InterDigital, Inc.

Good day, and thank you for standing by. Welcome to the InterDigital Incorporated Third Quarter Earnings Call 2022. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Richard Boyd. Please go ahead.

Good morning to everyone, and welcome to InterDigital's third quarter 2022 earnings conference call. I am Richard Boyd, communications director, and with me in today's call are Lauren Chen, our president and CEO, and Rich Breske, our CFO. Consistent with last quarter's call, We will offer some highlights about the quarter and the company, and then open the call up 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 guarantees of future performance and are made only as of the date hereof. Forward-looking statements are subject to risk and uncertainties that could cause actual results and events to differ materially from results and events contemplated by such forward-looking statements. These risks and uncertainties include those described in the risk factors sections of our 2021 Annual Report on Form 10-K and in our other SEC filings. In addition, today's presentation may contain references to non-GAAP financial measures Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in 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 Liram.

Thank you, Richard, and good morning, everyone. In the third quarter, we once again demonstrated how our innovation is becoming more valuable in an increasingly connected world. We grew our innovation pipeline with a record quarter for new inventions, strengthened our recurring revenue base with an 8% growth year over year, increased recurring revenue in consumer electronics, IoT, and automobile for the sixth consecutive quarter, and entered into a new seven-year license agreement with Apple that goes all the way to 2029. Our new deal with Apple is a huge validation of both the quality of our innovation and the strength of our patent portfolio. Under the term of the deal, InterDigital will recognize around $134 million annually for seven years, which represents a 15% increase over our previous Apple deal. Apple is one of our longest licensee dating back to before the first iPhone went on sale. And I'm delighted that we are able to agree to a new, mutually beneficial deal before our previous agreement came to an end. I would also add that Apple is a clear leader in the rollout of 5G, particularly in the premium tier of the smartphone market. So this deal serves as a resounding endorsement of the strength of our portfolio which now consists of more than 10,000 cellular standard essential patent assets, over 6,000 video-related patents, and a significant number of highly valuable implementation patents for 5G multimode handsets. The Apple license also came at a time of increasing momentum in our licensing programs. Over the last 18 months, we have signed new agreements and renewals with an aggregate value of more than $1.5 billion, including 16 direct agreements and additional agreements executed through partner licensing platforms. While we still see plenty of growth in our core smartphone business, we have built considerable traction in the consumer electronics and IoT automobile markets. In the first three quarters of this year, we have seen a 37% increase year-over-year in our CE, IoT, auto total revenue, and a 66% year-over-year increase in recurring revenue in these markets. Together, those verticals are on track to deliver annual revenue of almost $100 million by end of the year. This is excellent progress and underlines our belief that our innovations are only becoming more critical across a growing number of industries. In the third quarter, automobile was particularly strong with several manufacturers, including Toyota, Honda, and Nissan. All took a license to our portfolio of 3G and 4G patents through our licensing partner. This agreement means that more than 100 million connected vehicles are now licensed to our 3G and 4G technology, with another 30 to 40 million forecasted to be licensed in the next year. With the industry analysis projecting double-digit growth in connected cars through 2026, and 5G projected to ramp up by much of the auto industry, we expect automobile to remain a sector with significant upside for the foreseeable future. I should emphasize, however, that we are only at the beginning of our licensing journey in the broader IoT market, and I'm excited by the potential use cases that we are yet to see for 5G innovation. As I have emphasized in the past, closing a licensing deal without litigation is always our preference, but we remain committed to enforce our IP rights when necessary. With 1.5 billion of new contract revenue, including Apple deal, reinforcing the strength of our balance sheet, we remain in excellent position to renew aspiring smartphone contracts and license new sectors, while at the same time ensuring that we keep on making investment to grow our innovation footprint. Thanks to the outstanding effort of our engineers, this footprint continues to grow. Recently, we announced a new partnership with Philips to work on more immersive video technology that will benefit XR-driven experiences. We continue to see considerable upside from our strengths in video technology, such as VVC, and our work related to more immersive experience should ensure that our video innovation pipeline remains strong for years to come. Overall, our innovation engine is more robust than it has ever been. In Q3, we generated the highest number of new inventions in a quarter in our company history. During the first three quarters of 2022, our total number of new patent family filed was about 10% higher than the whole year of 2021. As an innovation business, we rely on our ability to invest in cutting-edge horizontal technologies, translate them into high-quality patents, and make our innovation available by licensing it to a growing universe of device manufacturers across multiple verticals. Our Apple agreement is yet another endorsement of how this cycle continues to deliver significant financial results and our success in consumer electronics and IoT autos demonstrate that exciting opportunity we have in device outside smartphones. We also see a growing number of opportunity among service providers who are implanting our innovation, which offers another area of growth. Overall, I'm delighted with how we continue to execute against our goals across the company. On the litigation front, we are still waiting for the decision from the UK High Court in our French file against Lenovo, and we remain confident in the strength of our case. Before I hand it over to Rich, I want to mention that this month at InterDigital, we are celebrating our 50th anniversary. And I want to offer my personal thanks to current and former employees, our shareholders, our licenses and partners, and all those who have supported our journey to become a leading innovator in connected technologies. With that, I'll let Rich give you more detail on our financial performance.