Good morning, everybody. Our next presentation this morning is InterDigital Corporation. InterDigital is a global research and development company focusing on wireless, visual, AI, and related technologies, specifically those technologies that allow for a range of communications between all the devices that we use every day. The stock trades in the New York under the symbol IDCC. With us from management this morning are Rayford Garibrandt, head of IR, and Anthony Mancuso, VP Finance.
For having us, there's nothing I enjoy more than telling people about interdigital, and we appreciate this opportunity. And also, thanks to all of you that are in the room here, seeing some familiar faces and some new faces, that's great. and for those listening virtually we know your time is precious and we appreciate you sharing it with us today for our agenda today i'll start with a brief company introduction talk about the premier management team we have leading our company our essential technology development the business momentum we have and how this flywheel effect is feeding the long-term growth strategy for sustained growth. So how should you think of Interdigital? We are a pioneer in wireless video and AI research. We're led by a world-class team, really a team of all-stars in our industry with extensive industry experience. We've been driving foundational research in wireless video AI since 1972. So just a quick origin story for our company. Our founder was a visionary and he was sitting on the beach and he was wishing that he could trade stocks remotely. It wasn't possible at the time. He thought wireless technology would be a nice way to be able to do that. The first generation of wireless, as you may recall, was analog-based. Interdigital and Qualcomm and others helped pave the way for digital cellular, which started with 2G. So going way back Interdigital was born from that idea. Also, our founder, the visionary that he was, you may know the company called Universal Display. He founded that company as well. So we've been leading the industry with pioneering research across the decades. And with that, we've built an evergreen IP portfolio with over 34,000 patent assets and growing. We have long-term customers. So this is an important point of emphasis you'll hear me say across the presentation today that our revenue is subscription like we enter long-term fixed price agreements with our customers and since 2021 we've signed new agreements with total contract value greater than four billion dollars and And within this, we play a role in enabling a massive ecosystem of over 2 billion devices and economic value of almost $6 trillion per year. Some quick financial highlights for 2024. We generated over $800 million in revenue. We had adjusted EBITDA margin of 63% and very strong balance sheet with around $1 billion dollars of cash and in terms of who our top customers are is the who's who in technology Apple Samsung Lenovo and companies like Oppo. So I mentioned we have an all-star leadership team and it really is world-class and I trust that as part of your investment process like you I started my career on your side of the presentation 10 years on the buy side and I trust that like like me, an important part of your investment criteria is the quality of the management team. And ours is top notch. We'll start with the top left, Liren Chen. He's been our CEO for the last four plus years. And for those of you that are familiar with Qualcomm, you know that Qualcomm has two businesses. They're best known for the chips that go into smartphones and things like that. But they, too, have a licensing business like Interdigital. We're just sort of a pure play standalone version of that. But they, along with us, have been doing pioneering, groundbreaking research that makes cellular technology possible. So Liren was born and raised in China. He went to the MIT of China, came to the US to get his master's in engineering, and then joined Qualcomm and worked there for 25 years. He rose up through the ranks. He was an engineer, an inventor, and ultimately ended up in the licensing side of Qualcomm and rose all the way through the ranks. He ended up getting a law degree at night. He got his MBA degree at night and rose up to essentially be the number two person in what's called QTL, Qualcomm's licensing business. So when it was time for Interdigital to hire a new CEO four years ago, there could not have been a better candidate, a better profile than Laren to join our team. And I'll show you in a little bit but how he's had a profound impact on the company since joining. And next to him is Rajesh Pankhash, also 25 years at Qualcomm. Rajesh went to the MIT of India, and then he came to the United States and went to our MIT, got a PhD, was a professor, but wanted to spend time in the private sector and rose through Qualcomm to become their head of corporate R&D, the side of the house that was doing this foundational research. And Liren recruited him a year after he joined to be our head of, to be our CTO. So we're very fortunate to have such credentialed and experienced leaders in our team. And then Rich Breski, who couldn't be here today, last minute matter came up. But he's provided great continuity. He's been with Interdigital for 20 plus years, been CFO for 10 plus years. Won't go through the rest of the team, but you can rest assured that it's a team of industry experts with tremendous credentials in their fields. So interdigital, from a business model standpoint, we call it IP as a service. And what does that mean? I'll ask you to focus first on the left where it says research and innovation. At our core, we are a research and innovation company. Roughly half our employees are engineers. Roughly 90% of those are inventors. They have patents to their name. So these aren't your garden variety engineers. They're PhDs, very advanced, doing groundbreaking work, and that's what gives them energy every single day. And the way we take those innovations to market is we work with standards bodies. So most of us have heard of 5G, and before that was 4G and 3G, and now we're working on 6G. So we're not doing our work in a vacuum. We're doing it in a collaborative form with the standards bodies. And so we share our technology up front. Now, along the way, we're filing patents, and so we're working with the standards bodies to have some of our ideas woven into 5G along with Qualcomm and Nokia and Ericsson and others we work together to do this to solve the problems of each generation but to the extent some of our ideas and innovations are woven into the standard we're entitled to fair compensation for that and we protect it through patents so then you get to the right you have the product implementers this would be the apples and the Samsungs who are bringing 5G phones to market if it's using 5G it's using our innovations and So then we move to the licensing box, which is how we are reaching agreements with the implementers to receive fair compensation for the work we've done. And so this is what is funding this virtuous cycle of innovation. We're spending $200 million per year on the advanced work that makes many of these services and products possible. So what are we focused on in terms of the foundational technologies? We're focused on wireless. that's probably what we're best known for but we've been doing groundbreaking work in video and ai as well and if you just think about what you've done so far today i trust that all of us in this room have used some form of service or technology or digital help make possible maybe when you woke up you checked your email maybe when you were driving here you used a navigation system to help bring you here. If you're like me, maybe you looked at YouTube or some of you might have been on TikTok or Instagram Reels or a wide variety of applications and services that are made possible by the work InterDigital and others have brought to the market. And our research and patents in these areas underpin our business. And another slide and staff that's really powerful to me, And maybe most of you realize this, but if you don't, over the past 10 years, this chart shows that from 2017 to 2027, the amount of traffic crossing the mobile network is growing at an exponential rate. But within that, additionally, what's really driving it and the dominant form of data traffic now is video. Video is something that we've been working on for a very long time, and I'll speak more on why that's important. So inter-digital innovations have helped make this possible. If you went back 20-plus years ago, the mobile network, the Internet, wasn't capable of carrying this much video traffic. Video files are very data-intensive. An example here, we show a 4K movie, Deadpool Wolverine, 130-minute runtime without video compression. The time to download it to your phone or to your laptop or TV would be measured in days, maybe weeks. And with video compression, it can be measured in minutes. So at the same time that cellular technology has been moving from 3G to 4G to 5G, the same thing has been happening in the video realm. it just hasn't been as well understood and another example I like to use is my mother who will be turning 92 soon when I came to work at interdigital almost for you three years ago she says what does interdigital do as well I can't really explain the technology but I can give you an example I can say remember she loves her Netflix I say mom remember when 15 years ago on Netflix you had to go on your computer and order a show you wanted to watch or a movie and within a days it would show up in your mailbox and then you'd watch it and you send it back but now when you want to watch your netflix you just go to your tv and you type in whatever show you want to watch and it's available instantly she's like yeah that's great y'all do that and so it's like well we played a big part we played a really important part in that we're not alone but that's part of the value we brought to the market and these video compression decompression algorithms and technologies are a key part of that let's talk a little bit about standards i mentioned that we don't do our work in a vacuum we do it in a collaborative way across our ecosystem and there are lots of ways to think about standards in the room we're in there are some standards the most obvious being either the lighting or you know the outlet that we plug our devices into in the US there's a standard way how much electricity is there and what the outlet looks like but there aren't global standards so recently we were in Europe doing some investor meetings and who forgot to take his adapter I did I didn't have my UK adapter and I didn't have my EU adapter so I land and I'm like scrambling because without those adapters my devices will not plug into the wall so in some cases standards are not global but there's still this idea of standards being a positive thing in the cellular world similar 20 plus years ago if I traveled to Europe when I land in my smartphone wouldn't work I'd either need a new phone or SIM card that work on the networks over there the cellular industry and the standards bodies have worked together to make that that's not the case anymore when i land in london or i land in paris the phone just works it doesn't i don't have to know which network it's on i don't have to know if it's 5g or 4g or 3g it just works it's backwards compatible and my apple phone will talk to an android phone it just all works and that's because of the standards work that interdigital and others have done. So the benefits are for consumers, standards help ensure interoperability. For the implementers, it lowers barriers to entry and you get benefits of economies of scale. And for the operators and service providers, that increases system capacity and lowers the total cost of ownership. Quick slide on us. We work, as I've mentioned, very closely in the standard development process. Uniting principles are we have a strong belief in global standards we have leadership across the organization so we participate in over a hundred standard development organizations and we take leadership roles and we're broad collaborations we collaborate with many industry partners as well as leading universities as we dig into this just a little bit deeper what we see here is there's a wide array of different standards bodies that are involved with advancing cellular Wi-Fi and video standards and so there's sort of a representative list here of some of those and some of the leadership positions we have. But on the next slide we'll double click on the top left which is 3GPP. 3GPP is the body that is responsible for advancing cellular standards and is now moving us from 5G to 6G. So if we double click on that this slide tells a few things. It shows you the company we keep it shows you how we are viewed by our peers as a leader so in 3gpp there are 15 working groups across three different categories and each working group has a chair person and this is an elected position elected by our peers and interdigital was one of only three companies to have multiple chair positions the other two being samsung and china mobile other companies that do have chair positions the names you would expect qualcomm ericsson nokia apple and what this says is while these other companies are household names either because they have a consumer brand or a product that people are familiar with we may not be a household name for the average consumer but in our industry we're very highly regarded for the quality of our innovations and our willingness to collaborate and work together. And don't just take our word for it. So this is a recognition we've received from LexisNexis. Over the past four years, they have honored Interdigital as being one of the world's 100 most innovative companies. It's not by a particular industry or a particular company size. Of all the companies in the world, LexisNexis has said we are one of the 100 most innovative companies. Should have mentioned earlier on that inter-digital is world-class in three things. We talked about research and innovation earlier. So research and innovation is one of the areas where we are world-class. Another area that we are world-class is in protecting our innovation through patenting our inventions. And that fuels what we call an evergreen portfolio. So since 2017 our patent portfolio has grown more than 70 percent and we call it an evergreen innovation engine because we're spending 200 million dollars per year on innovation and the portfolio is growing on average by six patents per day including weekends if you do the math so we license the portfolio not an individual patent. We do it on a subscription basis. And as the portfolio grows and becomes more valuable, our value proposition to our partners increases. So let's talk a little bit about the momentum in the business and the improvement we've seen in recent years. So again, going back to 2020 as sort of the starting point, Laren came on board, as I mentioned, brought a tremendous pedigree to Interdigital. And I think what he saw was a company that had a very strong foundation. It's maybe a hidden gem to him. And he felt like based on the success he'd had at Qualcomm, there are ways he could elevate our company. And this chart is one way of demonstrating that. It shows the, since 2021, we've reached agreements for more than 50 licenses with total contract value of greater than $4 billion. As I mentioned earlier, you know, it's a who's who of logos you see here recent new agreements companies like Honor and Vivo that are important players in the China smartphone market as we mentioned earlier Samsung and Apple those are our two biggest customers Samsung's been a customer since the 90s Apple's been a customer since they came out with the iPhone so decades of experience and relationship with some of these customers where or others are new to our platform. And this growth and success in driving total contract value has translated to significant growth in our annualized recurring revenue. So again, this idea that we are a subscription-based business, our agreements with Apple and Samsung and most of our agreements, we get paid the same amount every single year, regardless of how many products they sell. And then when that contract comes for renewal, we'll make the argument on why we've brought more value to them and should receive a you know higher value at the next step up when we did that with apple three years ago we were able to get a 15 increase in annual value for a seven-year contract that's rough roughly worth uh just under one billion dollars so what you see here is arr in 2021 just around 400 million here we are in 2025 uh close to 600 million so almost a 50 increase in annualized recurring revenue across this time frame and this if rich was here he would tell you this is his his favorite slide because it shows that the power of our model from a financial standpoint revenue has grown nicely as you see on the top left because our cost base is fairly fairly fixed we haven't had to increase the number of engineers we haven't really had to increase the amount of spend on an annual basis except maybe for inflationary increases since, you know, talent and labor is our primary cost. But outside of that, we've been able to grow revenue much faster than expenses, and so you've seen adjusted EBITDA grow much faster than revenue and 20 points of margin expansion from 43% to 63% over that time frame. The bottom right shows you that our business generates a tremendous amount of cash flow. So incremental, to sign a new license, we don't have any cost of goods. We don't have to have a call center to answer customer support questions. We don't have to run a data center to support running a software service for someone. We're just granting permission for them to have access to our IP. So new agreements carry essentially 100% gross margin, high flow through, generate a lot of cash. And so what you see here on the bottom right is since we instituted our dividend in 2011 we've returned almost two billion dollars of cash to shareholders and our share count is down by over 40% in that time frame so I'll repeat that our share count is down over 40% over this time frame and as a result the denominator the nine gap EPS grows even faster than the other metrics. So I spent my first 10 years on your side of the table investing in innovation companies like InterDigital, and I find this to be fairly unique to have a company that can drive such sustained growth, but at the same time generate excess cash. You don't often find both of those attributes in one company. And we're getting recognition from third parties for the success. Newsweek recently came out and named us one of America's greatest companies. Fortune named just one of the 100 fastest growing companies and Time Magazine called us a growth leader. But with all that said, that's looking back. And we know that what matters most is where are we going? And two years ago, we did a perception study with the investment community to understand how we were seen versus how we saw ourselves. And it was very encouraging what we learned. The investment community said, we see you, Interdigital, as a company with an excellent management team. foundational research and innovation, strong patent portfolio and great financials, but nobody identified us as a company position for sustained growth, even though we'd been growing. They didn't say the word growth. We were viewed more as a cash cow, if you will. Internally, we had plans and we saw ourselves as a growth company, but we hadn't yet shared the growth plans with the investment community. So we held an investor day 14 months ago, and this is when, for the first time, we laid out, planted our flag and said we are a growth company, here's the opportunity, here's the strategy, and here's what we think we can accomplish. And this was when we came out, for the first time, with our target to achieve $1 billion plus of annualized recurring revenue by 2030. We've made significant progress towards that goal since the investor day, so we've got three growth pillars. What we're best known for is smartphone, and we laid out a target to get by 2027 to 500 million of ARR. At the time, in 2023, we were around just under 350 million, so we've made significant progress and are very close to the goal we've laid out ahead of schedule. The two other buckets, Consumer Electronics, Internet of Things, and Aldo. When Liren came on board, the $97 million of ARRUC was around $20 million, so almost a five-fold increase, but yet we still see room to double by 2030. And then the greenfield opportunity that gets a lot of excitement from us and from the investment community is in streaming and cloud services. We don't have revenue there today, but our technology is being used. We don't have to invent anything new. We don't have to convince anyone to use our technology. And we're making concrete progress that I'll touch on in just a moment on that front. So I'll move quickly through the market opportunities because I want to be mindful of time here. So on the smartphone side, we now have roughly 85% of the market under license. So great progress there, as we've talked about. In terms of consumer electronics and IoT, where are the opportunities? Four primary buckets, top left, you see PCs and tablets, a huge market. We have around 60% of the market under license today. And you can see in the light blue who the primary opportunities are there. In televisions, we have around 35% of the market under license. And you can see in light blue, the primary opportunities we're focused on there. Passenger vehicles, bottom left. This is a really interesting opportunity. Increasingly, cars are connected with cellular technology. The estimate is in 2025, around 65 million cars are connected. Interestingly, there's a lag. So most cars that are connected are still 4G. And so two things are forecast to happen over the next few years. One, the growth rate of connected cars is expected to be 10 plus but equally if not more importantly there's a shift happening from 4g connectivity to 5g connectivity the reason that's important is we license this market through a licensing pool called avancey and the licensing rates that come to the pool and get distributed for 5g are roughly 2x what they are for 4g so you have unit growth plus a improving mix from 4G to 5G. And then, you know, the bottom right, cellular IoT, huge market, more fragmented, but 250 million units just in the three focus areas of point of sale, smart meters, and asset tracking going to 350 million units in the coming years. So let's dig a little deeper on the streaming cloud services opportunity for us. So as I talked about earlier, the subscription video on-demand services like Netflix and Disney+, the ad-supported video services like TikTok, YouTube, and Reels. All of these services have been made possible by the foundation that InterDigital and others have laid through the years. The video compression, decompression technology we talked about, that's what makes these services technically feasible, and it makes them economically feasible. Without this technology, without this foundation, these services don't exist. And it's only been in the past few years, post-COVID, that we've seen these applications really, really explode and hit critical mass. And for interdigital, we've started a program to license these players. And what's pretty interesting is the TAM. So if you look at SVOD and AVOD, the light blue, which is the 2025 forecast, you add those together, that's 475 billion. These two have just crossed over to be larger than the smartphone market, the primary market we've been serving for years, both of them close to half a trillion dollars. So it's a huge opportunity. Our technology is critical to enable that, and we're entitled to fair compensation. As I mentioned, we don't have any revenue yet, but we're making concrete progress. So Disney is one of the companies we've been talking to all the major players. We were talking to Disney for for a couple of years, and then in February of this year, we came to the conclusion that we weren't gonna be able to reach an agreement through bilateral negotiation. So as a last resort, we don't want to, and most of the time we don't have to, but we will, when needed, use enforcement to protect our rights. And so we filed suits against Disney in February in Brazil, Germany, UPC in Europe, and in the United States. And an important couple of things have happened since then. So in September, the Brazilian court issued a preliminary injunction for the two patents in suit that we had brought. And this was based on a 200-page report from an independent court-appointed expert. So this was really the first time that someone outside of Interdigital had validated what we've been saying, which is our IP is critical and our IP is being infringed. And since then, a couple weeks ago in Germany, the court issued a preliminary injunction on one of the suits we brought there. So far, three rulings, three preliminary injunctions. So very good progress. No guarantee of anything to come, but it's encouraging for us that the outside world is seeing what we've been saying for some time. A couple more slides and then we'll have some time for a couple of questions. So capital allocation priorities we get asked a lot. We have such a strong balance sheet. Excuse me. Cash now in our most recent quarter is over 1.2 billion. And the top priority is to maintain the fortress balance sheet. You can imagine we're negotiating with companies that might be a thousand times our size or even more. But we're also committing to them that we're here for the long haul and we're going to keep taking the money we receive from them and investing in future research. So we want to demonstrate staying power. We want to demonstrate financial strength. But secondly, we've got to continue to invest organically in the business. So we always prioritize innovation, investing in the IP portfolio. It's important to note that to reach our 2030 goals, we don't need to make any inorganic investments. What we have in place is sufficient to do that. But at the same time, we're continuously assessing inorganic investments that can be opportunistic or strategic. We made an acquisition a few weeks ago of an AI company in London called DeepRender. So we're always looking at ways we can complement what we have or explore new areas. And then even with all that, we've still, as I mentioned, generated tremendous amounts of excess cash across time. And we've been good stewards returning that to shareholders through buybacks, $1.4 billion since 2011, and dividend increases. We just increased at 17% on September 25th. Target financial model for 2030, we talked about the fact that we're targeting a billion dollars of annualized recurring revenue. From where we sit today, that would represent a double-digit compound growth rate. Powerful operating leverage, as we mentioned, there's a lot of leverage in our model. So with that, we target 60% plus adjusted EBITDA margins just on recurring revenue and our guidance for Q4, which we just provided recently, just on recurring revenue, adjusted EBITDA is around 50%. So not only can we grow top line, we believe recurring at a double digit rate, but we see meaningful room to expand margins. And there's something we haven't talked about yet. Maybe it comes up in Q&A, But we also, when we sign a new customer for the first time, we typically are able to get a one-time payment called catch-up revenue for their past use. That's just icing on top of all of this. So we feel we're well-positioned to drive value going forward. And just to wrap it up, I mentioned that we have a world-class all-star team, strong momentum in the business, large addressable markets, and growth to $1 billion. And if you only remember one thing from my presentation today, it's interdigital, the future is bright. So thank you for that and happy to take any questions. Yes. So what's up for renewal we have announced. Right now our ARRs are around 588 million. Total revenue is higher than that. And we have around 90 million of revenue that expires at the end of 2025. The two biggest within that would be Xiaomi, a Chinese smartphone maker, and Samsung TV. And 90 may sound like a big number, but in context, our agreements, there's no exact average, but let's say they're plus or minus five years. So in a given year, you're probably going to have 20% plus or minus of your agreements up before renewal. um historically if you're in the smartphone market and your phones are 5g compliant it's not like you have an alternative you can't design us out if we're in the standard and your phone standard compliant we're entitled to fair compensation for that so that's something that as long as those companies remain in the market then you know we'll find a way to reach an agreement they don't always happen right at the time that agreement renews but if there is any type of gap in that we're entitled to catch up revenue for that and your second question sorry yeah the question is about the dividend policy I think what you've seen is without an explicit policy that we've stated publicly is a belief that slow and steady increases are you know the best way to think about the dividend You mentioned you have very low Yeah, so the question is what percentage of our contracts are fixed price and do we have an ability to have inflation adjustments in that so most 90% plus of our revenues coming from fixed price agreements that aren't dependent on smartphone unit sales for instance not that there is an annual increase baked into that each year, but it's contemplated when we signed the agreement up front. So, you know, let's say Apple seven-year agreement renewed in 2022. We're getting $134 million per year, almost a billion dollars, but you can imagine that baked into that number was some amount of inflationary increase over time. And then when we have the next renewal, our commitment to the industry and to others is that we're going to make our portfolio more valuable. We're going to help make 6G happen. And that's what's being discussed now, so that by the time of the next renewal, hopefully we can sit down with Apple and say, hey, we've made our portfolio even more valuable. So we hope that we can reach an agreement where we have a step up in that annual value. OK. Oh, one more.
Yeah.
Yeah. Right. So the question is, you know, we've had a great year this year. We've had some catch up revenue and some good wins. What drives us to have sustained growth going forward? And this is where we'd really parse it apart and ask people to focus on the annualized recurring revenue, because that's the part that's easier for us to forecast, and that's what we run the business on. And so hopefully the opportunities we laid out in front of you, where we're at 588 million of ARR today, working towards a billion, the biggest upside opportunities from where we sit today would be consumer electronics and IoT. We're at 97 million of ARR, targeting 200 million, laid out some of the opportunities there. And then the biggest greenfield opportunity is in streaming, where we don't have any revenue today, no ARR, but we think we can get to 300 million plus by 2030. So that's where the bigger upside is, and that's about getting new customers under license who are already using our technology, just reaching agreements with them. So it looks like we're out of time, but thank you so much for being here.