InterDigital, Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you, Abby, and good morning, everyone.

Welcome to InterDigital's third quarter 2026 earnings conference call. I am Raiford Garrabrant, VP of Investor Relations for InterDigital. With me on today's call are Liren Chen, our President and CEO, and Rich Brezski, our CFO. Consistent with prior calls, we will offer some highlights about the quarter and the company and then open the call up for questions. For additional details, you can access our earnings release and slide presentation that accompany this call on our investor relations website. 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 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 Factors section of our 2025 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 the supplemental materials posted to the investor relations section of our website. With that taken care of, I will turn the call over to Liren.

Thank you, Raiford. Good morning, everyone, and thanks for joining us today. This was another excellent quarter with strong execution across each part of our business. We reached an agreement on a new license with a top PC OEM, received favorable decisions from our enforcement campaign, made further progress in our video services program, and continued to drive leadership for the next generation of video and wireless technology and standard development. Driven by our license success, we have delivered financial results well above the top in our guidance. Revenue for the third quarter was $193 million, up 17% year-over-year. Adjusted EBITDA was $131 million, up $25 million year-over-year, up 25% year-over-year. Our annualized recurring revenue reached a record $629 million. As you might recall, in Q2, we raised our full year guidance by $85 million at the midpoint.

With our strong execution in Q3, we now have contracted revenue for the year that already exceeded the midpoint of our full year guidance as we continue to drive business growth for the rest of the year. We also increased our quarterly dividend from $0.70 to $0.75 per share, continuing our track record of returning capital, including more than doubling our dividend over the last four years. Let's increase quarter, which will cover our financial performance in more detail. I'll start with license. During the quarter, we agreed to enter into a patent license agreement with a top PC manufacturer with a final term to be determined through arbitration. With this agreement, we now have 70% of the PC market under license, including four of the top five PC makers in the world. We also completed a new license with KEBA, covering the company's EV charger.

With this new license, our revenue in our CE and IoT program nearly doubled year over year to almost $56 million. Staying with consumer electronics, we announced this week that we were awarded a preliminary injunction by a court in Brazil as part of our ongoing enforcement campaign against TCL. Based on an independent expert report, the court found that TCL infringed our two patents in suit, that the patents are essential to the HEVC standard, and the offers we made met FRAND obligations. The court noted TCL's offer was at order of magnitude too low. Further resolved, TCL must stop implementing the VVC standard and HEVC standard in devices they manufacture, import, or offer for sale in Brazil.

As some of you already know, TCL is a top three global TV manufacturer, and we believe this court decision is an important step to reach a long-term license agreement with them. In streaming and services, we continue to make progress towards our long-term goals. During the quarter, the Unified Patent Court in Europe awarded us two new injunctions against Disney. The first cover a patent related to encoding for HEVC video, and the second covers technology for sharing video content between devices such as casting from a smartphone to a TV. Both injunctions applied across multiple EU countries, and in both cases, the court confirmed the validity of our patent in suit. While the court found InterDigital has acted in a fair manner during the licensing negotiation, the court was critical of Disney's conduct and found Disney has acted as an unwilling licensee.

Disney has made a streaming platform at the center for how consumer experience Disney's own IP. But this vision is only possible with the advanced compression that supports content delivery with innovation that delivers highest picture quality, speed, and reliability that consumers has come to expect when they are enjoying their favorite movies and shows. These are the technologies that our video researcher has spent decades developing and perfecting. Each of the steps we take in protecting and enforcing our patent serve the purpose of reaching a long-term license with Disney on fair terms that reflect the value of technology and how much Disney has benefited from them. Our success in this campaign with the court across multiple jurisdictions finding in our favor in eight out of eight patent trials and awarded us eight injunctions, reflects the quality of our innovation and the depth and strength of our portfolio.

It also highlights how our foundational research underpins the whole video streaming industry. As a reminder, in addition to our success against Disney, we have already made considerable progress in our streaming and cloud service program with the announcement last quarter that we have entered into a new patent license agreement with Amazon covering devices and services with the final term to be decided through binding arbitration. As I have said many times, while preference is always to conclude license agreement through bilateral negotiation, binding arbitration is an effective approach to decide the final terms of a license agreement. Turning to research, a lot of momentum is building behind one of the most advanced video codec, VVC, which represents Versatile Video Coding, which will lead to additional licensing opportunities.

The VVC standard was finalized in 2020, and we are widely recognized as one of the foundational innovators behind the standard with one of the largest and highest quality patent portfolio. This leadership is particularly important because as we consume more video across devices, streaming services, and social media platform, compression is the essential foundation that enables high-quality content to be efficiently distributed. Recently, Qualcomm and MediaTek announced that they have implemented VVC hardware decoding to their latest smartphone chipset. This follows an announcement from Google early this year that it was adding support for VVC in the latest version of Android. These are significant milestones that VVC is on the way to being widely deployed across hundreds of millions of devices and across a wide range of video services. We had a leading role in developing VVC, and our research leadership continued to be recognized by the industry.

Last month at IBC 2026, the leading trade show in the video industry, we received a Best in Show award, along with our research partner, NHK from Japan, for our demonstration of VVC multilayer coding. This technology allows broadcast and streaming services to carry multiple versions of the same content in one VVC bitstream, which save bandwidth and storage and give you more options such as adding captions or sign languages. Staying on our research, this month, one of our wireless engineers was reelected to a senior leadership position within IEEE, the standard organization that lead development of Wi-Fi. We believe strongly that standard leadership is a key part of helping to shape the next generation of wireless, video, and AI technologies.

This is particularly important as these technologies continue to converge across network devices and services as we move towards a new era of AI-driven connectivity and immersive user experience. In summary, this quarter once again demonstrates the strength of our business model in delivering profitable growth. Our success continue to be recognized by third party, including most recently by Newsweek, which named us among America's greatest companies, and by TIME, which named us as America's growth leaders. I'm proud of our achievement and want to thank Newsweek and TIME for the recognition on behalf of our colleagues at InterDigital. With that, I'll hand it over to Rich, who will walk you through the numbers in more detail.

Thanks, Liren. I am pleased to report that our strong momentum continued in Q3 with revenue, Adjusted EBITDA, GAAP diluted EPS, and non-GAAP diluted EPS, all exceeding the high end of our guidance range. The upside was driven by our new consumer electronics agreement with a top PC manufacturer. Total revenue for the quarter was $193.4 million, an increase of 17% year-over-year, and above our guidance range of $154 million-$158 million. Revenue included $36.2 million of catch-up revenue, compared with $17.7 million in the third quarter of last year. Our annualized recurring revenue, or ARR, increased 7% year-over-year to another all-time high of $629 million, compared with $588 million a year ago. Looking at revenue by program, smartphone revenue was $122.6 million, CE and IoT and auto revenue nearly doubled year-over-year to $55.7 million, while streaming and cloud services contributed $15 million.