Business Overview

InterDigital, Inc. is a global research and development company that focuses on wireless, video, and artificial intelligence (AI) technologies. The company designs and develops foundational technologies that enable connected and immersive experiences in a variety of communications and entertainment products and services. InterDigital licenses its innovations to companies that make wireless devices, consumer electronics, internet of things (IoT) devices, cars, and providers of cloud-based services like video streaming.

As a leader in wireless technology, InterDigital has designed and developed innovations used in wireless products and networks, from early digital cellular systems to the latest 5G and Wi-Fi technologies. The company is also a leader in video processing and encoding/decoding technology. Its AI research focuses on the intersection of AI with wireless and video technologies.

InterDigital has one of the largest patent portfolios of fundamental wireless and video technologies, with over 33,000 patents and applications as of the end of 2024. The company has contributed technology to major wireless and video standards, including 3G, 4G, 5G, and various video coding standards.

Revenue

In 2024, InterDigital’s total revenues were $868.5 million, up 58% from $549.6 million in 2023. This increase was primarily due to $460.1 million in “catch-up” revenues from new license agreements signed in 2024, including deals with Samsung, Google, OPPO, and Lenovo.

Recurring revenues, which come from fixed-fee and variable royalty-bearing license agreements, were $408.4 million in both 2024 and 2023. Fixed-fee royalties accounted for 89% of recurring revenues in 2024, providing a stable revenue stream not tied to the licensees’ market success.

The company groups its licensing programs into two main categories: Smartphone and CE, Auto/IoT. Smartphone revenues, which include smartphones, tablets, and infrastructure equipment, made up the majority of recurring revenues. CE, IoT/Auto revenues, which cover consumer electronics, IoT products, and connected cars, grew 49% in 2024 compared to 2023.

New Agreements

In 2024, InterDigital signed 14 new patent license agreements, including deals with major companies like Samsung, Google, OPPO, and Lenovo. These agreements cover a range of products, from TVs and smartphones to wearables and other consumer electronics.

The company also had several license agreements expire in 2024 that have not yet been renewed, contributing $17.2 million in recurring revenues. Seven more agreements, including with Samsung and Xiaomi, are set to expire at the end of 2025, accounting for 22% of 2024 recurring revenues. InterDigital is actively working to renew these agreements on favorable terms.

Intellectual Property Enforcement

InterDigital enforces its patent rights through litigation and arbitration when necessary. In 2024, the company’s intellectual property enforcement costs increased to $56.2 million, representing 33% of total licensing costs. These costs can vary depending on activity levels and are likely to remain a significant expense.

During 2024, InterDigital resolved outstanding litigation with OPPO and Lenovo through new license agreements. The company also entered into arbitration agreements with Lenovo and Samsung to determine royalty rates for certain patents.

Cash and Investments

As of the end of 2024, InterDigital had $982.4 million in cash, restricted cash, and short-term investments. The company also had $1.4 billion in expected future cash payments under contracted fixed-price agreements, including estimates from the Lenovo and Samsung arbitrations.

The timing of cash receipts and revenue recognition can differ due to the front-loaded nature of many license agreements. InterDigital had $360.1 million in deferred revenue at the end of 2024, which is expected to be recognized over the next few years.

Return of Capital

Since 2014, InterDigital has returned nearly $1.6 billion to shareholders through share repurchases and dividends. The company has a $1.4 billion share repurchase program, of which $229.5 million remained available at the end of 2024. InterDigital has also paid $437.5 million in dividends since 2014.

Macroeconomic and Geopolitical Factors

InterDigital has been monitoring the impact of the current macroeconomic environment, including inflation, supply chain issues, high interest rates, and the potential for a recession. So far, these factors and geopolitical events have not had a material impact on the company’s business, but continued or worsened conditions could adversely affect its operating results and financial condition.

Comparability of Financial Results

When comparing InterDigital’s 2024 financial results to other periods, several items should be considered:

• The $460.1 million in catch-up revenues in 2024 from new license agreements
• $68.8 million in one-time revenue share costs associated with the catch-up revenues
• $4.4 million in one-time contra expenses for litigation fee reimbursements
• $1.0 million in one-time share-based compensation costs

These non-recurring items can impact the comparability of the company’s financial performance between periods.

Critical Accounting Policies

InterDigital’s financial reporting is based on several critical accounting policies and estimates, including:

Revenue Recognition: The timing and amount of revenue recognized from each licensee depends on the specific terms of the agreement and the nature of the deliverables and obligations. This can involve significant judgment, especially for agreements with multiple performance obligations.

Compensation Programs: The company uses various short-term and long-term incentive compensation programs that require estimates of progress toward performance goals, which can vary between periods.

Income Taxes: InterDigital’s effective tax rate can be impacted by the application of complex tax laws, as well as uncertainties related to tax positions and potential refunds of foreign taxes paid.

These accounting policies and estimates require significant judgment and can have a material impact on the company’s financial results.

Outlook and Conclusion

InterDigital continues to be a leader in the development and licensing of fundamental wireless, video, and AI technologies. The company’s strong patent portfolio and contributions to industry standards position it well to benefit from the growing demand for connected and immersive experiences.

While macroeconomic and geopolitical factors bear watching, InterDigital’s diversified revenue streams, including a large portion of fixed-fee royalties, provide stability. The company’s active efforts to renew expiring license agreements and sign new deals also support its growth outlook.

Overall, InterDigital appears to be in a solid financial position, with ample liquidity, a history of returning capital to shareholders, and a focus on developing and monetizing its innovative technology portfolio. The company’s ability to navigate the complexities of its business model and accounting policies will be key to maintaining its strong performance.