UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q



☑						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2020~~March 31, 2021



☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-33579

INTERDIGITAL, INC.

(Exact Name of Registrant as Specified in Its Charter)



Pennsylvania						82-4936666
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

200 Bellevue Parkway,, Suite 300,, Wilmington,, DE19809-3727

(Address of Principal Executive Offices and Zip Code)

(~~302~~) (302) 281-3600

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Exchange Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	IDCC	NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Common Stock, par value $0.01 per share			~~30,805,968~~30,772,057
Title of Class			Outstanding at ~~August~~May 4, ~~2020~~2021

INDEX




			PAGES
Part I — Financial Information:			3
Item 1 Financial Statements (unaudited):			3
Condensed Consolidated Balance Sheets — ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020			3
Condensed Consolidated Statements of Income — Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~			4
Condensed Consolidated Statements of Comprehensive Income — Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~			5
Condensed Consolidated Statements of Shareholders Equity — Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~			6
Condensed Consolidated Statements of Cash Flows — ~~Six~~Three Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~			87
Notes to Condensed Consolidated Financial Statements			98
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			2320
Item 3 Quantitative and Qualitative Disclosures About Market Risk			3327
Item 4 Controls and Procedures			3327
Part II — Other Information:			3428
Item 1 Legal Proceedings			3428
Item 1A Risk Factors			3428
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			3428
Item 4 Mine Safety Disclosures			3528
Item 6 Exhibits			3629
SIGNATURES			3730

InterDigital^® is a registered trademark of InterDigital, Inc. All other trademarks, service marks and/or trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

INTERDIGITAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

JUNE 30,
2020 DECEMBER 31,
2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 670,292
$ 745,491
Short-term investments 168,953
179,204
Accounts receivable, less allowances of $0 and $537 19,380

28,272
Prepaid and other current assets 62,387

63,365
Total current assets 921,012
1,016,332
PROPERTY AND EQUIPMENT, NET 11,918

10,217
PATENTS, NET 447,194
436,339
DEFERRED TAX ASSETS 79,897
73,168
OTHER NON-CURRENT ASSETS 78,744

76,026
617,753
595,750
TOTAL ASSETS $ 1,538,765
$ 1,612,082

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ —
$ 94,170
Accounts payable 11,394
13,393
Accrued compensation and related expenses 24,002
29,162
Deferred revenue 141,528

146,654
Taxes payable 102
51
Dividends payable 10,781
10,746
Other accrued expenses 16,123
11,382
Total current liabilities 203,930
305,558
LONG-TERM DEBT 359,119
350,588
LONG-TERM DEFERRED REVENUE 139,396

123,653
OTHER LONG-TERM LIABILITIES 45,614
46,002
TOTAL LIABILITIES 748,059
825,801
COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY:
Preferred Stock, $0.10 par value, 14,399 shares authorized, 0 shares issued and outstanding —
—
Common Stock, $0.01 par value, 100,000 shares authorized, 71,377 and 71,268 shares issued and 30,804 and 30,701 shares outstanding 713
712
Additional paid-in capital 734,565
727,402
Retained earnings 1,413,382
1,412,779
Accumulated other comprehensive income (loss) 370
(74 )
2,149,030
2,140,819
Treasury stock, 40,573 and 40,567 shares of common held at cost 1,379,611
1,379,262
Total InterDigital, Inc. shareholders’ equity 769,419
761,557
Noncontrolling interest 21,287
24,724
Total equity 790,706
786,281
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,538,765
$ 1,612,082


	MARCH 31, 2021		DECEMBER 31, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	396,156	$	473,474
Short-term investments	488,559		453,173
Accounts receivable	12,502		16,008
Prepaid and other current assets	87,663		84,224
Total current assets	984,880		1,026,879
PROPERTY AND EQUIPMENT, NET	15,626		16,630
PATENTS, NET	407,732		418,343
DEFERRED TAX ASSETS	82,216		80,380
OTHER NON-CURRENT ASSETS, NET	71,420		74,043
Total non-current assets	576,994		589,396
TOTAL ASSETS	$	1,561,874	$	1,616,275
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:

Accounts payable	$	8,592	$	10,979
Accrued compensation and related expenses	21,527		32,413
Deferred revenue	192,422		219,935

Dividends payable	10,766		10,786
Other accrued expenses	19,927		21,649
Total current liabilities	253,234		295,762
LONG-TERM DEBT	419,396		367,992
LONG-TERM DEFERRED REVENUE	112,153		108,069
OTHER LONG-TERM LIABILITIES	44,518		47,886
TOTAL LIABILITIES	829,301		819,709
COMMITMENTS AND CONTINGENCIES	0		0
SHAREHOLDERS’ EQUITY:
Preferred Stock, $0.10 par value, 14,399 shares authorized, 0 shares issued and outstanding	0		0
Common Stock, $0.01 par value, 100,000 shares authorized, 71,476 and 71,389 shares issued and 30,812 and 30,816 shares outstanding	714		714
Additional paid-in capital	738,619		738,481
Retained earnings	1,358,380		1,413,969
Accumulated other comprehensive loss	(254)		(184)
	2,097,459		2,152,980
Treasury stock, 40,664 and 40,573 shares of common held at cost	1,385,361		1,379,611
Total InterDigital, Inc. shareholders’ equity	712,098		773,369
Noncontrolling interest	20,475		23,197
Total equity	732,573		796,566
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,561,874	$	1,616,275

The accompanying notes are an integral part of these statements.

Table of Contents

INTERDIGITAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)


	FOR THE THREE MONTHS ENDED MARCH 31,
	2021		2020
REVENUES:
Patent licensing royalties	$	80,173	$	72,998
Technology solutions	2,190		3,212

Total Revenue	82,363		76,210

OPERATING EXPENSES:
Patent administration and licensing	36,574		40,108
Development	22,583		18,818
Selling, general and administrative	11,217		12,603
Total Operating expenses	70,374		71,529
Income from operations	11,989		4,681
INTEREST EXPENSE	(6,990)		(10,545)
OTHER INCOME, NET	724		6,023
Income before income taxes	5,723		159
INCOME TAX PROVISION	(1,765)		(1,820)
NET INCOME (LOSS)	$	3,958	$	(1,661)
Net loss attributable to noncontrolling interest	(1,613)		(1,777)
NET INCOME ATTRIBUTABLE TO INTERDIGITAL, INC.	$	5,571	$	116
NET INCOME PER COMMON SHARE — BASIC	$	0.18	$	0
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC	30,836		30,722
NET INCOME PER COMMON SHARE — DILUTED	$	0.18	$	0
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED	31,195		30,920

FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
2020 2019 2020 2019
REVENUES:
Patent licensing royalties $ 101,184
$ 73,567
$ 174,182
$ 139,945
Technology solutions 3,314
2,042
6,526
4,070
Patent sales —
—
—
225
104,498
75,609
180,708
144,240

OPERATING EXPENSES:
Patent administration and licensing 38,695
37,353
78,803
73,424
Development 22,092
17,027
40,910
35,522
Selling, general and administrative 11,794
12,314
24,397
26,529

72,581
66,694
144,110
135,475

Income from operations 31,917
8,915
36,598
8,765

INTEREST EXPENSE (9,971 ) (9,907 ) (20,516 ) (19,385 )
OTHER INCOME, NET 3,789
12,354
9,812
15,969
Income before income taxes 25,735
11,362
25,894
5,349
INCOME TAX PROVISION (5,144 ) (4,984 ) (6,964 ) (3,185 )
NET INCOME $ 20,591

$ 6,378
$ 18,930
$ 2,164
Net loss attributable to noncontrolling interest (1,660 ) (1,365 ) (3,437 ) (2,776 )
NET INCOME ATTRIBUTABLE TO INTERDIGITAL, INC. $ 22,251
$ 7,743
$ 22,367
$ 4,940
NET INCOME PER COMMON SHARE — BASIC $ 0.72
$ 0.25
$ 0.73
$ 0.15
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC 30,757
31,547
30,740
32,076
NET INCOME PER COMMON SHARE — DILUTED $ 0.72
$ 0.24
$ 0.72
$ 0.15
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED 31,045
31,776
30,982
32,366

The accompanying notes are an integral part of these statements.

Table of Contents

INTERDIGITAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
2020 2019 2020 2019
Net income $ 20,591
$ 6,378
$ 18,930
$ 2,164
Unrealized gain on investments, net of tax 412
1,076
444
2,121
Comprehensive income $ 21,003
$ 7,454
$ 19,374
$ 4,285
Comprehensive loss attributable to noncontrolling interest (1,660 ) (1,365 ) (3,437 ) (2,776 )
Total comprehensive income attributable to InterDigital, Inc. $ 22,663
$ 8,819
$ 22,811
$ 7,061


	FOR THE THREE MONTHS ENDED MARCH 31,
	2021		2020
Net income (loss)	$	3,958	$	(1,661)
Unrealized gain (loss) on investments, net of tax	(70)		32
Comprehensive income (loss)	$	3,888	$	(1,629)
Comprehensive loss attributable to noncontrolling interest	(1,613)		(1,777)
Total comprehensive income attributable to InterDigital, Inc.	$	5,501	$	148

The accompanying notes are an integral part of these statements.

Table of Contents

INTERDIGITAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in thousands, except per share data)

(unaudited)



	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Non-Controlling Interest		Total Shareholders' Equity
	Shares	Amount								Shares	Amount
BALANCE, DECEMBER 31, 2019	71,268	$	712	$	727,402	$	1,412,779	$	(74)	40,567	$	(1,379,262)	$	24,724	$	786,281
Net income attributable to InterDigital, Inc.	—	—		—		116		—		—	—		—		116
Net loss attributable to noncontrolling interest	—	—		—		—		—		—	—		(1,777)		(1,777)
Net change in unrealized gain on short-term investments	—	—		—		—		32		—	—		—		32
Dividends declared ($0.35 per share)	—	—		84		(10,847)		—		—	—		—		(10,763)
Exercise of common stock options	27	1		777		—		—		—	—		—		778
Issuance of common stock, net	27	—		(725)		—		—		—	—		—		(725)
Amortization of unearned compensation	—	—		2,003		—		—		—	—		—		2,003
Repurchase of common stock	—	—		—		—		—		6	(349)		—		(349)
BALANCE, MARCH 31, 2020	71,322	$	713	$	729,541	$	1,402,048	$	(42)	40,573	$	(1,379,611)	$	22,947	$	775,596

Accumulated
Other
Comprehensive
Income (Loss)

Common Stock
Additional
Paid-In Capital
Retained Earnings Treasury Stock
Non-Controlling
Interest

Total
Shareholders'
Equity
Shares Amount Shares Amount
BALANCE, DECEMBER 31, 2018 71,134
$ 711
$ 685,512
$ 1,435,970
$ (2,471 ) 37,605
$ (1,182,993 ) $ 1,284
$ 938,013
Net loss attributable to InterDigital, Inc. —
—
—
(2,803 ) —
—
—
—
(2,803 )
Proceeds from and increases in noncontrolling interests —
—
—
—
—
—
—
12,834
12,834
Net loss attributable to noncontrolling interest —
—
—
—
—
—
—
(1,411 ) (1,411 )
Net change in unrealized gain (loss) on short-term investments —
—
—
—
1,045
—
—
—
1,045
Dividends declared ($0.35 per share) —
—
103
(11,283 ) —
—
—
—
(11,180 )
Exercise of common stock options —
—
2
—
—
—
—
—
2
Issuance of common stock, net 116
1
(4,098 ) —
—
—
—
—
(4,097 )
Amortization of unearned compensation —
—
2,096
—
—
—
—
—
2,096
Repurchase of common stock —
—
—
—
—
1,585
(108,986 ) —
(108,986 )
BALANCE, MARCH 31, 2019 71,250
$ 712
$ 683,615
$ 1,421,884
$ (1,426 ) 39,190
$ (1,291,979 ) $ 12,707
$ 825,513
Net income attributable to InterDigital, Inc. —
—
—
7,743
—
—
—
—
7,743
Net loss attributable to noncontrolling interest —
—
—
—
—
—
—
(1,365 ) (1,365 )
Net change in unrealized gain (loss) on short-term investments —
—
—
—
1,076
—
—
—
1,076
Dividends declared ($0.35 per share) —
—
104
(10,999 ) —
—
—
—
(10,895 )
Issuance of common stock, net 10
—
(40 ) —
—
—
—
—
(40 )
Amortization of unearned compensation —
—
2,116
—
—
—
—
—
2,116
Repurchase of common stock —
—
—
—
—
944
(62,283 ) —
(62,283 )
Equity component of debt, net of tax —
—
56,917
—
—
—
—
—
56,917
Net convertible note hedge transactions, net of tax —
—
(49,740 ) —
—
—
—
—
(49,740 )
Net warrant transactions —
—
43,416
—
—
—
—
—
43,416
Deferred financing costs allocated to equity, net of tax —
—
(1,569 ) —
—
—
—
—
(1,569 )
Reacquisition of equity component of debt due to prepayment, net of tax —
—
(10,649 ) —
—
—
—
—
(10,649 )
BALANCE, JUNE 30, 2019 71,260
$ 712
$ 724,170
$ 1,418,628
$ (350 ) 40,134
$ (1,354,262 ) $ 11,342
$ 800,240


																													Common Stock					Additional Paid-In Capital				Retained Earnings			Accumulated Other Comprehensive Loss		Treasury Stock				Non-Controlling Interest		Total Shareholders' Equity
																													Shares			Amount								Shares			Amount
BALANCE, DECEMBER 31, 2020																												BALANCE, DECEMBER 31, 2020	71,389			$	714			$	738,481				$	1,413,969	$	(184)	40,573		$	(1,379,611)	$	23,197	$	796,566
Adjustment to Retained Earnings related to adoption of ASU 2020-06																												Adjustment to Retained Earnings related to adoption of ASU 2020-06	—			—		—				(50,184)			—		—		—		—		(50,184)
Net income attributable to InterDigital, Inc.																												Net income attributable to InterDigital, Inc.	—			—		—				5,571			—		—		—		—		5,571
Net loss attributable to noncontrolling interest																												Net loss attributable to noncontrolling interest	—			—		—				—			—		—		—		(1,613)		(1,613)
Noncontrolling interest distribution																												Noncontrolling interest distribution	—			—		—				—			—		—		—		(1,109)		(1,109)
Net change in unrealized loss on short-term investments																												Net change in unrealized loss on short-term investments	—			—		—				—			(70)		—		—		—		(70)
Dividends declared ($0.35 per share)																												Dividends declared ($0.35 per share)	—			—		210				(10,976)			—		—		—		—		(10,766)
Exercise of common stock options																												Exercise of common stock options	32			0		737				—			—		—		—		—		737
Issuance of common stock, net																												Issuance of common stock, net	55			—		(2,962)				—			—		—		—		—		(2,962)
Amortization of unearned compensation																												Amortization of unearned compensation	—			—		2,153				—			—		—		—		—		2,153
Repurchase of common stock																												Repurchase of common stock	—			—		—				—			—		91		(5,750)		—		(5,750)
BALANCE, MARCH 31, 2021																												BALANCE, MARCH 31, 2021	71,476			$	714	$	738,619			$	1,358,380		$	(254)	40,664		$	(1,385,361)	$	20,475	$	732,573

												Accumulated Other Comprehensive Income (Loss)
	Common Stock			Additional Paid-In Capital				Retained Earnings							Treasury Stock					Non-Controlling Interest				Total Shareholders' Equity
	Shares	Amount					Amount				Accumulated Other Comprehensive Income (Loss)				Amount
BALANCE, DECEMBER 31, 2019	71,268	$	712				$		727,402						$	1,412,779	$	(74	)									40,567	)	$	24,724	$	786,281
Net income attributable to InterDigital, Inc.	—	—		—				116							—		—				—				116
Proceeds from and increases in noncontrolling interests	—	—		—				—				—				—	—				—				—
Net loss attributable to noncontrolling interest	—	—		—				—				—				—	—				(1,777		)		(1,777		)
Net change in unrealized gain (loss) on short-term investments	—	—		—				—				32				—	—				—				32
Dividends declared ($0.35 per share)	—	—		84				(10,847		)		—				—	—				—				(10,763		)
Exercise of common stock options	27	1		777				—				—				—	—				—				778
Issuance of common stock, net	27	—		(725		)		—				—				—	—				—				(725		)
Amortization of unearned compensation	—	—		2,003				—				—				—	—				—				2,003
Repurchase of common stock	—	—		—				—				—				6	(349		)		—				(349		)
BALANCE, MARCH 31, 2020	71,322	$	713	$	729,541			$	1,402,048			$	(42	)		40,573	$	(1,379,611	)		$	22,947			$	775,596
Net income attributable to InterDigital, Inc.	—	—		—				22,251				—				—	—				—				22,251
Proceeds from and increases in noncontrolling interests	—	—		—				—				—				—	—				—				—
Net loss attributable to noncontrolling interest	—	—		—				—				—				—	—				(1,660		)		(1,660		)
Net change in unrealized gain (loss) on short-term investments	—	—		—				—				412				—	—				—				412
Dividends declared ($0.35 per share)	—	—		136				(10,917		)		—				—	—				—				(10,781		)
Exercise of common stock options	19	—		1,014				—				—				—	—				—				1,014
Issuance of common stock, net	36	—		(755		)		—				—				—	—				—				(755		)
Amortization of unearned compensation	—	—		4,629				—				—				—	—				—				4,629
Repurchase of common stock	—	—		—				—				—				—	—				—				—
BALANCE, JUNE 30, 2020	71,377	$	713	$	734,565			$	1,413,382			$	370			40,573	$	(1,379,611	)		$	21,287			$	790,706

The accompanying notes are an integral part of these statements.

Table of Contents

INTERDIGITAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	FOR THE SIX MONTHS ENDED JUNE 30,							FOR THE THREE MONTHS ENDED MARCH 31,
	2020			2019				2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:							CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	18,930		$	2,164
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net income (loss)							Net income (loss)	$	3,958	$	(1,661)
Adjustments to reconcile net income (loss) to net cash used in operating activities:							Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	40,367			37,642			Depreciation and amortization	19,861		19,160
Non-cash interest expense, net	8,649			8,563			Non-cash interest expense, net	1,819		4,637
Non-cash change in fair-value	(5,501		)	710			Non-cash change in fair-value	0		(5,501)
Gain on asset acquisition	—			(14,175		)

Change in deferred revenue	(22,683		)	(62,754		)	Change in deferred revenue	(23,429)		(39,512)
Loss on extinguishment of debt	—			5,488

Deferred income taxes	(6,920		)	(5,714		)	Deferred income taxes	(1,817)		(751)

Share-based compensation	6,631			4,212			Share-based compensation	2,153		2,003

Other	259			623			Other	0		1,108
(Increase) decrease in assets:							(Increase) decrease in assets:
Receivables	8,892			(22,169		)	Receivables	3,507		2,664
Deferred charges and other assets	(1,470		)	(6,463		)	Deferred charges and other assets	631		(1,658)
Increase (decrease) in liabilities:							Increase (decrease) in liabilities:
Accounts payable	(3,575		)	(3,105		)	Accounts payable	(291)		(2,477)
Accrued compensation and other expenses	(760		)	2,326			Accrued compensation and other expenses	(16,234)		(4,897)
Accrued taxes payable and other tax contingencies	51			(871		)
Net cash provided by (used in) operating activities	42,870			(53,523		)

Net cash used in operating activities							Net cash used in operating activities	(9,842)		(26,885)
CASH FLOWS FROM INVESTING ACTIVITIES:							CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments	(120,977		)	(92,074		)	Purchases of short-term investments	(173,120)		(110,378)
Sales of short-term investments	132,363			267,289			Sales of short-term investments	137,174		23,701
Purchases of property and equipment	(3,771		)	(2,862		)	Purchases of property and equipment	(387)		(1,603)

Capitalized patent costs	(13,849		)	(17,840		)	Capitalized patent costs	(9,602)		(6,256)
Net cash provided by (used in) investing activities	(6,234		)	154,513

Long-term investments							Long-term investments	(1,091)		0
Net cash used in investing activities							Net cash used in investing activities	(47,026)		(94,536)
CASH FLOWS FROM FINANCING ACTIVITIES:							CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options	1,792			2			Net proceeds from exercise of stock options	737		778
Payments on long-term debt	(94,909		)	(221,091		)	Payments on long-term debt	0		(94,909)
Proceeds from issuance of convertible senior notes	—			400,000
Purchase of convertible bond hedge	—			(72,000		)
Payment for warrant unwind	—			(4,184		)
Prepayment penalty on long-term debt	—			(10,763		)
Proceeds from hedge unwind	—			9,038
Proceeds from issuance of warrants	—			47,600
Payments of debt issuance costs	—			(7,300		)
Proceeds from non-controlling interests	—			10,333

Repurchase of common stock							Repurchase of common stock	(5,750)		(349)
Non-controlling interest distribution							Non-controlling interest distribution	(1,109)		0
Taxes withheld upon restricted stock unit vestings							Taxes withheld upon restricted stock unit vestings	(2,962)		(725)
Dividends paid	(21,509		)	(22,789		)	Dividends paid	(10,786)		(10,747)
Taxes withheld upon restricted stock unit vestings	(1,480		)	(4,137		)
Repurchase of common stock	(349		)	(171,269		)
Net cash used in financing activities	(116,455		)	(46,560		)	Net cash used in financing activities	(19,870)		(105,952)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(79,819		)	54,430
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH							NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(76,738)		(227,373)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	757,098			488,733			CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	477,663		757,098
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	$	677,279		$	543,163		CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	$	400,925	$	529,725

Refer to Note 1, "Basis of Presentation," for additional supplemental cash flow information. Additionally, refer to Note 7,6, "Cash, Concentration of Credit Risk and Fair Value of Financial Instruments" for a reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets.

The accompanying notes are an integral part of these statements.

1. BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited, condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position of InterDigital, Inc. (individually and/or collectively with its subsidiaries referred to as “InterDigital,” the “Company,” “we,” “us” or “our,” unless otherwise indicated) as of ~~June 30, 2020,~~March 31, 2021, the results of our operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ and our cash flows for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019.~~2020. The accompanying unaudited, condensed consolidated financial statements have been prepared in accordance with the instructions ~~for~~to Form 10-Q and, accordingly, do not include all of the detailed schedules, information and notes necessary to state fairly the financial condition, results of operations and cash flows in conformity with United States generally accepted accounting principles (“GAAP”). The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP for year-end financial statements. Therefore, these financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~2020 (our ~~“2019~~“2020 Form 10-K”) as filed with the Securities and Exchange Commission (“SEC”) on February ~~20, 2020.~~18, 2021. Definitions of capitalized terms not defined herein appear within our ~~2019~~2020 Form 10-K. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year. We have 1 reportable segment.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

InterDigital has analyzed the impact of the ongoing Coronavirus pandemic ~~("COVID-19"~~(“COVID-19”) on its financial statements as of ~~June 30, 2020.~~March 31, 2021. InterDigital has determined that the changes to its significant judgments and estimates as a result of COVID-19 did not have a material impact on its financial statements. The potential impact of COVID-19 will continue to be analyzed going forward.

Change in Accounting Policies

There have been no material changes or updates to our existing accounting policies from the disclosures included in our ~~2019~~2020 Form ~~10-K.~~10-K, except as indicated below in "New Accounting Guidance".

Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

Supplemental Cash Flow Information

The following table presents additional supplemental cash flow information for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (in thousands):

Table of Contents

New Accounting Guidance

~~Accounting Standards Update: Financial Instruments - Credit Losses~~

~~In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses~~". This ASU introduced a new accounting model for recognizing credit losses on certain financial instruments and financial assets, including trade receivables, based upon an estimate of current expected credit losses, otherwise known as CECL. The new guidance requires the recognition of an allowance that reflects the current estimate of credit losses expected to be incurred over the life of the financial asset, based not only on historical experience and current conditions, but also on reasonable forecasts. Additionally, ASU No. 2016-13 made several changes to the available-for-sale impairment model. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. We adopted this guidance as of January 1, 2020 and the adoption did not have a material impact on our consolidated financial statements.

~~Accounting Standards Update: Cloud Computing Arrangements~~

~~In August 2018, the FASB issued ASU No. 2018-15 “~~Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract”. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. We adopted this guidance as of January 1, 2020 and the adoption did not have a material impact on our consolidated financial statements.

~~Accounting Standards Update: Collaborative Arrangements~~

~~In November 2018, the FASB issued ASU No. 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606~~". The amendments in this ASU provide guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted for entities who have previously adopted the new revenue recognition guidance. We adopted this guidance as of January 1, 2020 and the adoption did not have a material impact on our consolidated financial statements.

Accounting Standards Update: Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" ("ASU 2019-12"). The amendments in this ASU are intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 with early adoption allowed. ~~The Company is currently evaluating the impact~~We adopted this guidance as of January 1, 2021 and the adoption ~~of ASU 2019-12~~did not have a material impact on ~~its~~our consolidated financial statements.

Accounting Standards Update: Simplifying the Accounting for Convertible Instruments

In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). The amendments in this ASU are intended to simplify accounting for convertible debt instruments and convertible preferred stock by removing certain accounting models which separate the embedded conversion features from the host contract. ASU 2020-06 also amends certain guidance in ASC 260 on the computation of earnings per share for convertible instruments and contracts on an entity’s own equity. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, and early adoption is permitted for fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective methods of transition. We elected to early adopt this standard on a modified retrospective approach as of January 1, 2021.

This adoption increased Long-term debt by $50.2 million at January 1, 2021, which was comprised of $51.6 million of unamortized interest discount and was partially offset by a net increase of $1.4 million equity component of deferred financing costs. This was due to the standard no longer requiring bifurcation of the embedded conversion feature from the host contract on the 2024 Notes, as defined in Note 7, "Obligations." This adoption also reduced non-cash interest expense starting in 2021 due to the removal of the accretion of the debt discount on the 2024 Notes.

Lastly, the adoption requires the use of the if-converted method of calculating diluted earnings per share rather than the treasury stock method for convertible instruments and requires the inclusion of the potential effect of shares settled in cash or shares in the diluted earnings per share calculation. Due to the reduction in non-cash interest expense, this adoption increased both basic and diluted earnings per share by $0.09 for the three months ended March 31, 2021.

2. REVENUE

Disaggregated Revenue

The following table presents the disaggregation of our revenue for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (in thousands):


	Three months ended March 31,
	2021		2020		Increase/(Decrease)
Variable patent royalty revenue	$	7,096	$	5,946	$	1,150	19	%
Fixed-fee royalty revenue	69,296		66,347		2,949		4	%
Current patent royalties a	76,392		72,293		4,099		6	%
Non-current patent royalties b	3,781		705		3,076		436	%
Total patent royalties	80,173		72,998		7,175		10	%
Current technology solutions revenue a	2,190		3,212		(1,022)		(32)	%

Total revenue	$	82,363	$	76,210	$	6,153	8	%

Three months ended June 30,
2020 2019 Increase/(Decrease)
Variable patent royalty revenue $ 4,597
$ 8,594
$ (3,997 ) (47 )%
Fixed-fee royalty revenue 77,338
63,736
13,602
21 %
Current patent royalties ^a
81,935
72,330
9,605
13 %
Non-current patent royalties ^b
19,249
1,237
18,012
1,456 %
Total patent royalties 101,184
73,567
27,617
38 %
Current technology solutions revenue ^a
3,314
2,042
1,272
62 %
Patent sales ^b
—
—
—
— %
Total revenue $ 104,498
$ 75,609
$ 28,889
38 %

Six months ended June 30,
2020 2019 Increase/(Decrease)
Variable patent royalty revenue $ 10,543
$ 17,874
$ (7,331 ) (41 )%
Fixed-fee royalty revenue 143,685
126,609
17,076
13 %
Current patent royalties ^a
154,228
144,483
9,745
7 %
Non-current patent royalties ^b
19,954
(4,538 ) 24,492
540 %
Total patent royalties 174,182
139,945
34,237
24 %
Current technology solutions revenue ^a
6,526
4,070
2,456
60 %
Patent sales ^b
—
225
(225 ) — %
Total revenue $ 180,708
$ 144,240
$ 36,468
25 %

~~Recurring revenues are comprised of current patent royalties, inclusive of Dynamic Fixed-Fee Agreement royalties, and current technology solutions revenue.~~

~~Non-recurring revenues are comprised of non-current patent royalties, which primarily include past patent royalties and royalties from static agreements, as well as patent sales.~~

a. Recurring revenues are comprised of current patent royalties, inclusive of Dynamic Fixed-Fee Agreement royalties, and current technology solutions revenue.

b. Non-recurring revenues are comprised of non-current patent royalties, which primarily include past patent royalties and royalties from static agreements, as well as patent sales.

During ~~first half 2020,~~the three months ended March 31, 2021, we recognized ~~$103.7~~$62.7 million of revenue that had been included in deferred revenue as of the beginning of the period. As of ~~June 30, 2020,~~March 31, 2021, we had contract assets of ~~$10.2~~$9.4 million and ~~$9.5~~$8.9 million included within "Accounts receivable" and "Other non-current assets, net" in the condensed consolidated balance sheet, respectively. As of December 31, ~~2019,~~2020, we had contract assets of ~~$16.2~~$9.7 million and ~~$10.2~~$8.9 million included within "Accounts receivable" and "Other non-current assets, net" in the condensed consolidated balance sheet, respectively.

Based on contracts signed and committed as of ~~June 30, 2020,~~March 31, 2021, we expect to recognize the following revenue from Dynamic Fixed-Fee Agreement payments over the term of such contracts (in thousands):

Revenue
Remainder 2020 $ 152,143
2021 235,357
2022 130,650
2023 43,922
2024 —


	Revenue
Remainder 2021	$	207,482
2022	238,057
2023	44,469
2024	89
2025 and beyond	0
Total Revenue	$	490,097

In ~~first half~~the three months ended March 31, 2021 and 2020, ~~based on~~ the ~~statutory federal tax rate net of discrete federal and state taxes, we~~Company had an effective tax rate of ~~26.9%.~~30.8% and 1,144.7%, respectively. The effective tax rate ~~for the first half 2020~~in both periods was impacted by losses in certain jurisdictions where the Company presently has recorded a valuation allowance against the related tax benefit. Excluding this valuation allowance, ~~the~~our first quarter 2021 and 2020 effective tax rate ~~for first half 2020~~ would have been ~~12.5%. This is compared to an effective tax rate of 59.5% based on~~12.0% and 65.5% respectively. During the ~~statutory federal tax rate net of discrete federal~~first quarter 2021 and ~~state taxes during first half 2019. During first half 2019, we~~2020, the Company recorded discrete net expense of ~~$3.0~~$0.3 million primarily related to both the acquisition of the Research & Innovation unit of Technicolor SA and extinguishment of long-term debt. The Company believes that outcomes which are reasonably possible within the next 12 months may result in the reduction in the liability for unrecognized tax benefits of $1.8 million, excluding interest and penalties.

~~On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was signed into law. We are currently evaluating its impact, if any, on us.~~

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Tax Reform Act") was signed into law. The Tax Reform Act imposes a 13.125% tax rate on income that qualifies as Foreign Derived Intangible Income ("FDII"). On July 9, 2020, the IRS issued final regulations for FDII. The Company is currently evaluating and will record the impact, if any, as applicable.share-based compensation.

The effective tax rate reported in any given year will continue to be influenced by a variety of factors, including timing differences between the recognition of book and tax revenue, the level of pre-tax income or loss, the foreign vs. domestic classification of the Company’s customers, and any discrete items that may occur. ~~With~~

During the ~~FDII regulations being released as final on July 9,~~three months ended March 31, 2021 and 2020, the Company ~~does not believe any proposed or pending regulations will have a significant impact on its tax positions.~~

~~During first half 2020 and 2019, we~~ paid approximately ~~$13.4~~$3.6 million and ~~$5.1~~$2.0 million, respectively, ofin foreign source creditable withholding tax. Additionally, as of each June 30, 2020 and December 31, 2019, we included approximately $0.1 million of foreign source withholding tax within our taxes payable and deferred tax asset balances. These amounts are related to receivables from foreign licensees.

4. NET INCOME (LOSS) PER SHARE

Basic Earnings Per Share ("EPS") is calculated by dividing net income or loss available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if options or other securities with features that could result in the issuance of common stock were exercised or converted to common ~~stock.~~stock or resulting from the unvested outstanding RSUs. The following tables reconcile the numerator and the denominator of the basic and diluted net income ~~(loss)~~ per share computation (in thousands, except for per share data):

Three months ended June 30,
2020 2019
Basic Diluted Basic Diluted
Numerator:
Net income applicable to InterDigital, Inc. $ 22,251
$ 22,251
$ 7,743
$ 7,743
Denominator:
Weighted-average shares outstanding: Basic 30,757
30,757
31,547
31,547
Dilutive effect of stock options, RSUs, convertible securities and warrants 288
229
Weighted-average shares outstanding: Diluted 31,045
31,776
Earnings Per Share:
Net income per common share: Basic $ 0.72
$ 0.72
$ 0.25
$ 0.25
Dilutive effect of stock options, RSUs, convertible securities and warrants —
(0.01 )
Net income per common share: Diluted $ 0.72
$ 0.24


	Three months ended March 31,
	2021		2020
Net income applicable to InterDigital, Inc.	$	5,571	$	116
Weighted-average shares outstanding:
Basic	30,836		30,722
Dilutive effect of stock options, RSUs, convertible securities and warrants	359		198
Diluted	31,195		30,920
Earnings per share:
Basic	$	0.18	$	0
Dilutive effect of stock options, RSUs, convertible securities and warrants	0		0
Diluted	$	0.18	$	0

Six months ended June 30,
2020 2019
Basic Diluted Basic Diluted
Numerator:
Net income applicable to InterDigital, Inc. $ 22,367
$ 22,367
$ 4,940
$ 4,940
Denominator:
Weighted-average shares outstanding: Basic 30,740
30,740
32,076
32,076
Dilutive effect of stock options, RSUs, convertible securities and warrants 242
290
Weighted-average shares outstanding: Diluted 30,982
32,366
Earnings Per Share:
Net income per common share: Basic $ 0.73
$ 0.73
$ 0.15
$ 0.15
Dilutive effect of stock options, RSUs, convertible securities and warrants (0.01 ) —
Net income per common share: Diluted $ 0.72
$ 0.15

Shares of common stock issuable upon the exercise or conversion of certain securities have been excluded from our computation of EPS because the strike price or conversion rate, as applicable, of such securities was greater than the average market price of our common stock and, as a result, the effect of such exercise or conversion would have been anti-dilutive. Set forth below are the securities and the weighted average number of shares of common stock underlying such securities that were excluded from our computation of EPS for the periods presented (in thousands).:


	Three months ended March 31,
	2021	2020
Restricted stock units and stock options	120	260
Convertible securities(a)	0	6,268
Warrants	4,921	6,268
Total	5,041	12,796

(a)

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Restricted stock units and stock options 218
153
219
102
Convertible securities 4,921
4,986
5,597
4,715
Warrants 6,273
4,986
7,620
4,715
Total 11,412
10,125
13,436
9,532

As of December 31, 2020, we made the irrevocable election to settle all conversions of the 2024 Notes through combination settlements of cash and shares of our common stock, with a specified dollar amount of $1,000 per $1,000 principal amount of 2024 Notes and any remaining amounts in shares of our common stock.

Convertible Notes and Warrants

Refer to Note 8,7, "~~Long-Term Debt~~Obligations," for information about the Company's convertible notes and warrants and related conversion and strike prices. During periods in which the average market price of the Company's common stock is above the applicable conversion price of the Company's convertible notes, or above the strike price of ~~our~~the Company's outstanding warrants, the impact of conversion or exercise, as applicable, would be dilutive and such dilutive effect is reflected in diluted EPS. As a result, in periods where the average market price of the Company's common stock is above the conversion price or strike price, as applicable, under the ~~treasury stock~~if-converted method, the Company calculates the number of shares issuable under the terms of the convertible notes and the warrants based on the average market price of the stock during the period, and includes that number in the total diluted shares outstanding for the period.

5. LITIGATION AND LEGAL PROCEEDINGS

On April 28, 2020, the Company announced that it and certain of its subsidiaries had entered into a multi-year, worldwide, non-exclusive, fixed-fee patent license agreement (the "Huawei PLA") with Huawei Investment & Holding Co., Ltd. In connection with the Huawei PLA, the parties have agreed to terms for dismissal of all outstanding litigation and other proceedings among them and their affiliates, including, without limitation, the actions in the Shenzhen Intermediate People’s Court (the "Shenzhen Court") and the High Court of Justice, Business and Property Courts of England and Wales, Intellectual Property List (Chancery Division), Patents Court (the "High Court"), as more fully described below.

~~China~~UK Proceeding

Information regarding the legal proceeding that Huawei Technologies Co., Ltd. and certain of its subsidiaries filed against the Company and certain of its subsidiaries in the Shenzhen Court can be found in the description of legal proceedings contained in the Company'sOn August 27, 2019, Form 10-K. On June 8, 2020, Huawei filed an application with the Shenzhen Court to dismiss the legal proceeding, and on June 9, 2020, the Company filed an application with the IP Tribunal of the China Supreme People's Court (the "SPC") to dismiss the Company's jurisdictional appeal. On July 1, 2020, the SPC dismissed the Company's jurisdictional appeal, and on July 31, 2020, the Shenzhen Court granted Huawei’s petition to dismiss the legal proceeding. Accordingly, there are no further proceedings in this matter.

~~Information regarding the legal proceeding that~~ the Company and certain of its subsidiaries filed ~~against Huawei Technologies Co., Ltd. and Huawei Technologies (UK) Co., Ltd.~~a claim in the UK High Court ~~can be found in the description~~against Lenovo Group Limited and certain of ~~legal proceedings contained in~~its subsidiaries. The claim, as amended, alleges infringement of 5 of the Company's ~~2019 Form 10-K. On June 10, 2020, the parties submitted a draft consent order~~patents relating to ~~the~~3G and/or 4G/LTE standards: European Patent (U.K.) Nos. 2,363,008; 2,421,318; 2,485,558; 2,557,714; and 3,355,537.

The UK High Court ~~dismissing~~held case management conferences on October 6, 2020 and December 16, 2020, a disclosure hearing on January 19, 2021 and pre-trial review hearings for the ~~legal proceeding,~~first trial on January 28, 2021 and ~~on June 12, 2020,~~February 8, 2021. At those hearings, the UK High Court ~~formally dismissed~~entered a schedule for the ~~legal proceeding, with~~technical and non-technical FRAND proceedings. Two technical trials were scheduled for March 2021 and June 2021 and the ~~consent order being sealed on June 15, 2020. Accordingly, there~~non-technical FRAND trial is scheduled in January 2022. There are ~~no further proceedings in this matter.~~

~~Information~~additional technical trials scheduled for the remaining patents following the FRAND trial. The first technical trial was completed, and the Company is awaiting the court’s decision regarding the ~~legal proceeding that~~merits.

District of Delaware Patent Proceeding

On August 28, 2019, the Company and certain of its subsidiaries filed against Lenovo Group Limited and certain of its subsidiaries in the High Court can be found in the description of legal proceedings contained in the Company's 2019 Form 10-K. On May 20, 2020, the High Court held a case management conference and hearing regarding Lenovo's challenges to the High Court's jurisdiction over the legal proceeding. The High Court (i) granted the Company's request to have the FRAND trial listed third after the first 2 technical trials with the remaining 3 technical trials to follow the FRAND trial, (ii) adjourned Lenovo's jurisdictional challenge until October 2020 and (iii) set other dates leading up to the trials. The five technical patent trials are each scheduled to commence within a 5-day window starting on March 1, 2021, June 21, 2021, May 9, 2022, October 3, 2022 and January 16, 2023, respectively. The non-technical FRAND trial is scheduled to commence within a 5-day window starting on January 11, 2022.

~~District of Delaware Patent Proceeding~~

~~Information regarding the legal proceeding that the Company and certain of its subsidiaries filed against Lenovo Holding Company, Inc. and certain of its subsidiaries~~complaint in the United States District Court for the District of Delaware (the "Delaware District Court") ~~can~~against Lenovo Holding Company, Inc. and certain of its subsidiaries alleging that Lenovo infringes 8 of InterDigital's U.S. patents—U.S. Patent Nos. 8,085,665; 8,199,726; 8,427,954; 8,619,747; 8,675,612; 8,797,873; 9,203,580; and 9,456,449—by making, using, offering for sale, and/or selling Lenovo wireless devices with 3G and/or 4G LTE capabilities. As relief, InterDigital is seeking: (a) a declaration that InterDigital is not in breach of its relevant FRAND commitments with respect to Lenovo; (b) to the extent Lenovo does not agree to negotiate a worldwide patent license, does not agree to enter into binding international arbitration to set the terms of a FRAND license, and does not agree to be ~~found~~bound by the FRAND terms to be set by the UK High Court in the ~~description~~separately filed UK proceedings described above, an injunction prohibiting Lenovo from continued infringement; (c) damages, including enhanced damages for willful infringement and supplemental damages; and (d) attorneys’ fees and costs.

On ~~July 14,~~September 16, 2020, the Delaware District Court ~~heard~~entered a schedule for the ~~parties' oral arguments regarding Lenovo's motion to dismiss 6 of~~case, setting a patent jury trial for December 5, 2022.On March 8, 2021, the ~~8 patents-at-issue in the case. The~~ Delaware District Court ~~denied Lenovo's motion to dismiss in its entirety, finding in the Company's favor that the challenged claims of all 6 patents cover patent-eligible subject matter under Section 101 of the Patent Act.~~held a claim construction hearing. The ruling is pending.

District of Delaware Antitrust Proceeding

On April 9, 2020, Lenovo (United States) Inc. ~~("Lenovo")~~ and Motorola Mobility LLC filed a complaint in the Delaware District Court against the Company and certain of its subsidiaries. The complaint alleges that the Company defendants have violated Sections 1 and 2 of the Sherman Act in connection with, among other things, their licensing of 3G and 4G standards essential patents ("SEPs"). The complaint further alleges that the Company defendants have violated their commitment to the ~~European Telecommunications Standards Institute ("ETSI")~~ETSI with respect to the licensing of 3G and 4G SEPs on ~~fair, reasonable and non-discriminatory ("FRAND")~~FRAND terms and conditions. The complaint seeks, among other things (i) rulings that the Company defendants have violated Sections 1 and 2 of the Sherman Act and are liable for breach of their ETSI FRAND commitments, (ii) a judgment that the plaintiffs are entitled to a license with respect to the Company's 3G and 4G SEPs on FRAND terms and conditions, and (iii) injunctions against any demand for allegedly excessive royalties or enforcement of the Company defendants' 3G and 4G U.S. SEPs against the plaintiffs or their customers via patent infringement proceedings.

On June 22, 2020, the Company filed a motion to dismiss Lenovo's Sherman Act claims with prejudice, and to dismiss Lenovo's breach of contract claim with leave to re-file as a counterclaim in the Company's legal proceeding against Lenovo in the Delaware District Court discussed above. ~~On July 17, 2020, the United States Department of Justice filed a statement of interest supporting~~Oral argument on the Company's motion to dismiss ~~Lenovo's antitrust claims.~~ was held on October 27, 2020.

On ~~July 20, 2020, Lenovo filed its response~~March 24, 2021, the court ruled on the Company’s motion to dismiss. The court dismissed the ~~Company's~~Sherman Act Section 1 claim without prejudice, denied the motion to dismiss the Sherman Act Section 2 claim, and ~~ACT | The App Association filed a motion for leave to file an amicus brief~~consolidated the Section 2 and breach of contract claims with Company’s patent proceeding against Lenovo in ~~support of Lenovo's antitrust claims. On August 5, 2020,~~ the ~~Company filed its reply in support of its motion to dismiss.~~Delaware District Court discussed above.

On ~~June 8, 2020, the Company confirmed that, on~~ April 10, 2020, Lenovo (Beijing) Ltd. and certain of its affiliates filed a complaint against the Company and certain of its subsidiaries in the Beijing Intellectual Property Court (Beijing IP Court) seeking a determination of the FRAND royalty rates payable for the Company's Chinese 3G, 4G and 5G SEPs. On February 20, 2021, the Company filed an application challenging the jurisdiction of the Beijing IP Court to take up Lenovo’s complaint. The jurisdiction challenge remains pending.

On August 5, 2020, the Company was informed in writing by Xiaomi Corporation ("Xiaomi") that, on June 3, 2020, Xiaomi Communication Technology Co., Ltd. and certain of its affiliates filed a complaint against the Company and one of its subsidiaries in the Wuhan Intermediate People's Court (the "Wuhan Court") seeking for the Wuhan Court to determine a global FRAND rate for a license to the Company's 3G and/or 4G/LTE SEPs. The Company was informed on September 25, 2020 that the Wuhan Court held an ex parte hearing on or about September 23, 2020 and issued an order that, among other things, enjoins the Company from seeking a preliminary and permanent injunction against Xiaomi and certain of its subsidiaries for infringement of certain of the Company's patents related to 3G and/or 4G/LTE standards in the Company's case in the Delhi High Court discussed below, or elsewhere. The Wuhan Court ordered a fine of up to 1000000 yuan per day if the Company were to violate the order. The Company contends that it has not yet been properly served with Xiaomi's complaint or the Wuhan Court's anti-suit injunction order. On October 13, 2020, the Company filed an application challenging the jurisdiction of the Wuhan Court to take up Xiaomi’s complaint. On March 12, 2021, the Company’s Chinese counsel was orally informed by the Court that the Company’s application challenging jurisdiction of the Wuhan Court had been rejected. The Company has not yet ~~been served with~~received the ~~complaint.~~written decision but is challenging the decision at the IP Tribunal of the SPC.

On September 30, 2020, the Company filed a preliminary conditional response seeking reconsideration of the Wuhan Court's anti-suit injunction. In a decision dated December 4, 2020, the Wuhan Court dismissed the Company’s reconsideration petition. The Company is challenging that decision at the SPC.

Table of Contents

~~Xiaomi~~

India Proceeding

On July 29, 2020, the Company and certain of its subsidiaries filed 2 patent infringement actions in the Delhi High Court in New Delhi, India (the "Delhi High Court") against Xiaomi ~~Corporation~~ and certain of its ~~subsidiaries ("Xiaomi").~~subsidiaries. The first complaint alleges infringement of 5 of the Company's patents related to 3G and/or 4G/LTE standards: Indian Patent Nos. 262910; 295912; 298719; 313036; and 320182. The second complaint alleges infringement of 3 of the Company's patents related to H.265/HEVC standards: Indian Patent Nos. 242248; 299448; and 308108. In these proceedings, the Company is seeking compensatory and punitive damages for Xiaomi's infringement of the asserted patents. The Company is further seeking, among other remedies, interim and permanent injunctive relief to prevent further infringement of the litigated patents in India, unless Xiaomi elects to take a license on terms determined to be FRAND by the Delhi High Court. The Company’s application for interim injunctive relief remains pending.

~~China~~On September 29, 2020, the Company filed an anti-anti-suit injunction application against Xiaomi in the Delhi High Court, seeking, among other things, to enjoin Xiaomi from enforcing the Wuhan Court's September 23, 2020 anti-suit injunction order described above. On October 9, 2020, the Delhi High Court granted the Company's motion and issued an ad interim injunction restraining Xiaomi from enforcing the anti-suit injunction order issued by the Wuhan Court, pending further consideration of the Company's application for an anti-anti-suit injunction at a hearing on November 25, 2020. On May 3, 2021, in an oral pronouncement by the Delhi High Court, the interim anti-anti-suit injunction was made permanent throughout the pendency of the Indian cellular case. Furthermore, the Delhi High Court stated that, if any orders or other measures are passed by the Wuhan Court related to the anti-suit injunction that result in the Company incurring a monetary penalty, then Xiaomi must deposit a corresponding, equal amount with the Delhi High Court for the Company's benefit within one week.

German Proceeding

On ~~August 5,~~October 30, 2020, the Company filed an anti-anti-suit injunction application against Xiaomi in the Munich District Court, seeking to enjoin Xiaomi from continuing to pursue the Wuhan Court's September 23, 2020 anti-suit injunction order described above with respect to Germany. On November 11, 2020, the Munich District Court granted the Company's motion and issued an ex parte injunction restraining Xiaomi from enforcing pursuing the anti-suit injunction. The Company filed penalty requests for non-compliance with said court order. Xiaomi opposed the injunction and requested stay of enforcement, and an oral hearing was held on January 28, 2021. At the hearing, the Munich District Court dismissed the request for stay of enforcement. On February 25, 2021 the Munich District Court confirmed its earlier ex parte anti-anti-suit injunction against Xiaomi. This judgment was appealed by Xiaomi to the Higher Regional Court Munich.

On April 27, the Company was informed that the Munich Regional Court commenced service of three patent infringement actions filed in ~~writing~~Germany against Xiaomi by ~~Xiaomi that, on June 3, 2020, Xiaomi Communication Technology Co., Ltd. and certain of its affiliates filed~~ a ~~complaint against the Company and one of its subsidiaries in the Wuhan Intermediate People's Court seeking a determination~~subsidiary of the ~~FRAND royalty terms payable for~~Company. The complaints involve infringement of the Company's German patents related to 3G and 4G ~~SEPs.~~cellular handsets (Patent Nos. EP 2,421,318; EP 2,485,558; and EP 3,355,537). The Company ~~has not yet been provided with a copy~~is seeking injunctive relief to prevent further infringement of ~~or served with,~~ the ~~complaint.~~

~~REGULATORY PROCEEDING~~

~~Investigation by National Development and Reform Commission of China~~

Information regarding the Company's ongoing licensing commitments to Chinese manufacturers of cellular terminal units resulting from the now-suspended investigation initiated by China’s National Development and Reform Commission can be foundasserted patents in ~~the description of legal proceedings contained in the Company's 2019 Form 10-K.~~Germany.

OTHER

We are party to certain other disputes and legal actions in the ordinary course of business, including ~~arbitrations~~arbitration and legal proceedings with licensees regarding the terms of their agreements and the negotiation thereof. We do not currently believe that these matters, even if adversely adjudicated or settled, would have a material adverse effect on our financial condition, results of operations or cash flows. None of the preceding matters have met the requirements for accrual or disclosure of a potential range as of ~~June 30, 2020.~~March 31, 2021.

6.~~BUSINESS COMBINATIONS AND OTHER TRANSACTIONS~~

~~Acquisition of Technicolor's Patent Licensing Business~~

On July 30, 2018, we completed our acquisition of the patent licensing business of Technicolor, a worldwide technology leader in the media and entertainment sector (the "Technicolor Patent Acquisition"). The Technicolor Patent Acquisition included the acquisition by the Company of approximately 18,000 patents and applications, across a broad range of technologies, including approximately 3,000 worldwide video coding patents and applications. Refer to our 2019 Form 10-K for further information on the Technicolor Patent Acquisition.

The Technicolor Patent Acquisition met the definition of a business combination, and, as such, was accounted for using the acquisition method of accounting. We allocated the fair value of consideration transferred to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. We recorded the excess of the fair value of consideration transferred over the net values of these assets and liabilities as goodwill.

~~Acquisition of Technicolor's Research & Innovation Unit~~

On May 31, 2019, we completed the acquisition of the Research & Innovation unit of Technicolor SA (the "R&I Acquisition"). The R&I Acquisition expanded the Company’s research capabilities in video coding, Internet of Things ("IoT") and smart home, imaging sciences, augmented reality and virtual reality, and artificial intelligence and machine learning technologies. The Technicolor R&I unit was the driving creative force behind the patent portfolio that was acquired in the Technicolor Patent Acquisition discussed above. Refer to our 2019 Form 10-K for further information on the R&I Acquisition.

The R&I Acquisition met the definition of an asset acquisition and was accounted for using the cost accumulation and allocation model. There was no cash consideration for the R&I Acquisition. As consideration for the R&I Acquisition, the jointly funded R&D collaboration that was entered into as part of the Technicolor Patent Acquisition was terminated. Technicolor will continue to fund research to be performed by the R&I unit (which is now part of InterDigital R&I) for certain limited projects for a specified time period, subject to renewal. The Company also assumed certain employee-related liabilities, including obligations for certain defined benefit post-retirement plans for the acquired R&I unit employees, which are further discussed below. Additionally, Technicolor agreed to reduce its rights under the revenue-sharing arrangement entered into as part of the Technicolor Patent Acquisition, as further discussed below.

~~Contingent Consideration~~

The original revenue-sharing arrangement between the Company and Technicolor created a contingent consideration liability upon closing of the Technicolor Patent Acquisition in third quarter 2018. Refer to our 2019 Form 10-K for further information on the initial contingent consideration liability which was accounted for at fair value each reporting period.

Under the amended revenue-sharing arrangement described above, Technicolor will now receive 42.5% of future cash receipts from new licensing efforts from the Madison Arrangement (as defined below) only, subject to certain conditions and hurdles, but will no longer receive revenue-sharing from other licensing efforts in the consumer electronics field outside of the Madison Arrangement. We determined that the initial contingent consideration liability from the Technicolor Patent Acquisition was significantly modified in conjunction with the R&I Acquisition, and, as such, the contingent consideration liability is now accounted for under ~~ASC 450 - Contingencies~~ under the asset acquisition framework when the liability is deemed probable and estimable. As of June 30, 2020, the contingent consideration liability from the amended revenue-sharing arrangement was deemed not probable and estimable and is therefore not reflected within the consolidated financial statements.

~~Defined Benefit Plans~~

~~In connection with the Technicolor Patent Acquisition and the R&I Acquisition, we assumed certain defined benefit plans which are accounted for in accordance with~~ ~~ASC 715 - Compensation - Retirement Benefits~~. These plans include a retirement lump sum indemnity plan and jubilee plan, both of which provide benefit payments to employees based upon years of service and compensation levels. As of June 30, 2020, the combined accumulated projected benefit obligation related to these plans totaled $6.4 million. Service cost and interest cost for the combined plans totaled $0.2 million for the six months ended June 30, 2020. These plans are not required to be funded and were not funded as of June 30, 2020.

~~Madison Arrangement~~

In conjunction with the Technicolor Patent Acquisition, effective July 30, 2018, we assumed Technicolor’s rights and obligations under a joint licensing program with Sony Corporation ("Sony") relating to digital televisions and standalone computer display monitors, which commenced in 2015 and is referred to as the "Madison Arrangement." We also assumed Technicolor's role as sole licensing agent for the Madison Arrangement. As licensing agent, we are responsible for making decisions regarding the prosecution and maintenance of the combined patent portfolio and the licensing and enforcement of the combined patent portfolio in the field of use of digital TVs and computer display monitors on an exclusive basis during the specified term in exchange for an agent fee. The Madison Arrangement falls under the scope of ASC 808, ~~Collaborative Arrangements~~ ~~("ASC 808"). Refer to our 2019 Form 10-K for further information on the Madison Arrangement.~~

~~Long-term debt~~

An affiliate of CPPIB Credit Investments Inc. ("CPPIB Credit"), a wholly owned subsidiary of Canada Pension Plan Investment Board, is a third-party investor in the Madison Arrangement. CPPIB Credit has made certain payments to Technicolor and Sony and has agreed to contribute cash to fund certain capital reserve obligations under the arrangement in exchange for a percentage of future revenues, specifically through September 11, 2030 in regard to the Technicolor patents.

~~Upon our assumption of Technicolor’s rights and obligations under the Madison Arrangement, our relationship with CPPIB Credit meets the criteria in ASC 470-10-25 -~~ ~~Sales of Future Revenues or Various Other Measures of Income~~ ("ASC 470"), which relates to cash received from an investor in exchange for a specified percentage or amount of revenue or other measure of income of a particular product line, business segment, trademark, patent, or contractual right for a defined period. Under this guidance, we recognized the fair value of our contingent obligation to CPPIB Credit, as of the acquisition date, as long-term debt in our condensed consolidated balance sheet. This initial fair value measurement was based on the perspective of a market participant and included significant unobservable inputs which are classified as Level 3 inputs within the fair value hierarchy. The fair value of the long-term debt as of June 30, 2020 and December 31, 2019 is disclosed within Note 7. Our repayment obligations are contingent upon future royalty revenues generated from the Madison Arrangement and there are no minimum or maximum payments under the arrangement.

Under ASC 470, amounts recorded as debt are amortized under the interest method. At each reporting period, we will review the discounted expected future cash flows over the life of the obligation. The Company made an accounting policy election to utilize the catch-up method when there is a change in the estimated future cash flows, whereby we will adjust the carrying amount of the debt to the present value of the revised estimated future cash flows, discounted at the original effective interest rate, with a corresponding adjustment recognized as interest expense within “~~Interest Expense~~” in the condensed consolidated statements of income. The effective interest rate as of the acquisition date was approximately 14.5%. This rate represents the discount rate that equates the estimated future cash flows with the fair value of the debt as of the acquisition date, and is used to compute the amount of interest to be recognized each period based on the estimated life of the future revenue streams. During the three and six months ended June 30, 2020, we recognized $0.7 million and $1.5 million, respectively, of interest expense related to this debt and during the three and six months ended June 30, 2019, we recognized $0.6 million and $1.3 million, respectively. This was included within “~~Interest Expense~~” in the condensed consolidated statements of income. Any future payments made to CPPIB Credit, or additional proceeds received from CPPIB Credit, will decrease or increase the long-term debt balance accordingly.

~~Restricted cash~~

Under the Madison Arrangement, the parties reserve cash in bank accounts to fund our activities to manage the portfolios. These accounts are custodial accounts for which the funds are restricted for this purpose. Refer to Note 7, "~~Cash, Concentration of Credit Risk and Fair Value of Financial Instruments," for a reconciliation of total cash, cash equivalents and restricted cash as of June 30, 2020 and December 31, 2019 to the captions within the condensed consolidated balance sheets.~~

~~Commitments~~

To receive consent from both Sony and CPPIB Credit to assume the rights and responsibilities of Technicolor under the Madison Arrangement, we committed to contributing cash to fund shortfalls in the Madison Arrangement, up to a maximum of $25.0 million, through 2020. A shortfall funding is only required in the scenario where the restricted cash is not sufficient to fund current obligations. In the event that we fund a shortfall, any surplus cash resulting from subsequent royalty receipts would be used to repay our shortfall funding plus 25% interest in advance of distributions of royalties to either Sony or CPPIB Credit, assuming they have not participated in the funding of the shortfall. As of June 30, 2020, we have not contributed any shortfall funding.

~~Transaction costs~~

Transaction and integration related costs related to the above transactions for the three months ended June 30, 2020 and 2019 were $0.6 million and $1.7 million, respectively. Transaction and integration related costs related to the above transactions for the six months ended June 30, 2020 and 2019 were $1.2 million and $4.8 million, respectively. The majority of these costs were recorded within “~~Patent administration and licensing” and “Selling, general and administrative” expenses in the condensed consolidated statements of income.~~

7. CASH, CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash currently consists of money market and demand accounts. The following table provides a reconciliation of total cash, cash equivalents and restricted cash as of ~~June 30, 2020,~~March 31, 2021, December 31, ~~2019~~2020 and ~~June 30, 2019~~March 31, 2020 to the captions within the condensed consolidated balance sheets and condensed consolidated statements of cash flows (in thousands).:


	March 31,		December 31,		March 31,
	2021		2020		2020
Cash and cash equivalents	$	396,156	$	473,474	$	515,793
Restricted cash included within prepaid and other current assets	3,688		3,108		12,851
Restricted cash included within other non-current assets	1,081		1,081		1,081
Total cash, cash equivalents and restricted cash	$	400,925	$	477,663	$	529,725

June 30, December 31, June 30,
2020 2019 2019
Cash and cash equivalents $ 670,292
$ 745,491
$ 531,698
Restricted cash included within prepaid and other current assets 5,906
10,526
11,465
Restricted cash included within other non-current assets 1,081
1,081
—
Total cash, cash equivalents and restricted cash $ 677,279
$ 757,098
$ 543,163

Table of Contents

Concentration of Credit Risk and Fair Value of Financial Instruments

Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash equivalents, short-term investments, and accounts receivable. We place our cash equivalents and short-term investments only in highly rated financial instruments and in United States government instruments.

Our accounts receivable and contract assets are derived principally from patent license and technology solutions agreements. As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019, seven~~2020, five licensees comprised ~~71%~~50% and ~~73%~~53%, respectively, of our net accounts receivable balance. We perform ongoing credit evaluations of our licensees, who generally include large, multinational, wireless telecommunications equipment manufacturers. We believe that the book values of our financial instruments approximate their fair values.

Fair Value Measurements

We use various valuation techniques and assumptions when measuring the fair value of our assets and liabilities. We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. This guidance established a hierarchy that prioritizes fair value measurements based on the types of input used for the various valuation techniques (market approach, income approach and cost approach). The levels of the hierarchy are described below:

Level 1 Inputs — Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets.

Level 2 Inputs — Level 2 includes financial instruments for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets with insufficient volume or infrequent transactions (less active markets) or model-driven valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data, including market interest rate curves, referenced credit spreads and pre-payment rates.

Level 3 Inputs — Level 3 includes financial instruments for which fair value is derived from valuation techniques including pricing models and discounted cash flow models in which one or more significant inputs are unobservable, including the Company’s own assumptions. The pricing models incorporate transaction details such as contractual terms, maturity and, in certain instances, timing and amount of future cash flows, as well as assumptions related to liquidity and credit valuation adjustments of marketplace participants.

Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy. We use quoted market prices for similar assets to estimate the fair value of our Level 2 investments.

Recurring Fair Value Measurements

Our financial assets are generally included within short-term investments on our condensed consolidated balance sheets, unless otherwise indicated. Our financial assets and liabilities that are accounted for at fair value on a recurring basis are presented in the tables below as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 (in thousands):


	Fair Value as of March 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Money market and demand accounts (a)	$	386,825	$	0	$	0	$	386,825
Commercial paper (b)	0		274,108		0		274,108
U.S. government securities	0		155,752		0		155,752
Corporate bonds, asset backed and other securities	0		72,799		0		72,799
Total	$	386,825	$	502,659	$	0	$	889,484

Table of Contents


	Fair Value as of December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Money market and demand accounts (a)	$	397,522	$	0	$	0	$	397,522
Commercial paper(b)	0		285,242		0		285,242
U.S. government securities	0		166,223		0		166,223
Corporate bonds, asset backed and other securities	0		81,849		0		81,849
Total	$	397,522	$	533,314	$	0	$	930,836

(a)Primarily included within cash and cash equivalents.

Fair Value as of June 30, 2020
Level 1 Level 2 Level 3 Total
Assets:
Money market and demand accounts (a) $ 677,279
$ —
$ —
$ 677,279
Commercial paper (b) —
26,296
—
26,296
U.S. government securities —
53,047
—
53,047
Corporate bonds, asset backed and other securities —
89,609
—
89,609
Total $ 677,279
$ 168,952
$ —
$ 846,231

(b)

Fair Value as of December 31, 2019
Level 1 Level 2 Level 3 Total
Assets:
Money market and demand accounts (a) $ 757,098
$ —
$ —
$ 757,098
Commercial paper (b) —
—
—
—
U.S. government securities —
105,702
—
105,702
Corporate bonds, asset backed and other securities —
73,502
—
73,502
Total $ 757,098
$ 179,204
$ —
$ 936,302


~~(a)~~	~~Primarily included within cash and cash equivalents.~~


~~(b)~~	As of March 31, 2021 and December 31, 2020, $14.1 million and $80.1 million, respectively, of ~~June 30, 2020 and December 31, 2019, zero~~ commercial paper was included within cash and cash equivalents.

~~Level 3 Fair Value Measurements~~

~~Contingent consideration~~

~~As discussed in Note 6, "Business Combinations and Other Transactions~~," we completed the Technicolor Patent Acquisition during third quarter 2018. In conjunction with the Technicolor Patent Acquisition, we initially recognized a contingent consideration liability which was measured at fair value on a recurring basis using significant unobservable inputs classified as Level 3 measurements within the fair value hierarchy. We utilized a Monte Carlo simulation model to determine the estimated fair value of the contingent consideration liability through first quarter 2019. A Monte Carlo simulation uses random numbers together with volatility assumptions to generate individual paths, or trials, for variables of interest governed by a Geometric Brownian Motion in a risk-neutral framework.

~~As discussed in Note 6, "Business Combinations and Other Transactions~~," we completed the R&I Acquisition during second quarter 2019. The transaction met the definition of an asset acquisition and was accounted for using the cost accumulation and allocation model. As part of the R&I Acquisition, Technicolor reduced its rights to the revenue-sharing arrangement that created the initial contingent consideration liability from the Technicolor Patent Acquisition. We determined that the initial contingent consideration liability from the Technicolor Patent Acquisition was significantly modified in conjunction with the R&I Acquisition, and, as such, the contingent consideration liability will now be accounted for under ~~ASC 450 - Contingencies~~ under the asset acquisition framework when the liability is deemed probable and estimable. Since the contingent consideration liability arising from the amended revenue-sharing arrangement was not probable and estimable as of the acquisition date, the carrying value of the previous contingent consideration liability was derecognized, which resulted in a $20.5 million gain which was included within "~~Other Income, Net~~” in the condensed consolidated statement of income for second quarter 2019. Therefore, effective as of the completion of the R&I Acquisition on May 31, 2019, the contingent consideration liability was no longer a Level 3 fair value recurring measurement.

Non-Recurring Fair Value Measurements

Investments in Other Entities

During ~~first quarter~~the three months ended March 31, 2020, we recognized a $5.5 million ~~unrealized~~ gain resulting from observable price changes ~~in orderly transactions~~ of one of our long-term strategic investments, which was included within “Other Income, Net” in the condensed consolidated statement of income.

Lease Assets

During ~~first quarter~~the three months ended March 31, 2020, we recognized a $1.1 million impairment, comprised of $0.8 million of Property, Plant, and Equipment, and $0.3 million of Right of Use Asset related to the abandonment of 1 of our leased properties, which was included within “Operating Expense” in the condensed consolidated statement of income.

Fair Value of Long-Term Debt

2024 ~~and 2020~~ Senior Convertible Notes

The principal amount, carrying value and related estimated fair value of the Company's senior convertible debt reported in the condensed consolidated balance sheets as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 was as follows (in thousands). The aggregate fair value of the principal amount of the senior convertible long-term debt is a Level 2 fair value measurement.

June 30, 2020 December 31, 2019

Principal
Amount

Carrying
Value

Fair
Value

Principal
Amount
Carrying
Value
Fair
Value
Senior Convertible Long-Term Debt $ 400,000
$ 336,544
$ 396,240
$ 494,909
$ 423,657
$ 492,969


	March 31, 2021						December 31, 2020
	Principal Amount		Carrying Value		Fair Value		Principal Amount		Carrying Value		Fair Value
Senior Convertible Long-Term Debt	$	400,000	$	394,404	$	422,000	$	400,000	$	343,821	$	418,760

Technicolor Patent Acquisition Long-term Debt

~~As more fully disclosed in Note 6, "Business Combinations and Other Transactions," we recognized long-term debt in conjunction with the Technicolor Patent Acquisition.~~ The carrying value and related estimated fair value of the Technicolor Patent Acquisition long-term debt reported in the condensed consolidated balance sheets as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 was as follows (in thousands). The aggregate fair value of the Technicolor Patent Acquisition long-term debt is a Level 3 fair value measurement.


	March 31, 2021				December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value
Technicolor Patent Acquisition Long-Term Debt	$	24,992	$	26,762	$	24,171	$	27,016

June 30, 2020 December 31, 2019

Carrying
Value

Fair
Value
Carrying
Value
Fair
Value
Technicolor Patent Acquisition Long-Term Debt $ 22,576
$ 26,241
$ 21,101
$ 23,305

Table of Contents

8.7. ~~LONG-TERM DEBT~~OBLIGATIONS

Technicolor Patent Acquisition Long-Term Debt

~~Refer~~On July 30, 2018, we completed our acquisition of the patent licensing business of Technicolor SA ("Technicolor"), a worldwide technology leader in the media and entertainment sector (the "Technicolor Patent Acquisition"). In conjunction with the Technicolor Patent Acquisition we assumed Technicolor’s rights and obligations under a joint licensing program with Sony Corporation ("Sony") relating to digital televisions and standalone computer display monitors, which commenced in 2015 and is referred to as the "Madison Arrangement." An affiliate of CPPIB Credit Investments Inc. ("CPPIB Credit"), a wholly owned subsidiary of Canada Pension Plan Investment Board, is a third-party investor in the Madison Arrangement. CPPIB Credit has made certain payments to Technicolor and Sony and has agreed to contribute cash to fund certain capital reserve obligations under the arrangement in exchange for a percentage of future revenues, specifically through September 11, 2030 in regard to the Technicolor patents.

Upon our assumption of Technicolor’s rights and obligations under the Madison Arrangement, our relationship with CPPIB Credit meets the criteria in ASC 470-10-25 - Sales of Future Revenues or Various Other Measures of Income ("ASC 470"), which relates to cash received from an investor in exchange for a specified percentage or amount of revenue or other measure of income of a particular product line, business segment, trademark, patent, or contractual right for a defined period. Under this guidance, we recognized the fair value of our contingent obligation to CPPIB Credit, as of the acquisition date, as long-term debt in our condensed consolidated balance sheet. This initial fair value measurement was based on the perspective of a market participant and included significant unobservable inputs which are classified as Level 3 inputs within the fair value hierarchy. The fair value of the long-term debt as of March 31, 2021 and December 31, 2020 is disclosed within Note 6, "~~Business Combinations and Other Transactions," and Note 7,~~ "Cash, Concentration of Credit Risk and Fair Value of Financial ~~Instruments~~Instruments.," ~~for information regarding~~Our repayment obligations are contingent upon future royalty revenues generated from the Madison Arrangement and there are no minimum or maximum payments under the arrangement.

Under ASC 470, amounts recorded as debt are amortized under the interest method. At each reporting period, we will review the discounted expected future cash flows over the life of the obligation. The Company made an accounting policy election to utilize the catch-up method when there is a change in the estimated future cash flows, whereby we will adjust the carrying amount of the debt to the present value of the revised estimated future cash flows, discounted at the original effective interest rate, with a corresponding adjustment recognized as interest expense within “Interest Expense” in the condensed consolidated statements of income. The effective interest rate as of the acquisition date was approximately 14.5%. This rate represents the discount rate that equates the estimated future cash flows with the fair value of the debt as of the acquisition date, and is used to compute the amount of interest to be recognized each period based on the estimated life of the future revenue streams. During the three months ended March 31, 2021 and 2020, we recognized $0.8 million and $0.7 million, respectively, of interest expense related to this debt. This was included within “Interest Expense” in the condensed consolidated statements of income. Any future payments made to CPPIB Credit, or additional proceeds received from CPPIB Credit, will decrease or increase the long-term debt ~~recognized in conjunction with the Technicolor Patent Acquisition.~~balance accordingly.

2024 Senior Convertible Notes, and Related Note Hedge and Warrant Transactions

On June 3, 2019 we issued $400.0 million in aggregate principal amount of 2.00% Senior Convertible Notes due 2024 (the "2024 Notes"). The net proceeds from the issuance of the 2024 Notes, after deducting the initial purchasers' transaction fees and offering expenses, were approximately $391.6 million. The 2024 Notes (i) bear interest at a rate of 2.00% per year, payable in cash on June 1 and December 1 of each year, commencing on December 1, 2019, and (ii) mature on June 1, 2024, unless earlier converted or repurchased. The effective interest rate of the 2024 Notes is 2.02%.

The 2024 Notes are convertible into cash, shares of our common stock or a combination thereof, at our election, at an initial conversion rate of 12.3018 shares of our common stock per $1,000 principal amount of 2024 Notes (which is equivalent to an initial conversion price of approximately $81.29 per share), as adjusted pursuant to the terms of the indenture governing the 2024 Notes (the "Indenture"). The conversion rate of the 2024 Notes, and thus the conversion price, may be adjusted in certain circumstances, including in connection with a conversion of the 2024 Notes made following certain fundamental changes and under other circumstances set forth in the Indenture. ~~It is our current intent and policy~~As of December 31, 2020, we made the irrevocable election to settle all conversions of the 2024 Notes through combination settlements of cash and shares of our common stock, with a specified dollar amount of $1,000 per $1,000 principal amount of 2024 Notes and any remaining amounts in shares of our common stock.

The 2024 Notes are senior unsecured obligations of the Company and rank equally in right of payment with any of our current and any future senior unsecured indebtedness. The 2024 Notes are effectively subordinated to all of our future secured indebtedness to the extent of the value of the related collateral, and the 2024 Notes are structurally subordinated to indebtedness and other liabilities, including trade payables, of our subsidiaries.

Table of Contents

On May 29 and May 31, 2019, in connection with the offering of the 2024 Notes, we entered into convertible note hedge transactions (collectively, the ~~“2024~~"2024 Note Hedge ~~Transactions”~~Transactions") that cover, subject to customary anti-dilution adjustments, approximately 4.9 million shares of common stock, in the aggregate, at a strike price that initially corresponds to the initial conversion price of the 2024 Notes, subject to adjustment, and are exercisable upon any conversion of the 2024 Notes. On May 29 and May 31, 2019, we also entered into privately negotiated warrant transactions (collectively, the ~~“2024~~"2024 Warrant ~~Transactions”~~Transactions" and, together with the 2024 Note Hedge Transactions, the ~~“2024~~"2024 Call Spread ~~Transactions”~~Transactions"), whereby we sold warrants to acquire, subject to customary anti-dilution adjustments, approximately 4.9 million shares of common stock at an initial strike price of approximately $109.43 per share, subject to adjustment.

~~Refer to~~There have been no material changes regarding the 2024 Notes and 2024 Call Spread Transactions from the disclosures included in Note 10, ~~"Obligations"~~"Obligations" within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of the ~~2019~~2020 Form ~~10-K for further information regarding the 2024 Notes and 2024 Call Spread Transactions, including the accounting treatment of these transactions.~~

10-K.

2020 Senior Convertible Notes ~~and Related Note Hedge and Warrant Transactions~~

On March 11, 2015, we issued $316.0 million in aggregate principal amount of 1.50% Senior Convertible Notes due 2020 (the "2020 Notes"). The 2020 Notes bore interest at a rate of 1.50% per year ~~payable in cash on March 1~~ and September 1 of each year, which commenced September 1, 2015, and matured on March 1, 2020. In connection with the initial offering of the 2020 Notes, on March 5 and March 9, 2015, we entered into convertible note hedge transactions (the “2020 Note Hedge Transactions”) that initially covered approximately 4.4 million shares of common stock at a strike price that initially corresponded to the initial conversion price of the 2020 Notes and are exercisable upon any conversion of the 2020 Notes. On March 5 and March 9, 2015, we also entered into warrant transactions (collectively, the "2020 Warrant Transactions" and, together with the 2020 Note Hedge Transactions, the "2020 Call Spread Transactions") to initially acquire, subject to customary anti-dilution adjustments, approximately 4.4 million shares of common stock. The warrants became exercisable and expire in daily tranches over a three and a half month period which started in June 2020.

On May 29, 2019, in connection with the partial repurchase of $221.1 million in aggregate principal amount of the 2020 Notes, the Company entered into partial unwind agreements that, among other things, reduced the number of warrants exercisable under the 2020 Warrant Transactions. As a result of the partial unwind transactions, approximately 1.3 million shares of common stock in the aggregate were covered under each of the 2020 Note Hedge Transactions and the 2020 Warrant Transactions as of June 30, 2020. As of June 30, 2020, the warrants under the 2020 Warrant Transactions had a strike price of approximately $85.81 per share, as adjusted. Refer to Note 10, "Obligations" within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of the 2019 Form 10-K for further information regarding the 2020 Notes and 2020 Call Spread Transactions.

~~As described above, the 2020 Notes~~ matured on March 1, 2020. On the maturity date, the outstanding balance of $94.9 million under the 2020 Notes was repaid in full.

The following table reflects the carrying value of ~~the 2024 Notes and 2020 Notes~~our Long-Term Debt as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 (in thousands):


	March 31, 2021		December 31, 2020
Principal	$	400,000	$	400,000
Less:
Unamortized interest discount(a)	0		(51,567)
Deferred financing costs(a)	(5,596)		(4,612)
Net carrying amount of the 2024 Notes	$	394,404	$	343,821

June 30, 2020 December 31, 2019
2024 Notes 2024 Notes 2020 Notes Total
Principal $ 400,000
$ 400,000
$ 94,909
$ 494,909
Less:

Unamortized interest discount (58,246 ) (64,724 ) (669 ) $ (65,393 )
Deferred financing costs (5,210 ) (5,789 ) (70 ) $ (5,859 )
Net carrying amount of 2024 and 2020 Notes $ 336,544
$ 329,487
$ 94,170
$ 423,657

(a)Due to the adoption of ASU 2020-06 on January 1, 2021, the unamortized interest discount was reclassified back to the carrying value of the 2024 Notes. Refer to Note 1, "Basis of Presentation", for further information regarding this adoption.

The following table presents the amount of interest cost recognized, which is included within "Interest Expense" in our condensed consolidated statements of income, for the three months ended March 31, 2021 and ~~six months~~ ~~ended~~ ~~June 30,~~March 31, 2020 ~~and~~ ~~June 30, 2019~~ relating to the contractual interest coupon, accretion of the debt discount, and the amortization of deferred financing costs of the 2024 Notes and 2020 Notes (in thousands):


	Three months ended March 31,
	2021		2020
	2024 Notes		2024 Notes		2020 Notes		Total
Contractual coupon interest	$	2,000	$	2,000	$	237	$	2,237
Accretion of debt discount(a)	0		3,222		669		3,891
Amortization of deferred financing costs	398		288		70		358
Total	$	2,398	$	5,510	$	976	$	6,486

Three months ended June 30,
2020 2019
2024 Notes 2024 Notes 2020 Notes Total
Contractual coupon interest $ 2,000
$ 600
$ 927
$ 1,527
Accretion of debt discount 3,255
1,101
2,520
3,621
Amortization of deferred financing costs 291
98
266
364
Total $ 5,546
$ 1,799
$ 3,713
$ 5,512

(a)Due to the adoption of ASU 2020-06, there is no longer accretion of the debt discount starting January 1, 2021. Refer to Note 1, "Basis of Presentation", for further information regarding this adoption.

Technicolor Contingent Consideration

As part of the Technicolor Patent Acquisition, we entered into a revenue-sharing arrangement with Technicolor that created a contingent consideration liability. Under the revenue-sharing arrangement, Technicolor receives 42.5% of future cash receipts from new licensing efforts from the Madison Arrangement only, subject to certain conditions and hurdles. As of March 31, 2021, the contingent consideration liability from the revenue-sharing arrangement was deemed not probable and estimable and is therefore not reflected within the consolidated financial statements.

Six months ended June 30,
2020 2019
2024 Notes 2020 Notes Total 2024 Notes 2020 Notes Total
Contractual coupon interest $ 4,000
$ 237
$ 4,237
$ 600
$ 2,112
$ 2,712
Accretion of debt discount 6,477
669
7,146
1,101
5,735
6,836
Amortization of deferred financing costs 579
70
649
98
613
711
Total $ 11,056
$ 976
$ 12,032
$ 1,799
$ 8,460
$ 10,259

Table of Contents

9.8. VARIABLE INTEREST ENTITIES

As further discussed below, we are the primary beneficiary of 3 variable interest entities. As of ~~June 30,~~March 31, 2021, the combined book values of the assets and liabilities associated with these variable interest entities included in our condensed consolidated balance sheet were $56.4 million and $6.1 million, respectively. Assets included $18.9 million of cash and cash equivalents, $2.4 million of accounts receivable and prepaid assets, and $35.1 million of patents, net. As of December 31, 2020, the combined book values of the assets and liabilities associated with these variable interest entities included in our condensed consolidated balance sheet were ~~$62.7~~$62.0 million and ~~$5.3~~$5.8 million, respectively. Assets included ~~$22.3~~$24.5 million of cash and cash equivalents, $2.3 million of accounts receivable and prepaid assets, and ~~$38.1~~$35.2 million of patents, net. As of December 31, 2019, the combined book values of the assets and liabilities associated with these variable interest entities included in our condensed consolidated balance sheet were $60.6 million and $5.4 million, respectively. Assets included $18.5 million of cash and cash equivalents, $1.7 million of accounts receivable, $39.3 million of patents, net, and $1.3 million of other non-current assets.

Chordant

On January 31, 2019, we launched the Company’s Chordant™ business as a standalone company. The spinout of the unit, which now includes an affiliate of Sony as an investor along with the Company, gives Chordant added independence and flexibility in driving into its core operator and smart city markets. Chordant is a variable interest entity and we have determined that we are the primary beneficiary for accounting purposes and consolidate Chordant. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, we have allocated approximately ~~$0.2~~$0.1 million and ~~$0.5~~$0.3 million, respectively, of Chordant's net loss to noncontrolling interests held by other ~~parties and for the three and six months ended June 30, 2019, we allocated approximately $0.4 million and $0.7 million, respectively.~~parties.

Convida Wireless

Convida Wireless was launched in 2013 and most recently renewed in 2018 to combine Sony's consumer electronics expertise with our pioneering IoT expertise to drive IoT communications and connectivity. Based on the terms of the agreement, the parties will contribute funding and resources for additional research and platform development, which we will perform. SCP IP Investment LLC, an affiliate of Stephens Inc., is a minority investor in Convida Wireless.

Convida Wireless is a variable interest entity. Based on our provision of research and platform development services to Convida Wireless, we have determined that we remain the primary beneficiary for accounting purposes and will continue to consolidate Convida Wireless. For each of the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, we have allocated approximately $1.5 million ~~and $2.9 million, respectively,~~ of Convida Wireless's net loss to noncontrolling interests held by other ~~parties and for the three and six months ended June 30, 2019, we allocated approximately $1.0 million and $2.1 million, respectively.~~parties.

Signal Trust for Wireless Innovation

During 2013, we announced the establishment of the Signal Trust for Wireless Innovation (the ~~“Signal Trust”~~“Trust”), the goal of which iswas to monetize a ~~large InterDigital~~ patent portfolio primarily related to 3G cellular infrastructure. In response to a request from Signal Trust, in first quarter 2021 we provided our consent, as major beneficiary, to dissolve Signal Trust.

The ~~more than 500 patents and patent applications transferred from InterDigital to the Signal~~ Trust focus primarily on 3G and LTE technologies, and were developed by InterDigital's engineers and researchers over more than a decade, with a number of the innovations contributing to the worldwide standards process.

InterDigital is the primary beneficiary of the Signal Trust. The distributions from the Signal Trust will support continued research related to cellular wireless technologies. A small portion of the proceeds from the Signal Trust will be used to fund, through the Signal Foundationhas been accounted for ~~Wireless Innovation, scholarly analysis of intellectual property rights and the technological, commercial and creative innovations they facilitate.~~

~~The Signal Trust is~~as a variable interest entity. Based on the terms of the trust agreement, we ~~have~~ determined that we are the primary beneficiary for accounting purposes and ~~must~~have included the Trust in our consolidated financial statements. Pending the dissolution of the Trust, we will continue to consolidate the ~~Signal Trust.~~Trust in our consolidated financial statements.

~~10.~~9. OTHER INCOME, ~~(EXPENSE),~~ NET

The amounts included in "Other income, net" in the condensed consolidated statements of income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ were as follows (in thousands):


	Three months ended March 31,
	2021		2020
Interest and investment income	$	553	$	2,877


Other	171		3,146
Other income, net	$	724	$	6,023

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Interest and investment income $ 1,342

$ 2,590
$ 4,219

$ 6,486
Gain on asset acquisition and sale of business —

14,175
—

14,175
Loss on extinguishment of long-term debt —

(5,488 ) —

(5,488 )
Other 2,447

1,077
5,593

796
Other income, net $ 3,789
$ 12,354
$ 9,812
$ 15,969
The decrease in Other income, net between periods was primarily driven by a net $4.4 million gain in the three months ended March 31, 2020, primarily resulting from observable price changes of one of our long-term strategic investments, partially offset by a $1.9 million gain in the three months ended March 31, 2021 on a contract termination. Additionally, Interest and investment income decreased $2.3 million in the three months ended March 31, 2021 due to lower rates of return on our short-term investments.

Table of Contents

10. PREPAID AND OTHER CURRENT ASSETS

The amounts included in "Prepaid and other current assets" in the consolidated balance sheet as of March 31, 2021 and December 31, 2020 were as follows (in thousands):


	March 31, 2021		December 31, 2020
Tax receivables	$	70,334	$	69,592
Prepaid assets	12,045		10,899
Unsettled repurchase of common stock	1,994		0
Operating lease receivable	0		817
Other current assets	3,290		2,916
Total Prepaid and other current assets	$	87,663	$	84,224

Table of Contents

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

The following discussion should be read in conjunction with the unaudited, condensed consolidated financial statements and notes thereto contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, in addition to our ~~2019~~2020 Form 10-K, other reports filed with the SEC and the Statement Pursuant to the Private Securities Litigation Reform Act of 1995 — Forward-Looking Statements below.

Throughout the following discussion and elsewhere in this Form 10-Q, we refer to “recurring revenues” and “non-recurring revenues.” Recurring revenues are comprised of “current patent royalties” and “current technology solutions revenue.” Non-recurring revenues are comprised of “non-current patent royalties,” which primarily include past patent royalties and royalties from static agreements, as well as “patent sales.”

~~Huawei Agreement~~Throughout the following discussion and elsewhere in this Form 10-Q, we refer to the “Technicolor Acquisitions” which is the combined Technicolor Patent Acquisition, which closed in July 2018 and was integrated throughout 2019, and the R&I Acquisition, which closed in May 2019. Refer to Note 5, "Business Combinations and Other Transactions," within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of the 2020 Form 10-K for further information on the Technicolor Acquisitions.

Recurring Revenue

~~During~~First quarter 2021 recurring revenue was $78.6 million, compared to recurring revenue of $75.5 million in first quarter 2020, a 4% year-over-year increase. The increase was primarily driven by five new patent license agreements signed over the last twelve months, including Huawei signed in second quarter 2020, ~~we signed a multi-year, worldwide, non-exclusive, fixed-fee~~and was partially offset by the reduction from the expired LG patent license ~~agreement with Huawei Investment & Holding Co., Ltd. (“Huawei”), one~~agreement. In April 2021, LG confirmed that it is exiting the smartphone market. Refer to "Results of the world’s leaders in the information and communications technology industry (the “Huawei PLA”). The Huawei PLA covers the sale of certain of Huawei’s 3G, 4G and 5G terminal unit products, including the use of Wi-Fi and HEVC in those products, and extends through December 31, 2023. InterDigital and Huawei have also agreedOperations --First Quarter 2021 Compared to ~~dismiss all pending litigation between the companies as more fully discussed in Note 5, "Litigation and Legal Proceedings~~First Quarter 2020" for further discussion of ~~this Quarterly Report on Form 10-Q.~~our 2021 revenue.

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization categorized the novel coronavirus ("COVID-19") as a pandemic, and it continues to significantly impact the United States and the rest of the world. Though the COVID-19 pandemic and the measures taken to reduce its transmission, such as the imposition of social distancing and orders to work-from-home and shelter-in-place, have altered our business environment and overall working conditions, we continue to believe that our strategic strengths, including talent, our strong balance sheet, stable revenue base, and the strength of our patent portfolio, will allow us to weather a rapidly changing marketplace.

While the environment in which we conduct our business and our overall working conditions have changed as a result of the COVID-19 pandemic, we experienced a limited impact on our operations and financial position during ~~first half 2020.~~three months ended March 31, 2021. As discussed in our ~~2019~~2020 Form 10-K, fixed-fee royalties accounted for nearly ~~90%~~89% of our revenues in ~~2019. These fixed-fee revenues are not directly affected by our related licensees’ success in the market or the general economic climate.~~2020. To that end, in ~~first half 2020,~~three months ended March 31, 2021, we did not experience a significant impact on our revenue due to COVID-19. Meanwhile, we have taken steps to protect the health and safety of our employees and their families, with our entire worldwide workforce continuing to work ~~remotely.~~remotely with limited exceptions. We are currently anticipating a return to in-person work in September 2021, with certain locations potentially opening earlier on a limited and voluntary basis. Despite ~~these~~the remote working conditions, our business activities have continued to operate with minimal interruption, and we expect them to continue to operate efficiently. ~~All~~Nearly all work-related travel ~~has been~~continues to remain suspended, and we have conducted our licensing negotiations, investor presentations and participation in standards organizations and industry events virtually. Between March 12, 2020, when we began to work almost entirely remotely, and March 31, 2021, we successfully concluded six new patent license agreements that we estimate will result in aggregate revenues exceeding $180.0 million over the two- to four- year terms of those agreements. Our financial position remains strong, we believe we have sufficient access to capital if needed, and we remain committed to our efforts around cost discipline.

Despite our success thus far in navigating the challenging environment that COVID-19 has presented, as more fully discussed in Part ~~II,~~I, Item 1A "Risk Factors" in ~~this Quarterly Report on~~our 2020 Form ~~10-Q,~~10-K, the extent to which COVID-19 will adversely impact our business, financial condition and results of operations is dependent upon numerous factors resulting therefrom, many of which are highly uncertain, rapidly changing and uncontrollable. However, with a strong balance sheet and the vast majority of our current revenue coming from fixed price agreements, we believe that we are well-positioned to continue to overcome and adapt to the challenges that we have been presented with thus far.

~~Recurring Revenue~~

Second quarter 2020 recurring revenue was $85.2 million compared to $74.4 million in second quarter 2019, with the increase primarily driven by new patent license agreements signed in fourth quarter 2019 and first half 2020. Refer to "~~Results~~Table of ~~Operations --~~Contents~~Second Quarter2020 Compared to Second Quarter2019" for further discussion of our 2020 revenue.~~

Comparability of Financial Results

When comparing ~~second~~first quarter ~~2020~~2021 financial results against other periods, the following items should be taken into consideration:

~~our second~~•Our first quarter ~~2020~~2021 revenue includes ~~$19.2~~$3.8 million of non-recurring revenue ~~which~~ primarily ~~relates~~related to a consumer electronics patent licensing agreement signed in first quarter 2021.

•Interest expense decreased in first quarter 2021 $3.6 million primarily due to a reduction in non-cash interest expense resulting from the accounting adoption of ASU 2020-06, related to the ~~Huawei PLA discussed above;~~accounting for convertible debts.

~~our second~~•In first quarter ~~2020 operating expenses include~~2021 Other income, net includes a ~~$2.9~~$1.9 million ~~charge associated with performance compensation; and~~gain on a contract termination.

the Technicolor Patent Acquisition and the R&I Acquisition, which closed on July 30, 2018 and May 31, 2019, respectively, contributed $4.2 million to our second quarter 2020 revenue and $17.2 million to our second quarter 2020 operating expenses. The $17.2 million of operating expenses is comprised of $16.6 million of recurring costs, of which $4.2 million relates to patent amortization, and the remaining $0.6 million relates to transaction-related and integration costs.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our significant accounting policies are described in Note 2, "Summary of Significant Accounting Policies and New Accounting Guidance", in the Notes to Consolidated Financial Statements included in our ~~2019~~2020 Form ~~10-K~~.10-K. A discussion of our critical accounting policies, and the estimates related to them, are included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our ~~2019~~2020 Form 10-K. There have been no material changes to our existing critical accounting policies from the disclosures included in our ~~2019~~2020 Form 10-K. In addition, we have analyzed the impact of COVID-19 on our financial statements as of ~~June 30, 2020,~~March 31, 2021, and we have determined that the changes to our significant judgments and estimates did not have a material impact on our financial statements. Refer to Note 1, “Basis of Presentation,” in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for updates related to new accounting pronouncements and changes in accounting policies.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash, cash equivalents and short-term investments, as well as cash generated from operations. We believe we have the ability to obtain additional liquidity through debt and equity financings. Based on our past performance and current expectations, we believe our available sources of funds, including cash, cash equivalents and short-term investments and cash generated from our operations, will be sufficient to finance our operations, capital requirements, debt obligations, existing stock repurchase program and dividend program for the next twelve months.

Cash, cash equivalents, restricted cash and short-term investments

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~,2020, we had the following amounts of cash, cash equivalents, restricted cash and short-term investments (in thousands):


	June 30, 2020		December 31, 2019		Increase / (Decrease)				March 31, 2021		December 31, 2020		Increase / (Decrease)
Cash and cash equivalents	$	670,292	$	745,491	$	(75,199	)	Cash and cash equivalents	$	396,156	$	473,474	$	(77,318)
Restricted cash included within prepaid and other current assets	5,906		10,526		(4,620		)	Restricted cash included within prepaid and other current assets	3,688		3,108		580
Restricted cash included within other non-current assets	1,081		1,081		—			Restricted cash included within other non-current assets	1,081		1,081		—
Short-term investments	168,953		179,204		(10,251		)	Short-term investments	488,559		453,173		35,386
Total cash, cash equivalents, restricted cash and short-term investments	$	846,232	$	936,302	$	(90,070	)	Total cash, cash equivalents, restricted cash and short-term investments	$	889,484	$	930,836	$	(41,352)

The net decrease in cash, cash equivalents, restricted cash and short-term investments was attributable to cash used in financing activities of ~~$116.5~~$19.9 million, primarily related to ~~the repayment~~dividend payments and repurchases of ~~our 2020 Notes and dividend payments. Cash~~common stock, cash used in investing activities of ~~$17.6~~$11.1 million, excluding sales and purchases of short-term investments, ~~primarily related to capital investments for patents~~ and ~~fixed assets, partially offset by~~ cash ~~provided by~~used in operating activities of ~~$42.9~~$9.8 million. Refer to the sections below for further discussion of these items.

Cash flows from ~~operations~~operating activities

We ~~generated (used)~~used the following cash flows in our operating activities in first ~~half~~quarter 2021 and 2020 ~~and~~ ~~2019~~ (in thousands):


	Three months ended March 31,
	2021		2020		Increase / (Decrease)
Net cash used in operating activities	$	(9,842)	$	(26,885)	$	17,043

Six months ended June 30,
2020
2019
Increase /
(Decrease)
Net cash provided by (used in) operating activities $ 42,870
$ (53,523 ) $ 96,393

Table of Contents

Our cash flows ~~provided by~~used in operating activities are principally derived from cash receipts from patent license and technology solutions agreements, offset by cash operating expenses and income tax payments. The ~~$96.4~~$17.0 million change in net cash ~~provided by~~used in operating activities was primarily driven by ~~timing of payments~~higher cash receipts primarily related to ~~patent license agreements, including~~ new patent license ~~agreement~~agreements signed over the last twelve ~~months.~~months, as well as the timing of cash receipts related to existing patent license agreements. The table below sets forth the significant items comprising our cash flows ~~provided by (used in)~~used in operating activities during the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (in thousands).:


	Three months ended March 31,
	2021		2020		Increase / (Decrease)
Cash Receipts:
Patent royalties	$	56,107	$	33,464	$	22,643
Technology solutions	1,881		973		908
Total cash receipts	57,988		34,437		23,551

Cash Outflows:
Cash operating expenses a	48,360		49,264		(904)
Income taxes paid b	4,328		2,228		2,100
Total cash outflows	52,688		51,492		1,196

Other working capital adjustments	(15,142)		(9,830)		(5,312)

Cash flows used in operating activities	$	(9,842)	$	(26,885)	$	17,043

Six months ended June 30,
2020 2019 Increase / (Decrease)
Cash Receipts:
Patent royalties $ 155,330
$ 59,769
$ 95,561
Technology solutions 3,403
1,431
1,972
Total cash receipts 158,733
61,200
97,533

Cash Outflows:
Cash operating expenses ^a
97,159
92,911
4,248
Income taxes paid ^b
13,788
9,770
4,018
Total cash outflows 110,947
102,681
8,266

Other working capital adjustments (4,916 ) (12,042 ) 7,126

Cash flows provided by (used in) operating activities $ 42,870
$ (53,523 ) $ 96,393

(a) Cash operating expenses include operating expenses less depreciation of fixed assets, amortization of patents, non-cash compensation and non-cash changes in fair value.

(b) Income taxes paid include foreign withholding taxes.

Cash flows from investing and financing activities

Net cash used in investing activities in first ~~half 2020~~quarter 2021 was ~~$6.2~~$47.0 million, a ~~($160.7 million)~~$47.5 million change from ~~$154.5~~$94.5 million of net cash ~~provided by~~used in investing activities in first ~~half 2019.~~quarter 2020. During first ~~half 2020,~~quarter 2021, we ~~sold $11.4~~purchased $35.9 million of short-term marketable securities, net of ~~purchases.~~sales, and invested $1.1 million in a new strategic investment. During first ~~half 2019,~~quarter 2020, we ~~sold $175.2~~purchased $86.7 million of short-term marketable securities, net of ~~purchases.~~sales.

Net cash used in financing activities for first ~~half 2020~~quarter 2021 was ~~$116.5~~$19.9 million, ~~an increase~~a change of ~~$69.9~~$86.1 million from net cash used in financing activities of ~~$46.6~~$106.0 million for first ~~half 2019.~~quarter 2020. This change was primarily attributable to a net proceeds of $141.3 million from the debt refinancing (net of related expenses) in second quarter 2019 and $10.3 million proceeds from noncontrolling interests received in first half 2019. These first half 2019 activities were partially offset by a reduction of $170.9 million in share repurchases, as well as $94.9 million payment on long-term debt related to the repayment of our 2020 ~~Notes.~~

Notes during the first quarter 2020 offset by $5.4 million of additional repurchases of common stock and a $1.1 million non-controlling interest distribution in first quarter 2021.

Other

Our combined short-term and long-term deferred revenue balance as of ~~June 30, 2020~~March 31, 2021 was approximately ~~$280.9~~$304.6 million, a net ~~increase~~decrease of ~~$10.6~~$23.4 million from December 31, ~~2019.~~2020. This ~~increase~~decrease in deferred revenue was primarily attributable to timing of cash receipts from our dynamic fixed-fee royalty agreements ~~including~~and amortization of deferred revenue recognized in the ~~second quarter 2020 patent license agreement with Huawei.~~period.

Based on current license agreements, we expect the amortization of dynamic fixed-fee royalty payments to reduce the ~~June 30, 2020~~March 31, 2021 deferred revenue balance of ~~$280.9~~$304.6 million by ~~$141.5~~$192.4 million over the next twelve months.

Convertible Notes

See Note 8,7, “~~Long-Term Debt~~Obligations” to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for definitions of capitalized terms below.

Table of Contents

Our 2024 Notes, which for purposes of this discussion are also referred to as the "Convertible Notes", are included in the dilutive earnings per share calculation using the ~~treasury stock method.~~if-converted method, as required by the adoption of ASU 2020-06. Under the ~~treasury~~if-converted method, we must assume that conversion of convertible securities occurs at the beginning of the reporting period. As of December 31, 2020, we made the irrevocable election to settle all conversions of the 2024 Notes through combination settlements of cash and shares of our common stock, ~~method,~~with a specified dollar amount of $1,000 per $1,000 principal amount of 2024 Notes and any remaining amounts in shares of common stock. As the principal amount must be paid in cash and only the conversion spread is settled in shares, we only include the net number of incremental shares that would be issued upon conversion. We must calculate the number of shares of our common stock issuable under the terms of the Convertible Notes based on the average market price of our common stock during the applicable reporting period and include that number in the total diluted shares figure for the period.

At the time we issued the Convertible Notes, we entered into the 2024 Call Spread Transactions that together were designed to have the economic effect of reducing the net number of shares that will be issued in the event of conversion of the Convertible Notes by, in effect, increasing the conversion price of the Convertible Notes from our economic standpoint. However, under GAAP, since the impact of the 2024 Note Hedge Transactions is anti-dilutive, we exclude from the calculation of fully diluted shares the number of shares of our common stock that we would receive from the counterparties to these agreements upon settlement.

During periods in which the average market price of our common stock is above the applicable conversion price of the Convertible Notes ($81.29 per share for the 2024 Notes as of ~~June 30, 2020)~~March 31, 2021) or above the strike price of the warrants ($109.43 per share for the 2024 Warrant Transactions as of ~~June 30, 2020)~~March 31, 2021), the impact of conversion or exercise, as applicable, would be dilutive and such dilutive effect is reflected in diluted earnings per share. As a result, in periods where the average market price of our common stock is above the conversion price or strike price, as applicable, under the ~~treasury stock~~if-converted method, we calculate the number of shares issuable under the terms of the Convertible Notes and the warrants based on the average market price of the stock during the period, and ~~includes~~include that number in the total diluted shares outstanding for the period.

Under the ~~treasury stock~~if-converted method, changes in the price per share of our common stock can have a significant impact on the number of shares that we must include in the fully diluted earnings per share calculation. As described in Note 8,7, "~~Long-Term Debt,~~Obligations," ~~it is our current intent and policy~~we made the irrevocable election to settle all conversions of the ~~Convertible~~2024 Notes through a combination ~~settlement~~settlements of cash and shares of our common stock, with a specified dollar amount of $1,000 per $1,000 principal amount of ~~the Convertible~~2024 Notes and any remaining amounts in shares of our common stock ("net share settlement"). Assuming net share settlement upon conversion, the following table illustrates how, based on the $400.0 million aggregate principal amount of the 2024 Notes outstanding as of ~~June 30, 2020,~~March 31, 2021, and the approximately 4.9 million warrants related to the 2024 Notes outstanding as of the same date, changes in our stock price would affect (i) the number of shares issuable upon conversion of the Convertible Notes, (ii) the number of shares issuable upon exercise of the warrants subject to the 2024 Warrant Transactions, (iii) the number of additional shares deemed outstanding with respect to the Convertible Notes, after applying the ~~treasury stock~~if-converted method, for purposes of calculating diluted earnings per share ("Total ~~Treasury Stock~~If-Converted Method Incremental Shares"), (iv) the number of shares of our common stock deliverable to us upon settlement of the 2024 Note Hedge Transactions and (v) the number of shares issuable upon concurrent conversion of the Convertible Notes, exercise of the warrants subject to the 2024 Warrant Transactions, and settlement of the 2024 Note Hedge Transactions:

Table of Contents


2024 Notes	2024 Notes					2024 Notes
Market Price Per Share	Shares Issuable Upon Conversion of the 2024 Notes	Shares Issuable Upon Exercise of the 2024 Warrant Transactions	Total Treasury Stock Method Incremental Shares	Shares Deliverable to InterDigital upon Settlement of the 2024 Note Hedge Transactions	Incremental Shares Issuable ^(a)	Market Price Per Share	Shares Issuable Upon Conversion of the 2024 Notes	Shares Issuable Upon Exercise of the 2024 Warrant Transactions	Total If-Converted Method Incremental Shares	Shares Deliverable to InterDigital upon Settlement of the 2024 Note Hedge Transactions	Incremental Shares Issuable (a)
	(Shares in thousands)						(Shares in thousands)
$85	215	—	215	(215)	—	$85	215	—	215	(215)	—
$90	476	—	476	(476)	—	$90	476	—	476	(476)	—
$95	710	—	710	(710)	—	$95	710	—	710	(710)	—
$100	921	—	921	(921)	—	$100	921	—	921	(921)	—
$105	1,111	—	1,111	(1,111)	—	$105	1,111	—	1,111	(1,111)	—
$110	1,284	25	1,309	(1,284)	25	$110	1,284	25	1,309	(1,284)	25
$115	1,442	238	1,680	(1,442)	238	$115	1,442	238	1,680	(1,442)	238
$120	1,587	433	2,020	(1,587)	433	$120	1,587	433	2,020	(1,587)	433
$125	1,721	613	2,334	(1,721)	613	$125	1,721	613	2,334	(1,721)	613
$130	1,844	779	2,623	(1,844)	779	$130	1,844	779	2,623	(1,844)	779

RESULTS OF OPERATIONS

~~Second~~First Quarter 2021 Compared to First Quarter 2020 ~~Compared to Second Quarter 2019~~

The following table compares ~~second~~first quarter ~~2020~~2021 revenues to ~~second~~first quarter ~~2019~~2020 revenues (in thousands):


	Three months ended March 31,
	2021		2020		Total Increase/(Decrease)
Variable patent royalty revenue	$	7,096	$	5,946	$	1,150	19	%
Fixed-fee royalty revenue	69,296		66,347		2,949		4	%
Current patent royalties a	76,392		72,293		4,099		6	%
Non-current patent royalties b	3,781		705		3,076		436	%
Total patent royalties	80,173		72,998		7,175		10	%
Current technology solutions revenue a	2,190		3,212		(1,022)		(32)	%

Total revenue	$	82,363	$	76,210	$	6,153	8	%

a. Recurring revenues are comprised of current patent royalties, inclusive of Dynamic Fixed-Fee Agreement royalties, and current technology solutions revenue.

Three months ended June 30,
2020 2019 Total Increase/(Decrease)
Variable patent royalty revenue $ 4,597
$ 8,594
$ (3,997 ) (47 )%
Fixed-fee royalty revenue 77,338
63,736
13,602
21 %
Current patent royalties ^a
81,935
72,330
9,605
13 %
Non-current patent royalties ^b
19,249
1,237
18,012
1,456 %
Total patent royalties 101,184
73,567
27,617
38 %
Current technology solutions revenue ^a
3,314
2,042
1,272
62 %
Patent sales ^b
—
—
—
— %
Total revenue $ 104,498
$ 75,609
$ 28,889
38 %
b. Non-recurring revenues are comprised of non-current patent royalties, which primarily include past patent royalties and royalties from static agreements, as well as patent sales.

The ~~$28.9~~$6.2 million increase in total revenue was primarily ~~driven by the second quarter 2020 dynamic fixed-fee royalty agreement signed with Huawei, which primarily drove~~due to a ~~$13.6~~$3.1 million increase in ~~fixed-fee royalty~~recurring revenue and a ~~$18.0~~$3.1 million increase in non-current patent royalties. Additionally, a new fixed-fee agreement signed in fourth quarter 2019 contributed to the increase in fixed-fee royalty revenue. These and other increases in revenue were partially offset by a decrease in variable patent royalty revenue of $4.0 million which was primarily attributable to forecasted volume decreases related to the COVID-19 pandemic and the transition of certain patent agreements from variable to fixed fee, among other drivers.

Inroyalties both second quarter 2020 and second quarter 2019, 75% of our total revenue was attributable to companies that individually accounted for 10% or more of our total revenue. In second quarter 2020 and second quarter 2019, the following companies accounted for 10% or more of our total revenue:

Three months ended June 30,
2020 2019
Huawei 29% —%
Apple 27% 37%
Samsung 19% 26%
LG <10% 12%

~~Operating Expenses~~

~~The following table summarizes the changes in operating expenses between~~ ~~second quarter 2020~~ ~~and~~ ~~second quarter 2019~~ ~~by category (in thousands):~~

Three months ended June 30,
2020 2019 Increase/(Decrease)
Patent administration and licensing $ 38,695
$ 37,353
$ 1,342
4 %
Development 22,092
17,027
5,065
30 %
Selling, general and administrative 11,794
12,314
(520 ) (4 )%
Total operating expenses $ 72,581
$ 66,694
$ 5,887
9 %

Operating expenses increased to $72.6 million in second quarter 2020 from $66.7 million in second quarter 2019. The $5.9 million increase in total operating expenses was primarily due to changes in the following items (in thousands):

Increase/(Decrease)
Recurring operations of the Technicolor Acquisitions $ 5,129
One-time costs related to the Technicolor Acquisitions (1,189 )
Performance-based incentive compensation 3,015
Intellectual property enforcement and non-patent litigation 2,428
Personnel-related costs (3,197 )
Other (299 )
Total increase in operating expenses $ 5,887

~~The $5.9 million increase in operating expenses was~~ primarily driven by five new patent license agreements signed over the Technicolor Patent Acquisition, which closed in July 2018 and was integrated throughout 2019, and the R&I Acquisition, which closed May 2019 (together, the "Technicolor Acquisitions"), and contributed $17.2 million to our second quarter 2020 operating expenses. The $17.2 million of operating expenses is comprised of $16.6 million of recurring costs, of which $4.2 million relates to patent amortization, and the remaining $0.6 million relates to transaction and integration costs. This compares to $13.2 million of operating expenses in second quarter 2019, which included only one month of costs following the R&I Acquisition. Second quarter 2019 was comprised of $11.5 million of recurring costs, and the remaining $1.7 million related to transaction and integration costs.

The $2.4 million increase in intellectual property enforcement costs was primarily driven by the on-going Lenovo litigations, as well as the Xiaomi litigation that we initiated in July 2020. Performance-based incentive compensation increased $3.0 million primarily due to increased performance accruals driven by thelast twelve months, including Huawei ~~deal~~ signed in second quarter 2020. ~~Lastly, corporate initiatives to optimize our cost structure drove a $3.2 million decrease in personnel-related costs.~~

~~Patent Administration and Licensing Expense:~~ The increase in patent administration and licensing expense primarily resulted from the above-noted increases related to intellectual property enforcement costs and performance-based incentive compensation. These increases were partially offset by ~~lower one-time costs related to Technicolor Acquisitions, as well lower personnel-related costs among other decreases.~~

~~Development Expense:~~ ~~The increase in development expense primarily related to~~ the ~~above-noted increases resulting~~reduction from the ~~R&I Acquisition, as well as performance-based incentive compensation. These and other increases were partially offset by~~expired LG patent license agreement. In April 2021, LG confirmed that it is exiting the ~~above-noted decrease in personnel-related costs, primarily related to our second quarter 2019 sale~~smartphone market.

Table of ~~the Hillcrest product business and reductions in other non-cellular research areas.~~Contents

~~Selling, General and Administrative Expense:~~ The decrease in selling, general and administrative expense was primarily due to the above-noted lower personnel-related costs and one-time costs associated with the Technicolor acquisitions. These decreases were partially offset by the above-noted increase for performance-based compensation.

~~Non-Operating Income (Expense)~~

~~The following table compares second quarter 2020 non-operating income (expense) to second quarter 2019 non-operating income (expense) (in thousands):~~

Three months ended June 30,
2020 2019 Change
Interest expense $ (9,971 ) $ (9,907 ) $ (64 ) (1 )%
Interest and investment income 1,342
2,590
(1,248 ) (48 )%
Gain on asset acquisition —
14,175
(14,175 ) (100 )%
Loss on extinguishment of long-term debt —
(5,488 ) 5,488
(100 )%
Other income (expense), net 2,447
1,077
1,370
(127 )%
Total non-operating income (expense) $ (6,182 ) $ 2,447
$ (8,629 ) 353 %

The change in non-operating income (expense) between periods was primarily driven by the recognition of a net gain of $14.2 million related to the Technicolor R&I acquisition in second quarter 2019, partially offset by the recognition of a $5.5 million loss on extinguishment of debt recognized in connection with the settlement of a portion of our 2020 Notes in second quarter 2019.

~~Income taxes~~

In second quarter 2020, based on the statutory federal tax rate net of discrete federal and state taxes, we had an effective tax rate of 20.0%. The second quarter 2020 tax rate was impacted by losses in certain jurisdictions where the Company presently has recorded a valuation allowance against the related tax benefit. Excluding this valuation allowance, our second quarter 2020 effective tax rate would have been 12.2%. This is compared to an effective tax rate of 43.9% based on the statutory federal tax rate net of discrete federal and state taxes during second quarter 2019. Second quarter 2019 was impacted by a discrete net expense of $3.0 million primarily related to both the Technicolor R&I acquisition and the extinguishment of long-term debt. The Company believes that outcomes which are reasonably possible within the next 12 months may result in the reduction in the liability for unrecognized tax benefits of $1.8 million, excluding interest and penalties.

~~On March 27, 2020, the CARES Act was signed into law. We are currently evaluating its impact, if any, on us.~~

~~First Half 2020 Compared to First Half 2019~~

~~Revenues~~

~~The following table compares first half 2020 revenues to first half 2019 revenues (in thousands):~~

Six months ended June 30,
2020 2019 Total Increase/(Decrease)
Variable patent royalty revenue $ 10,543
$ 17,874
$ (7,331 ) (41 )%
Fixed-fee royalty revenue 143,685
126,609
17,076
13 %
Current patent royalties ^a
154,228
144,483
9,745
7 %
Non-current patent royalties ^b
19,954
(4,538 ) 24,492
(540 )%
Total patent royalties 174,182
139,945
34,237
24 %
Current technology solutions revenue ^a
6,526
4,070
2,456
60 %
Patent Sales ^b
—
225
(225 ) (100 )%
Total revenue $ 180,708
$ 144,240
$ 36,468
25 %


~~(a)~~	~~Recurring revenues are comprised of current patent royalties, inclusive of Dynamic Fixed-Fee Agreement royalties, and current technology solutions revenue.~~


~~(b)~~	~~Non-recurring revenues are comprised of non-current patent royalties, which primarily include past patent royalties and royalties from static agreements, as well as patent sales.~~

The $36.5 million increase in total revenue was primarily driven by the second quarter 2020 dynamic fixed-fee royalty agreement signed with Huawei, which primarily drove a $17.1 million increase in fixed-fee royalty revenue and a $24.5 million increase in non-current patent royalties. A new fixed-fee agreement signed in fourth quarter 2019 also contributed to the increase in fixed-fee royalty revenue. Additionally, the first half 2019 inclusion of a $5.5 million net charge recorded as contra non-recurring revenue during first quarter 2019 related to a restructured licensing arrangement with a long-term customer contributed to the increase in non-current patent royalties. The decrease in variable patent royalties was primarily due to forecasted volume decreases related to the COVID-19 pandemic and the transition of certain patent agreements from variable to fixed fee, among other drivers.

In first ~~half 2020~~quarter 2021 and first ~~half 2019, 70%~~quarter 2020, 71% and ~~79%~~73% of our total revenue, respectively, was attributable to companies that individually accounted for 10% or more of our total revenue. In first ~~half 2020~~quarter 2021 and first ~~half 2019,~~quarter 2020, the following companies accounted for 10% or more of our total revenue:


	Three months ended March 31,
	2021	2020
Apple	34%	37%
Samsung	24%	26%
Huawei	13%	—%
LG	N/A	10%

Six months ended June 30,
2020 2019
Apple 31% 39%
Samsung 22% 27%
Huawei 17% —%
LG < 10% 13%

Operating Expenses

The following table summarizes the changes in operating expenses between first ~~half 2020~~quarter 2021 and first ~~half 2019~~quarter 2020 by category (in thousands):


	Six months ended June 30,										Three months ended March 31,
	2020		2019		Increase/(Decrease)						2021		2020		Increase/(Decrease)
Patent administration and licensing	$	78,803	$	73,424	$	5,379		7	%	Patent administration and licensing	$	36,574	$	40,108	$	(3,534)	(9)	%
Development	40,910		35,522		5,388			15	%	Development	22,583		18,818		3,765		20	%
Selling, general and administrative	24,397		26,529		(2,132		)	(8	)%	Selling, general and administrative	11,217		12,603		(1,386)		(11)	%
Total operating expenses	$	144,110	$	135,475	$	8,635		6	%	Total operating expenses	$	70,374	$	71,529	$	(1,155)	(2)	%

Operating expenses ~~increased 6%~~decreased to ~~$144.1~~$70.4 million in first ~~half 2020~~quarter 2021 from ~~$135.5~~$71.5 million in first ~~half 2019.~~quarter 2020. The ~~$8.6~~$1.2 million ~~increase~~decrease in total operating expenses was primarily due to changes in the following items (in thousands):


	Increase/(Decrease)
Patent maintenance	$	(2,486)
Corporate initiatives	(1,952)
Intellectual property enforcement and non-patent litigation	1,247
Personnel-related costs, including performance-based compensation	2,253
Other	(217)
Total decrease in operating expenses	$	(1,155)

Increase/(Decrease)
Recurring operations of the Technicolor Acquisitions $ 10,720
One-time costs related to the Technicolor Acquisitions (3,527 )
Corporate Initiatives 1,952
Intellectual property enforcement and non-patent litigation 2,150
Performance-based incentive compensation 1,512
Personnel-related costs (4,747 )
Other 575
Total increase in operating expenses $ 8,635

The ~~$8.6~~$1.2 million ~~increase~~decrease in operating expenses was primarily driven by ~~the Technicolor Acquisitions, which contributed $32.6~~a $2.5 million decrease in patent maintenance costs due to ongoing efforts to effectively manage our ~~first half 2020 operating expenses. The $32.6 million of operating expenses is comprised of $31.4 million of recurring costs, of which $8.4 million relates to~~ patent ~~amortization,~~portfolio size and the remaining $1.2 million relates to transaction and integration costs during first half 2020. This compares to $25.4 million of operating expenses in first half 2019, which included only one month of costs following the R&I Acquisition. First half 2019 was comprised of $20.6 million of recurring costs, and the remaining $4.8 million related to transaction and integration costs.

~~During first half 2020 the company incurred~~ a $2.0 million ~~charge attributable~~decrease due to first quarter 2020 corporate initiatives as part of ~~its~~ ongoing efforts to optimize our cost structure, including the closing of our San Diego office. ~~The $2.2~~These decreases were partially offset by a $1.2 million increase in intellectual property enforcement costs, ~~was~~ primarily driven by the on-going Lenovo ~~litigations, as well as the Xiaomi~~ litigation ~~that we initiated in July 2020. Performance-based incentive compensation increased $1.5~~and a $2.3 million ~~primarily due to increased performance accruals driven by the Huawei deal signed in second quarter 2020. Lastly, corporate initiatives to optimize our cost structure drove a $4.7 million decrease~~increase in personnel-related costs.

Patent Administration and Licensing Expense:The $3.5 million ~~The increase~~decrease in patent administration and licensing expense primarily resulted from the above-noted ~~increases~~decreases related to patent maintenance, as well as reduced travel costs driven by COVID-19 restrictions. These decreases were partially offset by the increase in intellectual property enforcement and non-patent litigation costs ~~and performance-based incentive compensation.~~discussed above.

Development Expense: The $3.8 million increase in development expense primarily resulted from the ~~above-noted~~above-mentioned increases ~~related~~in personnel-related costs, as well as increases in consulting costs to ~~the Technicolor Acquisitions.~~supplement our research efforts. These increases were partially offset by ~~lower personnel-related~~reduced travel costs ~~primarily related to our second quarter 2019 sale of the Hillcrest product business and reductions in other non-cellular research areas~~driven by COVID-19 restrictions.

Selling, General and Administrative Expense: The $1.4 million decrease in selling, general and administrative expense was primarily ~~resulted from~~due to the above-noted reduction in personnel-related costs, as well as lower one-time costs associated with the Technicolor acquisitions. These decreases were partially offset by the above-noted increases in performance-based incentive compensation and corporate ~~initiatives.~~initiatives discussed above.

Table of Contents

Non-Operating ~~Income (Expense)~~Expense

The following table compares first ~~half~~quarter 2021 non-operating expense to first quarter 2020 non-operating ~~income (expense) to first half 2019 non-operating income (expense)~~expense (in thousands):

Six months ended June 30,
2020 2019 Change
Interest expense $ (20,516 ) $ (19,385 ) $ (1,131 ) (6 )%
Interest and investment income 4,219
6,486
(2,267 ) (35 )%
Gain on asset acquisition and sale of business —
14,175
(14,175 ) (100 )%
Loss on extinguishment of long-term debt —
(5,488 ) 5,488
(100 )%
Other income (expense), net 5,593
796
4,797
(603 )%
Total non-operating income (expense) $ (10,704 ) $ (3,416 ) $ (7,288 ) (213 )%


	Three months ended March 31,
	2021		2020		Change
Interest expense	$	(6,990)	$	(10,545)	$	3,555	34	%
Interest and investment income	553		2,877		(2,324)		(81)	%


Other income, net	171		3,146		(2,975)		(95)	%
Total non-operating expense	$	(6,266)	$	(4,522)	$	(1,744)	(39)	%

The change in non-operating ~~income (expense)~~expense between periods was ~~primarily~~ driven by ~~the recognition of~~ a first quarter 2020 net gain of $14.2 million related to the Technicolor R&I acquisition in second quarter 2019, partially offset by the recognition of a $5.5 million loss on extinguishment of debt recognized in connection with the settlement of a portion of our 2020 Notes in second quarter 2019. In addition, first half 2020 other income (expense) includes a $5.5$4.4 million gain, primarily resulting from observable price changes ~~in orderly transactions~~ of one of our long-term strategic investments, $3.1 million of reduced non-cash interest expense due to the removal of the accretion of the debt discount on the 2024 Notes resulting from the adoption of ASU 2020-06, $1.0 million of reduced interest expense due to the repayment of the 2020 Notes in first quarter 2020, and a $1.9 million gain in first quarter 2021 on a contract termination. Additionally, Interest and investment income decreased $2.3 million in the three months ended March 31, 2021 due to reduced rates of return on our short-term investments.

Income taxes

In first ~~half~~quarter 2021 and 2020, ~~based on the statutory federal tax rate net of discrete federal and state taxes,~~ we had an effective tax rate of ~~26.9%.~~30.8% and 1,144.7%, respectively. The ~~first half 2020~~effective tax rate in both periods was impacted by losses in certain jurisdictions where the Company presently has recorded a valuation allowance against the related tax benefit. Excluding this valuation allowance, our first ~~half~~quarter 2021 and 2020 effective tax rate would have been an expense of 12.5%. In first half 2020, we recorded a net discrete tax expense of $0.3 million primarily related to stock compensation. This is compared to an effective tax rate benefit of 59.5% based on the statutory federal tax rate net of discrete federal12.0% and state taxes during first half 2019. During first half 2019, we recorded discrete expense of $3.0 million related to the R&I Acquisition, the extinguishment of long-term debt, the filing of amended federal income tax returns and the sale of our Hillcrest product business.65.5%, respectively.

As noted above, on December 22, 2017, the Tax Reform Act was signed into law. The Tax Reform Act imposes a 13.125% tax rate on income that qualifies as FDII. The reduction in benefit is primarily related to the differences in our FDII deduction between the periods. The difference in the FDII deduction between the periods was driven by the timing of income between book and tax mostly related to revenue recognition. On July 9, 2020, the IRS issued final regulations for FDII. The Company is currently evaluating and will record the impact, if any, as applicable.

STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 — FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include certain information under the heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information regarding our current beliefs, plans and expectations, including without limitation the matters set forth below. Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “forecast,” "believe," "could," "would," "should," "if," "may," "might," "future," "target," “goal,” "trend," "seek to," "will continue," "predict," "likely," "in the event," variations of any such words or similar expressions are intended to identify such forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, statements regarding:

•Our expectations regarding the potential effects of new accounting standards on our financial position, results of operations or cash flows;

•Our expectation that the amortization of dynamic fixed-fee royalty payments will reduce our ~~June 30, 2020~~March 31, 2021 deferred revenue balance over the next twelve months;

•Our expectations with respect to revenue to be recognized based on contracts signed and committed Dynamic Fixed-Fee Agreement payments as of ~~June 30, 2020;~~March 31, 2021;

•Our expectations and estimations regarding the income tax effects, and the impact on the Company, of the Tax Reform Act, including our forecasted net benefit related to our income qualifying as FDII;

•Our expectations with respect to anticipated tax refunds to be received from amending certain tax returns;

•The timing, outcome and impact of, and plans, expectations and beliefs with respect to, our various litigation, arbitration, regulatory and administrative matters;

•Our belief that we have the ability to obtain additional liquidity through debt and equity financings;

•Our expectations with respect to the impact of the Technicolor Acquisitions on our financial statements and our business;

•Our belief that our available sources of funds will be sufficient to finance our operations, capital requirements, debt obligations, existing stock repurchase program and dividend program for the next twelve months;

•Our expectation that we will continue to pay dividends comparable to our quarterly $0.35 per share cash dividend in the future;

Table of Contents

•Our expectations regarding our customers’ ability to continue to pay fixed fee payments owed to us despite the ongoing COVID-19 pandemic; and

•Our expectations regarding the potential effects of the ongoing COVID-19 pandemic on our financial position, results of operations and cash flows.

Forward-looking statements concerning our business, results of operations and financial condition are inherently subject to risks and uncertainties that could cause actual results, and actual events that occur, to differ materially from results contemplated by the forward-looking statements. These risks and uncertainties include, but are not limited to, the risks and uncertainties outlined in greater detail in Part I, Item 1A of our ~~2019~~2020 Form ~~10-K and Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q.~~10-K. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no material changes in quantitative and qualitative market risk from the disclosures included in our ~~2019~~2020 Form 10-K.

~~10-K~~.

Item 4. CONTROLS AND PROCEDURES.

The Company’s principal executive officer and principal financial officer, with the assistance of other members of management, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. There were no changes in our internal control over financial reporting that occurred during the quarter ended ~~June 30, 2020,~~March 31, 2021, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II — OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS.

See Note 5, “Litigation and Legal Proceedings,” to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of legal proceedings, which is incorporated herein by reference.

Item 1A. RISK FACTORS.

Reference is made to Part I, Item 1A, “Risk Factors” included in our ~~2019~~2020 Form 10-K for information concerning risk factors, which should be read in conjunction with the factors set forth in the Statement Pursuant to the Private Securities Litigation Reform Act of 1995 -- Forward-Looking Statements in Part I, Item 2 of this Quarterly Report on Form 10-Q. ~~Except as set forth below, there~~There have been no material changes with respect to the risk factors disclosed in our ~~2019 Form 10-K. The risk factor set forth below updates, and should be read together with, the risk factors in our 2019~~2020 Form 10-K. You should carefully consider such factors, which could materially affect our business, financial condition or future results. The risks described in ~~this Quarterly Report on Form 10-Q and in~~ the ~~2019~~2020 Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

The extent to which the COVID-19 pandemic or any other potential future public health crises, pandemics or similar events will adversely impact our business, financial condition and results of operations is highly uncertain and cannot be predicted.

The COVID-19 pandemic has created significant worldwide uncertainty, volatility and economic disruption. The extent to which COVID-19 and any other potential future public health crises, pandemics or similar events will adversely impact our business, financial condition and results of operations is dependent upon numerous factors, many of which are highly uncertain, rapidly changing and uncontrollable. These factors include, but are not limited to: (i) the duration and scope of the pandemic or other event; (ii) governmental, business and individual actions that have been and continue to be taken in response to the pandemic or other event, including travel restrictions, quarantines, social distancing, work-from-home and shelter-in-place orders and shut-downs; (iii) the impact on our customers, including those that are presently unlicensed, and other business partners; (iv) the impact on U.S. and global economies and the timing and rate of economic recovery; (v) potential adverse effects on the financial markets and access to capital; (vi) potential goodwill or other impairment charges; (vii) increased cybersecurity risks as a result of pervasive remote working conditions; (viii) our ability to effectively carry out our operations due to any adverse impacts on the health and safety of our employees and their families; (ix) the ability of our customers to timely satisfy their payment obligations to us; and (x) fluctuations in global shipments of handsets and consumer electronics devices. Furthermore, as a result of the COVID-19 pandemic, our employees have been required to work from home and our office locations have remain closed. The significant increase in remote working, particularly for an extended period of time, could exacerbate certain risks to our business, including an increased risk of cybersecurity events, improper dissemination of personal or confidential information and breakdowns in internal controls and processes.

Any of the foregoing factors could amplify the other risks and uncertainties described in our 2019 Form 10-K and could materially adversely affect our business, financial condition, and results of operations. Because the COVID-19 pandemic is unprecedented and continuously evolving, the other potential impacts to our risk factors described in our 2019 Form 10-K are uncertain.

~~We may have exposure to additional tax liabilities.~~

The United States government enacted tax reform in 2017 and continues to provide regulatory guidance related to tax reform provisions, and state authorities continue to provide guidance around its application of tax reform provisions, that in each case could impact future effective tax rates favorably or unfavorably. The international tax environment also continues to change as a result of both coordinated efforts by governments and unilateral measures designed by individual countries, which could ultimately have an adverse effect on the taxation of international businesses such as ours. Accordingly, our tax rate could be adversely affected by several factors, many of which are outside of our control, including: changing tax laws, regulations and interpretations thereof; changes in tax rates; and assessments and any related tax, interest or penalties. If we are deemed to owe additional taxes, our business, financial condition, and results of operations could be adversely affected.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Issuer Purchases of Equity Securities

The following table provides information regarding the Company’s ~~purchase~~purchases of its common stock during the ~~second~~first quarter ~~2020.~~2021.


Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs (3)
January 1, 2021 - January 31, 2021	—	$	—	—	$	71,464,670
February 1, 2021 - February 28, 2021	—	$	—	—	$	71,464,670
March 1, 2021 - March 31, 2021	91,167	$	63.05	91,167	$	65,715,055
Total	91,167	$	63.05	91,167	$	65,715,055

Period Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs (3)
April 1, 2020 - April 30, 2020 —
$ —
—
$ 71,464,670
May 1, 2020 - May 31, 2020 —
$ —
—
$ 71,464,670
June 1, 2020 - June 30, 2020 —
$ —
—
$ 71,464,670
Total —
$ —
—
$ 71,464,670

(1) Total number of shares purchased during each period reflects share purchase transactions that were completed (i.e., settled) during the period indicated.

~~(2)~~

Shares were purchased pursuant to the 2014 Repurchase Program, $300 million of which was authorized by the Company’s Board of Directors in June 2014, with an additional $100 million authorized by the Company’s Board of Directors in each of June 2015, September 2017, December 2018, and May 2019, respectively. The 2014 Repurchase Program has no expiration date. The Company may repurchase shares under the 2014 Repurchase Program through open market purchases, pre-arranged trading plans, or privately negotiated purchases.

(2) Shares were purchased pursuant to the 2014 Repurchase Program, $300 million of which was authorized by the Company’s Board of Directors in June 2014, with an additional $100 million authorized by the Company’s Board of Directors in each of June 2015, September 2017, December 2018, and May 2019, respectively. The 2014 Repurchase Program has no expiration date. The Company may repurchase shares under the 2014 Repurchase Program through open market purchases, pre-arranged trading plans, or privately negotiated purchases.

(3) Amounts shown in this column reflect the amounts remaining under the 2014 Repurchase Program.

Item 4. MINE SAFETY DISCLOSURES.

Not applicable.

Table of Contents

Item 6. EXHIBITS.

The following is a list of exhibits filed with this Quarterly Report on Form 10-Q:


Exhibit Number						Exhibit Description

~~Exhibit~~ ~~Number~~ 10.1						~~Exhibit Description~~ Retirement and Transition Agreement and Release, dated as of March 16, 2021, by and between William Merritt and InterDigital, Inc.

~~31.1~~10.2						Offer Letter and Term Sheet, dated as of March 13, 2021, by and between Liren Chen and InterDigital, Inc.

31.1						Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

31.2						Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

~~32.1~~32.1+						Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.+

~~32.2~~32.2+						Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.+

101.INS						Inline Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						Inline Schema Document

101.CAL						Inline Calculation Linkbase Document

101.DEF						Inline Definition Linkbase Document

101.LAB						Inline Labels Linkbase Document

101.PRE						Inline Presentation Linkbase Document

104						Inline Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)



+						This exhibit will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act or Securities Exchange Act, except to the extent that InterDigital, Inc. specifically incorporates it by reference.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		INTERDIGITAL, INC.

Date: May 6, 2021		~~INTERDIGITAL, INC.~~/s/ LIREN CHEN
		Liren Chen
~~Date: August 6, 2020~~		~~/s/ WILLIAM J. MERRITT~~
	~~William J. Merritt~~
	President and Chief Executive Officer


Date: ~~August~~May 6, ~~2020~~2021		/s/ RICHARD J. BREZSKI
		Richard J. Brezski
		Chief Financial Officer


	FOR THE SIX MONTHS ENDED JUNE 30,							FOR THE THREE MONTHS ENDED MARCH 31,
SUPPLEMENTAL CASH FLOW INFORMATION:	2020			2019			SUPPLEMENTAL CASH FLOW INFORMATION:	2021		2020
Interest paid	$	4,712		$	3,218		Interest paid	$	0	$	712
Income taxes paid, including foreign withholding taxes	13,788			9,770			Income taxes paid, including foreign withholding taxes	4,328		2,228
Non-cash investing and financing activities:							Non-cash investing and financing activities:
Dividend payable	10,781			10,895			Dividend payable	10,766		10,762
Increases in noncontrolling interests	—			2,500
Accrued debt issuance costs	—			(1,075		)
Non-cash acquisition of patents	33,300			—

Accrued capitalized patent costs and property and equipment	(742		)	(1,910		)	Accrued capitalized patent costs and property and equipment	2,096		(1,288)
Unsettled repurchase of common stock							Unsettled repurchase of common stock	1,994		0



	JUNE 30, 2020		DECEMBER 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	670,292	$	745,491
Short-term investments	168,953		179,204
Accounts receivable, less allowances of $0 and $537	19,380		28,272
Prepaid and other current assets	62,387		63,365
Total current assets	921,012		1,016,332
PROPERTY AND EQUIPMENT, NET	11,918		10,217
PATENTS, NET	447,194		436,339
DEFERRED TAX ASSETS	79,897		73,168
OTHER NON-CURRENT ASSETS	78,744		76,026
	617,753		595,750
TOTAL ASSETS	$	1,538,765	$	1,612,082

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	—	$	94,170
Accounts payable	11,394		13,393
Accrued compensation and related expenses	24,002		29,162
Deferred revenue	141,528		146,654
Taxes payable	102		51
Dividends payable	10,781		10,746
Other accrued expenses	16,123		11,382
Total current liabilities	203,930		305,558
LONG-TERM DEBT	359,119		350,588
LONG-TERM DEFERRED REVENUE	139,396		123,653
OTHER LONG-TERM LIABILITIES	45,614		46,002
TOTAL LIABILITIES	748,059		825,801
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred Stock, $0.10 par value, 14,399 shares authorized, 0 shares issued and outstanding	—		—
Common Stock, $0.01 par value, 100,000 shares authorized, 71,377 and 71,268 shares issued and 30,804 and 30,701 shares outstanding	713		712
Additional paid-in capital	734,565		727,402
Retained earnings	1,413,382		1,412,779
Accumulated other comprehensive income (loss)	370		(74		)
	2,149,030		2,140,819
Treasury stock, 40,573 and 40,567 shares of common held at cost	1,379,611		1,379,262
Total InterDigital, Inc. shareholders’ equity	769,419		761,557
Noncontrolling interest	21,287		24,724
Total equity	790,706		786,281
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,538,765	$	1,612,082



	FOR THE THREE MONTHS ENDED JUNE 30,						FOR THE SIX MONTHS ENDED JUNE 30,
	2020			2019			2020			2019
REVENUES:
Patent licensing royalties	$	101,184		$	73,567		$	174,182		$	139,945
Technology solutions	3,314			2,042			6,526			4,070
Patent sales	—			—			—			225
	104,498			75,609			180,708			144,240

OPERATING EXPENSES:
Patent administration and licensing	38,695			37,353			78,803			73,424
Development	22,092			17,027			40,910			35,522
Selling, general and administrative	11,794			12,314			24,397			26,529
	72,581			66,694			144,110			135,475

Income from operations	31,917			8,915			36,598			8,765

INTEREST EXPENSE	(9,971		)	(9,907		)	(20,516		)	(19,385		)
OTHER INCOME, NET	3,789			12,354			9,812			15,969
Income before income taxes	25,735			11,362			25,894			5,349
INCOME TAX PROVISION	(5,144		)	(4,984		)	(6,964		)	(3,185		)
NET INCOME	$	20,591		$	6,378		$	18,930		$	2,164
Net loss attributable to noncontrolling interest	(1,660		)	(1,365		)	(3,437		)	(2,776		)
NET INCOME ATTRIBUTABLE TO INTERDIGITAL, INC.	$	22,251		$	7,743		$	22,367		$	4,940
NET INCOME PER COMMON SHARE — BASIC	$	0.72		$	0.25		$	0.73		$	0.15
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC	30,757			31,547			30,740			32,076
NET INCOME PER COMMON SHARE — DILUTED	$	0.72		$	0.24		$	0.72		$	0.15
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED	31,045			31,776			30,982			32,366



	Three months ended June 30,
	2020		2019		Increase/(Decrease)
Variable patent royalty revenue	$	4,597	$	8,594	$	(3,997	)	(47	)%
Fixed-fee royalty revenue	77,338		63,736		13,602			21	%
Current patent royalties ^a	81,935		72,330		9,605			13	%
Non-current patent royalties ^b	19,249		1,237		18,012			1,456	%
Total patent royalties	101,184		73,567		27,617			38	%
Current technology solutions revenue ^a	3,314		2,042		1,272			62	%
Patent sales ^b	—		—		—			—	%
Total revenue	$	104,498	$	75,609	$	28,889		38	%



	Revenue
Remainder 2020	$	152,143
2021	235,357
2022	130,650
2023	43,922
2024	—



	June 30,		December 31,		June 30,
	2020		2019		2019
Cash and cash equivalents	$	670,292	$	745,491	$	531,698
Restricted cash included within prepaid and other current assets	5,906		10,526		11,465
Restricted cash included within other non-current assets	1,081		1,081		—
Total cash, cash equivalents and restricted cash	$	677,279	$	757,098	$	543,163



	Fair Value as of June 30, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Money market and demand accounts (a)	$	677,279	$	—	$	—	$	677,279
Commercial paper (b)	—		26,296		—		26,296
U.S. government securities	—		53,047		—		53,047
Corporate bonds, asset backed and other securities	—		89,609		—		89,609
Total	$	677,279	$	168,952	$	—	$	846,231



	Fair Value as of December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Money market and demand accounts (a)	$	757,098	$	—	$	—	$	757,098
Commercial paper (b)	—		—		—		—
U.S. government securities	—		105,702		—		105,702
Corporate bonds, asset backed and other securities	—		73,502		—		73,502
Total	$	757,098	$	179,204	$	—	$	936,302



	Increase/(Decrease)
Recurring operations of the Technicolor Acquisitions	$	5,129
One-time costs related to the Technicolor Acquisitions	(1,189		)
Performance-based incentive compensation	3,015
Intellectual property enforcement and non-patent litigation	2,428
Personnel-related costs	(3,197		)
Other	(299		)
Total increase in operating expenses	$	5,887



	Increase/(Decrease)
Recurring operations of the Technicolor Acquisitions	$	10,720
One-time costs related to the Technicolor Acquisitions	(3,527		)
Corporate Initiatives	1,952
Intellectual property enforcement and non-patent litigation	2,150
Performance-based incentive compensation	1,512
Personnel-related costs	(4,747		)
Other	575
Total increase in operating expenses	$	8,635