Hi, everyone, and good morning. Thank you for joining us at Needham's 28th Annual Growth Conference. My name is Neil Young, and I am a semiconductor analyst for Needham. It is my pleasure to host this presentation from InterDigital. InterDigital is a global research and development company focused primarily on wireless, video, AI, and related technologies. The company designs and develops foundational technologies that enable connected, immersive experiences in a broad range of communications and entertainment products and services. Additionally, the company licenses its innovations worldwide to companies providing such products and services, including makers of wireless communications devices, consumer electronics, IoT devices, cars, and other motor vehicles, and providers of cloud-based services, such as video streaming. Joining me from the company today is...
Lauren Chen. My name is Lauren Chen. I'm the president and CEO for InterDigital. Thank you for the introduction. Welcome. Thank you for joining us. and I think I have 40 minutes so I pretend to go through a summary deck of slides to introduce the company explaining the foundational technology we do and also describe all the groups opportunity we have executed on and also going forward all the way to 2030. I'll try to leave about 10 minutes for question but in the meantime if you have any question while I'm presenting feel if you raise your hand and I'll do the best I can to address them, all right? Thank you. Okay, disclaimer, I'm not going to read it. One thing I want to clarify is there's a lot of financial slash business development status, and the snapshot we took was end of Q3 of 25. The reason being we are releasing our Q4 as well who you're resulting about amounts for obvious reasons, we're not incorporating that numbers into this data slide. All right. So, in my presentation today, I'll give you the highest level of company introduction, our business model, what do we work on. As always, the achievement of business dream by a team. So, I'll explain who we are at the exact level. I'll give you some example of foundational technology we are working on, why they are super important. We all laid out a long-term growth strategy, and the strategy frankly was explained in detail about a year and a half ago in our investor day, July of 2024, and I'll compare and contrast when was stated at that time, where we are today, and we're going by 2030. Then I'll finish with one summary slide, and I'll take questions. All right. This is a one-pager summary summarizing what the key ingredients are business, why we are successful for what we do, and also a whole year financial summary at the bottom for FY24. As I said earlier, in about a quarter, we'll give you the latest summary for 25. So, I'll start with the team. We have a work class team. Our team is driven primarily by researchers, but we also have the leading experts in licensing, in IP, and also in foundational directional research. We do very basic research at the foundational level, which I explain in the following slide. The company is 50-plus years old. We were involved in developing every single generation of cellular technology, and we are increasingly putting more money and effort into video and AI and other functions. We have built a very large patent portfolio. I want to emphasize for a couple of words. One, it's the evergreen nature of patent portfolio. Some of you guys are familiar with some IP companies, and some of them is based on acquired patent asserting them. So, very often when we engage investor, I get the question to say, when is your patent going to expire? I explain to them, we license the portfolio level, and as long as we keep on the engine going, the portfolio as a whole will be stay evergreen and increasing in value, right? Our customers are very long-term. Some of our customers have been with us for almost 30 years plus now, and we generally sign contracting very long-term, which I'll play in the following slide here. and think of us as an IP or the service licensing model people pay for a subscription to our portfolio the revenue by definition is recurring in nature and then we are able to build on top of layers and layers of technology what do we enable super super big and this is just for the cellular piece alone if you look at the overall ecosystem side from the device to infrastructure service applications the technology and services and product building on top of what enable is a gigantic number it's literally measured in trillions and trillions of dollars our licensing model we take a very small slice of the big pie and that's our key ingredients our business model and just try to put into context it's hard to see what it's 5.7 trillion dollars if this were a separate country this will be the third largest economy me in the world in terms of annual GDP. It's a huge thing that our technology enable. On the bottom, I'll have a later slide break down the numbers. We have a lot of success. Our revenue is growing really fast in terms of year-over-year And our business model inherently when we grew revenue, our profitability grew faster than revenue. And our margin is considered very high in our industry. And frankly, relatively speaking, in any industry, we are very well-founded for the reason I'll explain later on. Our biggest customers are some of the biggest names, Apple, Samsung, Lenovo, Opel, who are leading customers in smartphones as well as some other devices. All right, here's the team. I'm now going to go through all of them. Two of us are here. I'm standing here. Our CFO, Rich, is in the audience. So if you have time, you should approach him for the more difficult questions. And all of us have decades and decades of experience. Some of us have done, you know, build our career in some other company bigger than we are. But I like to think of the team together. We are the best team in our industry, right? So what do we do? Okay. So the key ingredient in our business boils down to two vectors. Number one is we hire the best people, solving the most difficult problem. We try to be five to ten years ahead of time when we solve those problems that has never ever be solved before we file patent to protect them okay eventually be licensing our IP get paid and putting the money back into R&D but that's only half the story the other half the story is we actually send our engineers to global standard development organization to advocate for our position to overall win leadership role in this organization to incorporate our technology into different versions of the open standard and standard is our go-to-market strategy standard is what allows our technology to be in many many billions of devices standard frankly by having the technology in the standard so we ensure our technology and widely adopted we ensure people who use it having essentially need a license or ip so those two things goes hands in hands which I'll explain a bit further okay so the three pillars are research I could spend an hour on each one of them but I'm not going to okay so far for wireless think about anything that's wireless connected cellular enabled 3g 4g 5g and now we are working on 6g that'd be commercialized end of the decade we are also a major contributor for Wi-Fi you know that's obviously all your laptop all your phones but we also one of the key leaders in video development video by video primarily mean video codec but there's also other technology make your video more vibrant make the color a wider range makes everything smoother makes the transformation of content more efficient a lot of them and increasingly we are putting more effort in ai we are actually a foundational developing ai for multiple decades now but with all the attention in ai that's increasingly become are more important. But we are solving AI problem at a different layer, at the foundational layer, not the service app layer, which I'll touch on a little bit more. All right. Why is solving the end-to-end video delivery problem such an interesting and challenging topic? Why is that such a high-value use case? It boils down to, what is consumer buying? When the consumer buys a latest phone, buy the latest TV, buy the latest iPad, buy the latest PC, pay for hundreds and hundreds of dollars for a combination of subscription. What are they buying? They are buying a consumption, a consumption of video. As of today, video on average is driving 80 percent internet traffic. The trend is not going to stop. This is going to be a vast merger of the system people are building. By the way, that's already with encoding with Kodak, which I'll explain without Kodak what's going to happen. This is an interesting chart. I know it's a bit hard to read but let me sort of walk you through it so on the left hand side this is a 4k HD movie my engineer who created the style happened to be a fan of Deadpool it could be any movie by the way and so if that content without compression in the raw format it's gonna be 11 terabytes plus so you say what is 11 terabytes right that's number so hard to grasp I'll tell you without compression if you're having an average internet connection at home, it's going to take you roughly two weeks to download the movie. Two weeks. With compression on the right-hand side, we are blowing up a very small square on the right-hand side. This chart is done proportionally. With multiple generation codec, each generation codec is more advanced, we're frankly more complex. They're able to compress the same content with the same quality with less bandwidth. So, if you combine them, the latest generation codec is able to compress 11 terabytes into about 9 gigabytes. That's a compression ratio of more than 1,000 times to one. That's what allows you to download that Netflix video you're going to watch at the airport on the plane before you take off, otherwise, you would never be able to do it, okay? Okay, so let me talk about standard a little bit here. So why do we need standard, right? I mean, everything seems fine without standard. By the way, I always make a statement, which I have been proving to be right every time, to see from the time you wake up today to the time you sit here, you have touched on dozens and dozens of standard. Standard is everywhere. You look around, that socket for power is standardized. That voltage is standardized. That socket for the light is standardized. A standard is what allow you to promote interoperability, allow you to do compatibility, it's giving the scalability of economy. But you can boil down to the benefit to multiple layers. Consumer want standard because that's what you allow, allow your iPhone to talk to Android device. Implementer like a device maker wanted standard because they can make one device and sell it worldwide. I'm old enough to remember the days, 20-some years ago in different phones when you go to you are of course the US versus China. You literally need to get a new phone from the IT department. I'm traveling next week, I need a new phone. The hidden cost for the vendor is very high. That means they need to produce different versions of the same product. They had to manage inventory, they have to stock them. They don't always do a good job of predicting the volume. So there's going to be a lot of waste. Standard allow them to make one thing that works everywhere. But there's also operator. Standard for the operator means they can rolled out their different generation technology over time in different regions, standards built to be backward compatible, that will allow the carrier who paid many, many billions of dollars to buy the spectrum to deploy the network over time, allow the user to use the technology, ubiquitously, adjusting the best quality they can do. So, we are one of the leaders in the center development. By my estimate, we are one of the handful leaders who lead the wireless and video AI together and you will say why why do people want your engineer to lead standard because those groups are very highly sought after okay people wanted to deleting their development of standard because you had a better understanding you frankly have a stronger influence on the future direction of technology so boil it on to a few things one is we have a long history our engineers are very very good they earn people's trust us by paying the deal by working on these many, many decades of time. That's important. Second thing is that people and send our business model to know, hey, you build a technology, but you shared them. We are not one of those vendor who build something, control it, and keep it to ourselves. Our business model inherently is sharing to other people. So if I support you, I can guarantee there's some kind of benefit for me over time. So third one, which is not 100 percent by design, But the fact that we don't make product means we do not compete against that product division of the other company. So think of somewhat a swizer land of standard, but they know our engineers, our company are driven by neutral position on the product side, but driven 100 percent by the technical merit of the solution. So that itself very often give us a better chance of being selected to the chair position for the standard organization. All right, those are not random pictures I downloaded from the Internet, just for clarification. Those are real pictures of my engineers who are currently in the leadership position of very important standard organizations. 3GPP is what defines cellular standards, 3G, 4G, 5G, going for a 6G. Etsy, it's a European branch of the cellular organization. EDS, it's the US branch. IEEE is what defines the Wi-Fi. and so on and so forth. On the bottom, those are the video standard and those are our real engineers. If you pay close attention to the small fund, you're recognizing some of the mature positions, some of the wise chair position, some of them acquisites AI and machine learning. Those are indication of AI's being incorporated into the wireless standard, into the video standard already and our our engineers are actually leading them, OK? Just try to hit the home here. This is one of the block we have joined, 3GPP, this defining 5G, going forward, defining 6G. There's literally only 15 chairs, only 15 of them. Every company in our industry want to have one of them. We are one of the very few companies who have more than one. And you recognize all the names on them, right? China Mobile has two. China Mobile is the number one carrier in the world. They have about 700 to 800 subscribers. Then the other company is Samsung. So, among all the companies, everyone wanted them, we have two chairs. That's just an indication of how widely our engineer is being respected, how we have led the development of standard. All right. This is another interesting topic. So, there's a company called LexisNexis, which is probably the number one ranking company of IP innovation in the industry. earlier they published a study of the most innovative company in the world. This is not just in our industry, it's not US company only. These are worldwide company-wise. Four years in a row we have been ranked as one of the top most innovative company in the world. The equity said we are driving the highest level of innovation momentum in the industry. Now let's talk about patent. Patents are our product. We don't make other product. We make IP. IP is our product. So we have grown our patent portfolio quite a bit in the last eight years here, growing by size and more important by diversity. So we used to be a primary wireless company, as you can tell, for the cellular assets in our pie. Now cellular is still very big, arguably still the most important assets, but we added a bunch of other stuff in there and collectively, they combine enormous valuable IP portfolio that people need to take a license for. On the right-hand side, this is really the evergreen point. Every single day on average, we get six new patterns adding to our portfolio every single day. I always clarify to that include weekends. That's really how robust engine is. Now, let's talk about business momentum. I'm doing okay on time. So I'll go through a few things here. One is we started, frankly, for 2020. I joined the company, by the way, five years ago, so it's very close to my five-year anniversary. So within the five years here, we have signed more than 50 license agreements. By the way, on average, our license agreement is roughly five years term when people negotiate. We don't do one-year deals because those are frankly complex negotiations. More important, people know our technologies long-term. It's in the standard. They have to use it, so there's no point of thinking, hey, next year I'm not using it. So those are long-term agreement. We summarizing the total contract value. So in the last four plus years, again, this goes all the way to September of 2025. Doesn't count the last quarter, doesn't count the beginning of the year yet. so we are signed more than four billion dollars was a contract a vast majority was done through bilateral negotiation and if you look at the names for those vendors you are recognizing some of the largest vendor in the world both in the mobile industry together with you know a lot of other consumer electronic together with some other you know very large large companies in United States in China and everywhere else right this is a another slice of how we demonstrate business progress. So we like to think our business model is close to a subscription-based model. People pay for recurring revenue subscription to our IP. So one of the parameter people use to measure progress is annualized recurring revenue. Essentially, it's how much repeatability you can count on of your revenue. So as you can tell from the last several years, we are able to grow it quite a bit, quite meaningfully going through. So one of the questions I get was, say what happened to 2021, 2022, 2023, the first three years what happened here? Because in those years, we were actually working on some largest renewal in our contract pipeline. That's when we were able to renew the app on other progress. Because they are renewal here, we are able to increment, adding on top of those existing contract one by one. I can go through the detail offline. But collectively, once we had done some major renewal, we're able to get a lot of new customers adding into the pie, that's where we'll be able to grow they are very significantly in the last several years. This is what we fondly refer to as a full panel chart, which is Richard's favorite chart. He loved this chart because what he says is, we're able to grow the revenue quite a bit in the last few years. If you try to do the CAGR on this four or five years here, it's 25 percent CAGR. But the beauty for our business is once you invest in foundational research, once you build the patent IP portfolio, then any new customer we sign to add on top of the revenue, they come with a 100 percent profit margin. So, the power of our business model inherently, we are able to drive profitability faster than revenue growth. These chart demonstrate that. We measure by adjust EBITDA. You can tell we adjust EBITDA margin was overall total value as well as margin had been increasing. Our EPS, which is also a benefit of share buybacks, has gone up even faster, which is shown on the right top chart. On the bottom, it's capital returning, primarily down by dividend as well as share buybacks. For last year alone, we increased our dividend by roughly 50 percent from 45 cents per quarter to 70 cents, and our buybacks for share repurchase for the last, I think 10-year-plus was more than a billion dollars. And we were able to very meaningful reducing the shares outstanding overall. OK? All right, so this is a little bit bragging. But this is not me bragging, the third party recognizing us. So for the last year alone, we have received quite a few reward. And those are just a selection of them. We are ranked the number one of all the media science company by Forbes. They have their own criteria. We didn't influence them. They had their growth EPS and valuations and all this stuff here So we are being recognized quite a bit for the ability to grow the business and we are recognized by the way we drive innovation Now let's talk about long-term strategy So our goal which was laid out in July of 2024 was we we want to grow our recurring revenue at the time was about 400 plus million dollars to about a billion dollars by 2030 okay so if you look at the color coding here the sort of dark blue is what we delivered by Q3 of 25 and the light blue was what they set as a target in July of 24 so when we set the target in July 24 our frankly we can run your smartphone at the time is about 350 million dollars. We say, oh, we think we can go to 500. At the time, by the way, I got a lot of question. People say that market stagnant, it's going at a much slower pace, how can you grow it that fast? We'll say, hey, there's multiple drivers. Drivers in getting more devices sold under license and also try to achieve an incremental value when you renew them. So I'm very pleased to see that as of Q3 of 25 our recurring revenue smartphone is already at 490 plus million obviously that's very close it's within striking distance of 500 million and we are roughly two years ahead of schedule okay and then the other bucket which is consuming is running out here and auto which i'll have a breakdown for later slide here at the time we were roughly 50 million and now we are close to 100. right so we are growing it's a smaller segment it's actually growing percentage-wise faster but the biggest question mark is in the online streaming industry which I'll take a later slide to explain what it is and why do we mean we can grow something from 0 to 300 which at the surface feels very ambitious but I could tell you that we believe we can do it all right let's break it down here on the smartphone side that number used to be 50% when we laid it out and now we 85 percent. That means we have licensed the top eight of the top 10 smartphone vendors worldwide. This is not China, this is not US, this is worldwide. So, if you're recognizing on the right-hand side, those are the vendor already under license, and those are the very few outliers. I don't want to get into individual them, but I can answer a question offline. So, we are very, very close to achieving our goal. Then our target is to keep on growing the industry together with the overall pie expansion, both by volume as well as our content per device. Keep in mind, we came by adding new technology into different generation. So the type of footprint IP we have in a device keep on growing over time. And consumer electronics and IoT, this is more than one market. This is a collection of fragment, some of a smaller market, I'll walk you through it. We are licensing PC market. A lot of you guys are still using PCs. PC has Wi-Fi connectivity, PC have video capability. So, we're licensing to that space. As of September of 2025, we have licensed about 60 percent. Those are big names, okay? We are getting paid on them. On the TV side, again, almost all the TV is Wi-Fi connected, all the TV have video capability. So, we are licensing together with a joint venture with Sony, which is long-lasting, which has been going on for multiple decades now, and we are making very good progress. So, the dark blue are the portion license, and then the light blue and others are the one that we keep on working on. Then let's talk a little bit about other connected devices here or connected cars. I consider car it's just smartphone wheels. They have connectivity, they have processing, they have Wi-Fi, they have other stuff in there. This is only talking about the cellular connectivity piece, which we are a part of our joint platform. It's a third particle of ANSI. We are licensing both 4G and 5G connectivity, and there's a meaningful, there's actually quite a little bit progress on there. If you look at the 4G portion, it's already licensed pretty much every single major automobile vendors in the world, but for some new vendors of EV in China which they are making progress. But also, cars are starting adopting 5G technology. Auto-review industries, you guys probably tend to have a longer adoption curve. But the good news is once you are in, you are in for the long haul. So when 5G takes off, it started taking off here, there will be meaningful uplifting of the per vehicle value of IP in those vehicles. And then there's a number of other connected IoT both on cellular enabled as well as Wi-Fi enabled devices that we are pursuing. Okay, collectively, this is all very large pie and our goal as a reminder is to monetizing roughly $200 million recurring revenue from this pie up to 2030. Along the past, we'll collect a lot of catch-up revenue, which I'll touch on a little bit. Okay? But this is the large opportunity here. This is our Greenfield opportunity, if you would. This is the Cloud opportunity. Sometimes we'll say, oh yeah, you are starting from zero, which I will correct no. Square zero is R&D. Square one is building the IP portfolio. Square two is building the team to licensing. So we are frankly already made a lot of progress. We have the foundational research, we have extraordinarily valuable IP, and we are licensing in the industry for a couple of years, and then the industry is very, very large. When we did the slides in the summer of 2024, the forecast said by 27, this industry will be the same size in term of annualized revenue as smartphone. But they were actually wrong. These industries are growing faster, and the latest report says as of today, the streaming industry in terms of annualized revenue, it's the same size of smartphone and screen at faster pace. So this is a very important market for us. Our technology is what allow them to compress this content 1,000 times to 1, allow them to save in bandwidth, power, coding, storage, memory, all kinds of stuff. So therefore, it's enormously valuable piece of technology and we feel we deserve to be paid. But so of this $300 million plus opportunity we lead out by 2030, 30, we're only covering the first two blocks. There's frankly other opportunity we'll keep on growing in terms of video-driven use cases. So now, let's talk about a little bit of capital allocation. By the way, our CFO Rich is here. He's an expert on this. If you have follow-up question, I encourage you to ask him. But our capital allocation strategy is actually multi-prom. Number one, we need to make sure we have a very strong balance sheet. The reason being we negotiate with some of the largest vendors in the world. Those vendors are 100 to 1,000 times bigger than we are. We need to demonstrate we have that capability, we have the power in the industry to convince them to work with us on long term. The second thing is really our business requires to make long-term investment, five to 10 years. Building patent portfolio is expensive, hiring the best mine in the world is expensive. So we need to make sure they are properly funded to keep on growing. and our business properly scaled up produce a lot of cash and we are being slacking ma strategy and recently we bought a startup company in based in UK on AI research we bought our expertise we bought the patent portfolio but interesting enough they're trying to leverage in our standard expertise try to get that technology into the next generation open standard but that MA a piece we have a very high bar but we are able to do it. Largely, as I said earlier, due to our business success, we produce a lot of cash. We increase our dividend quite a bit. We have done a lot of meaningful acquisitions, and we look to do more going forward. That's our long-term target. People say, where do you want to be when you grow up? So, this is by 2030. We are confident and we hope we will make our target. In order to make it, we need to get our AR by 10 percent double-digit year-over-year, but we have done more in the last few years. We want to maintain our margin at 60 percent of just the EBITDA margin. By the way, in the past couple of years, we are exceeding that target, which allows me to invest more in organic growth, even though we will scale up, but we are increasing more. By doing so, we'll produce a lot of net margin, and we will do more in term a new area of research in term new area of licensing. Okay. I believe this in my last chart but before I go through I promise to explain to you what is catch-up, what is recurring. Keep in mind our technology is in the standard, had been in the standard for decades now. Keep in mind the people who had not paid us have been infringing our IP for a long time. When we sign people up for the very first time, will negotiate for going forward rate which add to our ARR. We'll also try to negotiate for first settlement of the past infringing our IP up to that point. That is what we classify as catch-up payment. The catch-up payment by its nature is one-time only, but it's real money. In the last four plus I've been here, we have collected more than billion dollars worth of catch-up payment and that catch-up payment is being funded to our R&D research and also being funded for our survey purchase so that's the definition so I have gone through all of them I believe we have worldwide team I believe our momentum is accelerating we have been recognized by peers as one of the most successful company we are one of the large four if you would in term licensing technology in the field address for market it's very big for our existing branch as well as very big on the cloud side it's growing very fast and I'm quite
confidence in our ability to deliver with that I'm happy to answer your questions yes yes um
so that that's a very good question uh so first of all i'll start with to say we always prefer bilateral negotiation uh to get deals down as i demonstrate of the 50 plus deal we have signed during my term here 90 plus percent of them are done through negotiation however there are cases were after years and years of negotiation we could not get a deal done then we feel it's not fair for people to keep on infringing our IP to frankly keep on not paying us it's not fair to us it's not fair to other competitors who are paying so we make that decision very carefully and we do our occasion have to enforce our right so Disney in particular we negotiate with them for multiple years and their streaming business which include Disney Plus, Hulu, and ESPN Plus is more than $25 billion revenue with 250 million subscribers. So we decided to launch our litigation against them last February, February 25 and the case Agui are proceeding as they back it quite well. We asserted roughly a dozen different patterns, different jurisdictions. So far four of the pattern has been decided at a different level of legal process in Brazil and Germany. Based on third-party expert the court has heard in Brazil and based on the court judgment in Germany, we win four out of four of the patents. Our patent were found to be valid, were found to be infringed, and the court actually ordered Disney to either pay us a license or stop infringing our IP. Okay. So honestly speaking, you cannot do any better. I mean, four out of four is awesome, and the speed we come to in conclusion to decision is also quite smooth. But it's not done. I mean, we still have, frankly, eight plus other patterns in different jurisdictions that will go to trial by June or September time frame, and I'm confident with our case, but we have to wait for the court to decide. That's our current status for this need. Amazon's been interesting. Amazon actually did it against us first, and Amazon is a licensee for us on the device side for a certain segment of technology so they decide to go to UK court and litigate against us in August of last year and we respond to the case I would not bore you with all the glory detail on the legal procedure because they are fast changing long story short is we are currently asserting our patent in multiple jurisdiction against them on both our service side as well as our device side. So unlike Disney Amazon, I can make and import devices into the United States. So by the way, we discover all the details in 10K. We will keep on updating them as a procedure progress. Awesome.
I guess a separate question. Could you talk to, you know?
Look, it depends on how you define the market. If you define the markets, R&D and IP driven come in, there's actually quite a few of us. I mean, if you think about, you can define the whole software industry as an IP company, because they are copyright driven. But I know that's not how most people think. So there's a number of probably treated company, and they do license different technology. I'm not going to name them because I know most of them. We do get together for dinner. So what I like to say is, all we think about the layer of innovation we do, which is foundational layer, which has certain advantages. Because then you don't have to make bet on the application layer which one will become you know bigger and better over time and also think about our strengths in standard side some of those other company if they operate in a different layer sometimes they are more operating in the implementation layer which has advantage which also has disadvantage so I'll see all of us have our own secret sauce I'm happy to hear what we have and we have demonstrated our business has you know a lot of is still in there yeah good all right hey thank you for everyone participating i know i'm between you and launch so i want to spend more than what i allocated so enjoy the rest of the conference Thank you.