InterDigital, Inc.

Good day and welcome to the InterDigital Inc. Second Quarter 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Tiziana Filolia. Please go ahead, ma'am.

Thank you, Anna. Good morning to everyone and welcome to InterDigital Second Quarter 2021 Earnings Conference Call. I'm Tiziana Filolia, Vice President of Finance and Investor Relations at And with me in today's call are Leland Chen, our president and CEO, and Rich Bradsky, our CFO. Consistent with last quarter's call, we will offer some highlights about the quarter and the company, and then open up the call for questions. Before we begin our remarks, I need to remind you that in this call, we will make forward-looking statements regarding our current beliefs, plans, and expectations, which are not guaranteed for future performance and are made only as of the date hereof. forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from results and events contemplated by such forward-looking statements. These risks and uncertainties include those described in the risk factor sections of our 2020 annual report on Form 10-K and our second quarter 2021 quarterly report on Form 10-Q and in other SEC filings. In addition, Today's presentation may contain references to non-GAAP financial measures. Reconciliations of these non-GAAP financial measures, the most directly comparable GAAP financial measures, are included in our financial metrics tracker, which is available on the investor relations section of our website. With that taken care of, I will turn the call over to Liren.

Thank you, Tiana. Good morning, everyone, and thank you for joining our call today. I hope everyone's safe and healthy. In terms of financial performance, our second quarter revenue and expenses were in line with our expectations. I will let Rich speak through the financials in more detail later. On today's call, I would like to focus on key areas where InterDigital continues to show strength and momentum, namely our licensing, our technology leadership, our patent portfolio, and our overall execution. These are all exemplified by our new long-term agreement with Xiaomi, which we announced earlier this week. Xiaomi is a public-traded China-based vendor with almost 150 million smartphones shipped in 2020. They are consistently one of the leading handset vendors worldwide, including in China, India, and other emerging markets. They are also holding double-digit and growing market share in Europe. The agreement, Xiaomi, recognizes the depth and breadth of InterDigital's patent portfolio across several key technologies related to cellular wireless, including 3G, 4G, and 5G, Wi-Fi, and HEVC video technology. It also adds one of the world's leading smartphone manufacturers to our current list of approximately 80 companies, including Apple, Huawei, Samsung, and Sony, that have taken licenses to InterDigital's extensive patent portfolio. I'm particularly delighted that by adding Xiaomi and working consistently with our industry leader, we now license our patented technology to more than 800 million handsets around the world this year alone. about approximately 55% of the worldwide smartphone market. As part of the agreement, InterDigital and Xiaomi has agreed to terminate all pending litigations and other legal proceedings. And we look forward to enhancing the collaborations between the two companies. On the litigation front, in the past several months, we have seen some excellent outcomes that demonstrate both our ability to handle multi-jurisdictional cases and the strength of our portfolio. Last week, the UK High Court has decided that one of our 4G LTE patents is valid, essential, and infringed by Lenovo. This decision is the first from five technical trials that are scheduled to proceed before the UK High Court. and serves as further proof of strength of the innovation developed by InterDigital's R&D team, as well as our ability to enforce our related rights through our worldwide patent portfolio. We look forward to a related France trial scheduled for January 2022, where we expect the UK court to set France terms that would be applicable to a worldwide license with Lenovo. I want to reiterate that our long held desire to reach amicable agreements through bilateral negotiations. However, as we have demonstrated, we balance this desire with our willingness to pursue actions against implementers that are unwilling to accept fair and reasonable terms for a license to our technology. In terms of research and development, our teams continue to produce great work and demonstrate leadership across all the technologies that we develop. In cellular wireless, our current contributions to 3GPP 5G standards in 2021 have increased by more than 50% when compared to the same period in 2020. In addition, our engineers continue to be named to leadership positions within important industry organizations like 3GPP to develop 5G and future 6G standards. On the video side, InterDigital Innovator has also been named into several leadership positions to a key MPAC standard group and to the ITU group responsible for standardization in the areas of video and program production. focusing on energy consumption and sustainability considerations. The overall quality of our innovation continues to be very high. This was most recently evidenced by our 5G-enabled end-to-end robotics telepresence pilot, which we executed in cooperation with Telenor and BT and was named to the shortlist of the CSI Award in the Best 5G Mobile or Video Technology Service category. This project highlights the work our engineers continue to do at the core of 5G innovation as networks become more efficient and flexible for different use cases. This follows the award we received in May when our advantage edge emulation platform was recognized as the best emerging technology at the Small Cell Forum Awards. Now look at our patent portfolio. We continue to further strengthen our IP position with an increased pace of new inventions related to 5G wireless standard. For example, so far in 2021, we are on track to exceed last year's number of inventions by nearly 30%. Significantly, these inventions relate to important features and functionalities, such as increasing data rate, reducing latency, improving reliability, and enabling faster and more accurate cellular positioning technology. And we expect to continue to build a portfolio of valuable IP because we have a robust inventor community. As we communicated previously, more than 60% of inter-digital employees are engineers, and more than 90% of those engineers are inventors. So to put it another way, more than half of all inter-digital employees are inventors, which represents a remarkable culture of innovation. Consistent with the continuing execution of our strategy, we recently announced a restructuring effort with the intent to better align our research resources with our business model. We expect this effort to lead to some level of reinvestment that will help drive further growth and revenue in the future. In summary, I believe the combination of our technology leadership, the breadth and quality of our patent portfolio, and our reasonable and fair approach for licensing, combined with the execution of our litigation strategy, will drive continued success in the future. With that, let me turn it over to Rich.