lot of opportunities. Some are bigger ones that may be driven by IP assets. Some others are driven by technology development as we have done through the Deep Render. But our bar is very high. And with our recent business success. As Rich referred to here, we have a very strong balance sheet and we believe give us a different opportunity we can pursue them.

Our next question comes from the line of Arjun Bhatia from William Blair.

[ Linda Lee ] here on for Arjun. I wanted to ask just to piggyback on the prior question regarding the acquisition. What other areas within the existing focus points of technology IPs are you looking forward to in adding additional fields through M&A?

Yes. So regarding the M&A space here, we are frankly testing fairly wide net. As you are aware, our 3 pillars of research is wireless, radio and artificial intelligence. And we continue to look at to say do we have the industry-leading team? Do we have the key research in those areas that's driving things forward? But we frankly also look at the adjacent area. We are always sort of applying those opportunities with different criteria, right? We want to make sure we have critical mass that we can move the industry. We also like to see how we can build a competitive advantage over a long period of time. And then frankly, with our increasing balance sheet and financial capability, we also try to look for bigger opportunities over time.

That's helpful. And in terms of the Transcend litigation, you announced today that you are officially going on the litigation. Can you just give us maybe any more color in terms of maybe timeline and additional kind of color in terms of that in general?

Yes. So as I said in the prepared remarks, we have frankly built a lot of momentum in the smartphone licensing program. We currently licensed 8 of the top 10 smartphone vendor already that essentially make up roughly 85% of the market. So Transcend is the largest on-licensed vendor as of today. They make roughly 100 million devices per year. And those devices tend to be lower end and selling to emerging market. So we have been negotiating with them for multiple years, and we feel we have made them multiple really fair offers. But so far, they have refused to take our offer.

So we feel it's necessary for us to defend our position for IP and frankly equally important to set a level in greenfield with other customers who are paying us licensing fee, right? It's not fair that they got a free right of our IP. So we have launched a multi-jurisdictional patent litigation against them. That's in UPC, that's in India and Brazil. Those are a significant market for them.

It's hard to predict precisely timeline because some of the cases are frankly still being processed by a court. We don't have definite date yet. And -- but it's always -- during litigation, we always try to negotiate a patent licensing deal with the party involved. And even though the timing precisely is hard to predict, but given our history, we frankly have a very strong track record of if we have to enforce our right, and we almost always end up with a bilateral agreement that's fair to both party.

Thank you. At this time, I'm showing no further questions in the queue. I would now like to turn it back to Liren Chen for closing remarks.

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

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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 leading device manufacturers, Apple and Samsung are now licensed to our portfolio through the end of this decade. Following the recent agreement with major Chinese OEMs, including Oppo and Vivo, we have clear momentum in our smartphone program, where we have almost 80% of the global market under license and ARR from smartphone program of $465 million, which is another all-time record.

Staying with our smartphone program, we continue to make progress in our arbitration with Lenovo, which is processing in a timely fashion and according to plan. Our consumer electronics and IoT program, the new license agreement with HP, which we signed at the start of the second quarter is another good example of the progress we are making in growing revenue outside the smartphone program.

The agreement licensed HP personal computers to our Wi-Fi and video decoding technology, and we now have more than 50% of the PC market under license. With the HP contract, revenue from our CE and IoT program increased 175% in the second quarter to about $65 million.

Counting the HP and Samsung agreement, the total contract value of license that we have signed since 2021 is now more than $4 billion, demonstrating the accelerating momentum of our IP-as-a-Service business model. On the Research front, the development of 6G is picking up steam, and our engineers are at the forefront of developing the foundational technology for the next generation of mobile.

Our engineers are also leading the development of 6G standard with multiple working group chair position for 3GPP. The wider integration of AI into cellular networks and the development of new technology such as integrated sensing and communication offers what could be an exciting new monetization opportunity for service providers and device manufacturers and make our patent portfolio even more valuable.

We believe 6G will also further the penetration of cellular wireless in new verticals such as industrial IoT, smart city, health care and automobile, where connectivity is increasingly important and will create new licensing opportunity for us.

We excel not only in converting our innovation to broad patent portfolio, but also into one of the highest quality portfolio in the world. Recently, we are ranked #2 among all the global leaders in telecom in terms of both quality and quantity of our IP portfolio by an IEEE report. With our research leadership and the breadth and depth of our portfolio reflects, we are in a strong position to deliver value for our customers well into the next decade.

Our long-term success is also underpinned by our ability to acquire, retain and enhance our people. We continue to advance our talent strategy, placing an emphasis on mentorship, ongoing training and leadership development. We believe that the long-term stability of our business and the continued success put us in an excellent position as a destination for premier talent in our industry. You can find more information in our 2025 corporate sustainability report on our website. And with that, I'll hand you over to Rich.

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 and Lenovo increased our share of the smartphone market under license from about 50% to roughly 80%.

These agreements, together with our excellent Samsung arbitration result, increased our smartphone ARR 58% year-over-year from $294 million in Q2 last year to $465 million in Q2 this year. With smartphone ARR at $465 million, we are now drawing near our smartphone ARR goal of $500 million by 2027.

In CE and IoT, the HP agreement is just the latest example of the significant growth opportunities that exist beyond the smartphone market. And we believe we can more than double the ARR from CE and IoT by 2030. Through the growth in smartphone and CE, IoT, together with our massive opportunity in video services, we are making good progress toward our goal of $1 billion plus in ARR across all programs by 2030.

And it's important to remember that while ARR is a great metric to track the growth in our business, there is economic value above ARR alone. Over the last 10 years, we have recognized $1.5 billion of catch-up revenue. This has been tremendously valuable because we used the majority of that money to fund share repurchases over that time period.

Today, we continue to have a lot of catch-up opportunity remaining, which tends to be 100% gross margin as we pursue our goal of $1 billion of ARR by 2030. Our adjusted EBITDA for the quarter was $237 million and equates to an adjusted EBITDA margin of 79%, up from 71% in Q2 last year.

Non-GAAP EPS also came in at an all-time high of $6.52 for Q2, well above the high end of our guidance range of $2.67 to $2.90 and powered by the strength of our financial model, where a high percentage of incremental revenue falls to the bottom line.

Cash from operations was a robust $105 million in Q2, resulting in free cash flow of $92 million. Consistent with our capital allocation priorities, we continue to maintain a fortress balance sheet, invest for growth and return excess capital to shareholders. In Q2, we returned $42 million to shareholders through $26 million in buybacks and $16 million through our recently increased dividend.

In July, we bought back another $15 million of stock and made another $16 million dividend payment, bringing total return of capital to almost $90 million year-to-date. In just the last 3.5 years, we have repurchased more than $0.5 billion of stock, and we expect to continue to buy back shares over the remainder of this year.

Looking forward to Q3, we expect recurring revenue will include $136 million to $140 million of revenue from existing contracts, including the new run rate related to Samsung. Any revenue from any new agreements we may sign over the balance of the quarter would be additive to these amounts. Based only on existing contracts, we expect adjusted EBITDA margin of about 52% and non-GAAP diluted earnings per share of $1.52 to $1.72.

As Liren noted, we are increasing our full year 2025 guidance based not only on our excellent results, but also on the opportunity to continue our progress. We now expect revenue in the range of $790 million to $850 million, with adjusted EBITDA in a range of $551 million to $569 million and non-GAAP earnings per share of $14.17 to $14.77.

In addition, I'll note that we previously communicated that we expected double-digit growth in free cash flow for 2025 over the $212 million level we reported in 2024. Based on our updated expectations for strong free cash flow over the second half of the year, we now believe our free cash flow for full year 2025 could exceed $400 million, close to double 2024 levels. With that, I'll turn it back to Raiford.

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.