Please standby. Good day everyone and welcome to the InterDigital second quarter 2017 earnings call. Today’s conference is being recorded. At this time, I’d like to turn the conference to your host, Mr. Patrick Van de Wille. Please go ahead, sir.

Hi. Thank you Augusta. Good morning everyone and welcome to InterDigital’s second quarter 2017 earnings conference call. With me this morning are Bill Merritt, our President and CEO and Rich Brezski, our CFO. Consistent with last quarter’s call, we’ll 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 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 set forth in our earnings release published this morning, as well as those detailed in our Annual Report on Form 10-K for the year ended December 31, 2016 and from time-to-time in our other filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof and except as required by law, we undertake no obligation to update or revise any of them whether as a result of new information, future events or otherwise. In addition, today’s presentation may contain references to non-GAAP financial measures, such as free cash flow, pro forma operating expenses and non-GAAP net income. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our second quarter 2017 financial metrics tracker, which can be accessed on our homepage, www.interdigital.com, by clicking on the link on the left side of the homepage that says, Financial Metrics Tracker for Q2 2017. With that taken care of, I’ll turn the call over to Bill.

Good morning everyone and thank you for joining us on the call today. As you saw from the press release this morning, the company delivered a spectacular quarter, driven by our strong base of licensees, the settlement of our dispute with Microsoft and our efforts to control our costs, particularly around taxes and litigation. All of that resulted in a substantial increase in profitability, both year-over-year and quarter-over-quarter. Rich will go through the numbers in more detail in his remarks. I wanted to spend just a couple minutes today talking quickly about the state of our wireless terminal licensing business, particularly around how the initiatives undertaken by the company over the last couple of years are adding to the strength of that business. As already mentioned, our base on licensees is strong with the three leading providers of smartphones under license. In that regard, we were particularly pleased that Samsung chose to continue to its license about to another five years, at the end of the full term of this license, Samsung will have been a licensee of ours for nearly 27 years. That’s a tremendous statement about the ongoing leadership in mobile communications that InterDigital has shown, how a market leader values our technology and how dependable our business is. We operate today from the strongest position we have ever been in. Our position is primarily built on a heritage of wireless innovation, but also benefits today from the thoughtful business expansion we have done over the past number of years. While we have remained tuned over our business model of driving fundamental innovation for the application across the mobile terminal unit market, we have significantly enhanced our business in terms of the types of innovation in which we invest. Our innovation profile is much wider today than before…

Thanks, Bill. We are once again pleased to report financial results that reflect our strong business. As you know, we reached a settlement with Microsoft in the second quarter 2017. The Microsoft settlement is the latest nonrecurring contribution to supplement our strong base of recurring revenue. In fact, in the five-year period from July 2012 through this past June 2017, we have recognized over $1 billion in nonrecurring revenue, including close to $400 million in patent sales. Even excluding patent sales, we have recognized over $100 million of the nonoccurring revenue in three of the last four calendar years. With slightly more than half of the market available to license, we see meaningful opportunities to both increase our recurring revenue base and realize additional nonrecurring revenue. As has been our recent history, the significant increase in revenue this quarter did not impact our expense profile. This helped to drive second quarter 2017 operating income to 3.5 times the prior year quarter and 2.5 times the prior quarter sequentially, reflecting both careful expense management and the tremendous operating leverage that exists within our business model. Our free cash flow generation of about $10 million was lower than you might expect from almost $53 million of net income in the quarter. As I’ve discussed before, there are often timing differences between cash collections and revenue recognition. I noticed a bit more interest in this topic when talking to investors lately, so let me go into a bit more detail. Given our large deferred revenue balance, totaling about $650 million at the end of the quarter, one of those question areas is around what percentage of our contracted future revenues relates to cash that we’ve already received? The answer is, that’s very small. Let me explain why? First, nearly $400 million of our…

Thank you. Rich. Augusta, we’ll open the call for questions.

Thank you. The question-and-answer session will be conducted electronically [Operator Instructions]. We’ll go first to Darrin Peller with Barclays.

Hey, guys. It’s Nikhil Dixit on for Darrin, congrats on the quarter.

Thanks, Nikhil.

At a high level, I was wondering if you could comment first on – any changes in the litigation market that you’re seeing? I know some peers in the patent space have been facing headwinds from recent rulings. And I was wondering if you see any re-through with regards to the impact of IDCC? And then in addition, with regards to the landscape in China, specifically, given that’s where the remaining license opportunities are. Is there any change you’re seeing there as well?

Sure. So at a high-level – you’re right that there’s been a number of decisions particularly by the U.S. Supreme Court around patent matters. I’d say that, they’ve really haven’t affected us all that much, because, for example, the decision or the Supreme Court around venue, which really is a decision that would affect venues like InterDigital Texas and things like that. That’s now – that doesn’t impact us, because that’s traditionally not been a venue we litigate actually, and it frankly, makes Delaware a more attractive venue and that’s where we live in. So from that perspective that’s not – that wasn’t problematic for us. We may not agree with the case, but it’s not problematic for our business. I think the recent decision by the court to review the patent review process at the USPTO is a – a was a good decision, because we do have issues with that in terms of the way that that process has been conducted. And so the fact that the Supreme Court has decided to take that up, I think, it’s a positive indicator. We’ll see how they decide. But at least, the fact that they’re looking at is good. The third thing, I’d say, and this is something I commented on in the last call. We still continue to believe that recent case in the United Kingdom around InterDigital patents and the enforcement of those those and the fact that patent holders are entitled to a worldwide license [to the extent of] [ph] of worldwide portfolio, that that continues to be a very positive case. And I – there’s been a lot of dialogue and there’s various education sessions around that that decision. And I think, generally, people – the license holders are feeling pretty good that that’s a very rational reasonable decision and can provide an effective means who are putting in place reasonable license agreement. So on balance, I’d say, given all that, I think the environment worldwide, I think, is better. Again, Supreme Court cases in the U.S., I’d probably say, generally for patent holders have been a little bit rough, but for us not really a big effect.

Got it. That’s helpful. And then just a quick follow-up. I know there has been kind of a lot of press around your IoT platforms and products specifically the wot.io and the oneMPOWER and also oneTRANSPORT solutions as well. I was wondering first, you could comment on kind of the feedback that you’ve been receiving from others in the space? And then also, I was wondering how we should think about the potential monetization or economics from these types of solutions, or any partnerships outside of Avanci, whether that might be a 2017 or 2018 event, or is it still kind of a longer-term?

Sure. So, in terms of the platform, I think, the platform really has two pieces. There is the oneMPOWER pushing over the path and that’s managing the connectivity in terms of authentication and things like that, and that’s based upon the standard that we help the champion. I think on that, the one the standard itself is getting more traction, which is really good. And second, we continue to have the most mature platform out there. So I think that bodes well for that portion of the system. The other other part of the system is the wot.io operating environment. There’s two things and they’ve been blended together into a single offering. wot.io is – provides a means of sort of scaling an IoT solution across a large-scale deployment. We continue to see interest – very good interest in that and as well, because it represents a unique solution in the market. So, we continue to feel good about our position. Again, we’ve got ways to go in terms of ultimately proving it out, but we feel good today where we are in terms of how we would expect to monetize it. It really can come in a couple of ways, right? So certainly, there’s a straight up licensing of the software by us and they would also be a services component in that offering. That’s the path we’re on right now. We’re doing it both directly and we also have channel partners that we’re working with. The second – so that’s – and that’s certainly something we would hope to see, what I would call, quality revenue this year. So it’s not a quantity game, it’s a question of, are we seeing revenue that can scale over the next couple of years? So that’s our focus right now. The second aspect to that is, there’s a very large patent portfolio that sits behind all of that and particularly with respect to the oneMPOWER platform, there’s a large standards-essential patent platform that sits behind that. So that will be a second opportunity for us to monetize our investment there. So even if the software opportunity were not to play out the way we would hope, but right now we’re – we have – we’re definitely pushing down the software patent. We have good opportunities. There’s certainly a second opportunity with the patent as well.

Got it. Very helpful. Congratulation, guys. I’ll jump back in the queue.

Thanks.

Thank you.

[Operator Instructions] We’ll move next to Charlie Anderson with Dougherty & Company.

Yes, thanks for taking my questions and congrats on the strong quarter. I had a couple of housekeeping for Rich, then I had a big picture for Bill. So, Rich, first of all, it didn’t look like there was Huawei transfer of patents, the second one you guys were anticipating is that pushed into Q3?

Yes, I think, we discussed on an earlier call that although initially when we signed the agreement, we had thought maybe second quarter, we updated that in the second and third quarter.

Yes, perfect. Okay. And then as far as, if I look at sort of taking all the Samsung and Apple and Pegatron revenue together, Huawei, if I exclude all of those, I think, all the rest of your sort of a patent licensing revenue is down maybe $8 million, $9 million, $10 million in absolute dollars year-over-year. And I know you guys have the roll off of some sort of M2M licensees as we pivot over to Avanci.I wonder if you could talk about the magnitude of that in the first-half of the year in terms of that roll off effect?

So for some of the module suppliers that whose contracts expired at the end of 2016 for, at least, some of them, because they want a quarter lag. There was a little bit of revenue we recognized in the first quarter, but then you see the roll off [indiscernible] that we would recognize in first quarter into Q2. Again, while we have the opportunity to license and renew those manufacturers, we also look at Avanci as a great avenue to address that portion of the market.

I think it was an annual number right, Rich? I guess, what I’m wondering is, are they all rolled off, or there’s – is there more roll off in the second-half of the year?

No, no, I think that – they all rolled off at the end of 2016.

Got it.

So the only carryover impact in the Q1 would have been to the extent that there was quarter lag reporting.

Got it. Okay.

And I’ll give the exact number once Charlie. But if you go back to the 10-Q, we would have disclosed, I’m sorry, the 10-K going into 2016, we would have disclosed that roll off for the end of the year based on the prior year revenue.

Okay, perfect. And then, Bill for you, I mean, you’ve made it pretty clear that you guys would like to grow a little organically here, it’s been successful for you guys so far. I wonder if you could just talk a little bit about the size of the opportunities you’re looking at? How close some of them seem if you were to do something, how we should interpret it in terms of the underpinning strategy? Just any recent commentary on what you’re seeing on the inorganic growth? That would be helpful. Thanks.

So a couple of things. In terms of strategic direction, right, so we think about M&A, it’s really all about supporting the core business and driving that core business. You can do simple math and just say, if I can do an acquisition that would result in $0.10 more per unit value from our core customers, at a 1.5 billion unit is being sold, that’s a $150 million in added revenue each year, right, so that’s a pretty substantial growth, given the – based on the numbers I gave you. So you would – that would be the sort of the anchor tenants in any acquisition we would do is, how would it drive core business. You would – what you would get as well with any acquisition, we saw this with something as small as Hillcrest, as you pick up some other markets as well. So the Hillcrest acquisition was really focused on how we’ll drive our core business and it was really about two pieces of their business, which was their product solutions they had for mobile, as well as the patent portfolio that backed us above. They also came with a position in your headgear, or they came with a position in robots and other things, which we can then grow on. But it’s all driven – ultimately, it’s all about the core business. And then I’d say, in terms of size, it’s not really – it’s a value thing. So, whether something is $50 million, or $500 million. It’s all going to be about what’s the returns you’re getting on that and we’re pretty disciplined in terms of how we model things, how we model our own business, and how we would model on acquisition. We certainly have a lot of capability. But I wouldn’t say that, our strength is taking us to one place or another on the size scale, what’s going to take us anywhere is the value scale. And third, in terms of what opportunities are out there, I think, that there’s a reasonable list of opportunities for us out there, both in terms of companies that have developed technology that would be pervasive for mobile and here is already known to be pervasive, or we expected to be pervasive. We learned a lot over last year in terms of our sourcing capability, screening ability. We learned a lot through the Hillcrest acquisition. So I think we’re pretty well positioned to kind of sort our way through opportunities, again, with the ultimate goal of being driving that core business, because it is so valuable, and I think there’s a substantial amount of growth left for us there.

Perfect. I had just one more, I want to sneak in. We did see [indiscernible] in China in the quarter. I wonder has anything changed in terms of the ability to enforce IP in China for all the industry participants from your perspective?

Yes, it’s a good question. There has been more activity. I mean, there was a recent case involving some, so I think Japan, Chinese company and Sony, where actually there I don’t think add any junction against Sony products. You’ve seen other people filing in China. I think it reflects the growing maturity of the intellectual property system within China. So I –look, I think it tends – it becomes another option for folks in terms of enforcement. And I think it follows from what has been – there’s a longstanding issue with the patent office in China, which has always been a very high-quality patent office. The courts in China had their ups and downs in part, because there’s such regionalization in those court systems. But the fact that people are going into court. They are more often said that even that part of the system is maturing. So again, I think it’s another tool that to the extent that you have to go to litigation you can think about it.

Perfect. Thanks so much.

[Operator Instructions] We’ll go next to Eric Wold with B Riley.

Thank you, good morning guys. A couple of questions, I guess one, on the Samsung renewal, congrats on getting that done. Obviously not much sit on it in the 10-Q, any additional color on that? Any meaningful changes either direction, positive or negative in terms of the coverage, dollar amount etcetera, or is it basically just as it was extended another five years?

You know in terms of the license agreement with the dimes, to have this 10 year life there was option for them to terminate. Obviously that option was built-in, in the case of Samsung didn’t see the value and obviously they did. So I think that’s all good in terms of what they see in terms of the innovation coming out of the company. So, we think it’s a – it’s again having that three manufacturers, main manufacturers under license now is a great position for us to be in both in terms of how it drives our financial results, and then as well as how it plays in front of other licensees now, so. Other than that, if you look at the Q in terms of any disclosure amount or financial terms of Samsung, but obviously very happy to extent it.

Okay and then you are kind of placing my second question on your discussion with other licensees, was there any part of the Samsung, I’ll use the uncertainty, but I mean just the right, they have to terminate that was right, did that played – has that played a role at all in your discussions with kind of the four major outstanding guys that they can want to wait and see what Samsung was going to do? And then, whether yes or no, I think you’ve framed kind of the current discussions with those, any common sticking point, how have they progressed since the Apple license at the end of last year and then considering the major past – the meaningful past royalty payments that each of those would owe you that we believe obviously can a deal be structured to make both sides happy without one having to give up a lot to get it done?

Alright, so I think – I don’t recall Samsung renewal, Samsung being a big issue for folks, I think we had always talked about it and that was more likely result there, so to the extent it was in the back of people’s mind, I think we have kind of checked that box and that’s done. I think that the things that are positively affecting licensing today, I think the U.K. decision, I mentioned before, there has been a lot of discussion around that, sort of academic circles and then licensing circles that comes up, the licensing executives, as I as an example, has an annual meeting and they will talk about that. And I think people understand the impact of that, which is – it is now fairly efficient form for securing a fair result on licensing terms. We have also seen I think the ITC in the US, now is issued in a positive ALJ decisions in two cases, one involving T-Mobile and the other one involving X-Ray. So I think both of those speak to the, I think the pendulum swinging back, and that the pendulum swinging back is one of the things that certainly affects the licensing discussions. I’d say that the other thing you mentioned is also an important component, there is a fair amount of past sales with respect to all of these licensees. I think we had talked about on the last week, we’ve started through some structures in terms of how we can better deal with the past sales, because they can become an impediment, some transactions. You need to kind of work your way through that and I think we have some approaches on that we think will be positive. The result of all that is this, the cadence of meetings has probably been a little quicker than the host, which is good. So, it’s always hard to predict when things will find their way to conclusion, but I think all of those factors are positive in terms of moving us in the right direction.

Perfect, thank you guys.

Our next question will come from Scott Searle with Benchmark.

Hey Good morning. Hey, just a couple of quick clean up questions for Rich. Rich, could you remind us the Huawei remaining payment amount? And as it relates to patent administration cost in the quarter, is that a new level we should be working off of or just for the typical quarter-to-quarter aberrations?

So, I can’t give you any specific details on Huawei just because we can’t disclose things on, you know contractual terms like that. As far as patent administration and licensing, I don’t think there is anything really unusual there. So, I don’t know if I have too much to add in terms of the levels there, that’s going to ebb and flow a little bit depending on what we are doing; but we certainly have been working to make sure that we’re being as efficient as possible in maintaining the portfolio.

Got you, and for Bill, in your opening comments talking about the different technologies and exposure of the company and how you changed over the past couple of years from a purely more RF mobile driven company, clearly M&A is part of that as it’s already been addressed a little bit on the call, but two things, in terms of the size of M&A, are there places and size that you wouldn’t go. Hillcrest is the largest acquisition you’ve done in the past 10 years and that was $50 million. Are you looking at bigger things or is that too difficult for the company to digest? And then just in general, looking at some of these different market opportunities that are complementary to your existing channel, are you thinking about other partnerships, other joint ventures, Avanci or are these things that you would look to build internally in terms of addressing or going after those markets?

So, I’ll start with that last piece first and I’ll kind of go backwards. I think we definitely know, we look at a range of structures, because you’re right not everything need to be in acquisition, nor does everything need to be built from scratch inside. There is in between pounds right, which is you can partner with people like we do with Convida around things, so we can partner with other folks to either look at bringing a particular solution to the market or doing research in the particular areas. And so we’re open to any kind of structure. It’s really going to be dependent upon what structure makes the most sense for a particular initiative. So, again it’s all about value creation at the end of the day, it’s not about the company being a particular size or being – or having a particular level of control. It’s just about how we create value at the end of the day; so being flexible on that front I think is the best thing for us to do. In terms of acquisitions, I think again it’s not so much driven by the size; but it’s really driven by the value. Obviously there is limits as to what we could do on the size side, on the size side, here we go. But I think it’s going to depend upon, as I said is the acquisition one that we believe will help drive more business and drive it in a very strong way. And if you check that box, then you know well then we dig in and look at the value creation at the end of the day and if it’s solid value creation of a $15 million acquisition or a solid value creation of a, you know a couple $100 million acquisition it doesn’t really make a difference on how much you’re spending, it’s really how much you’re getting back.

Got you and if I could follow-up on the IoT front, certainly some positive commentary from you and I don’t if you specifically addressed the five-year goals of $75 million to $100 million, if those seem like they’re still tracking and kind of your thoughts in terms of Avanci versus platform. I would think kind of given the evolution of the auto market and the opportunity there, you’re mostly able to get to those $75 million to $100 million type revenue numbers just from the Avanci side and the patent licensing side of the equation. So I’m kind of curious as to your thoughts there. And then I guess within that, within the platform, it is a competitive marketplace out there. There are a lot of big technology providers and carriers or otherwise who maintain their own platforms or at least I believe they have their own internal platform. So, is there enough activity, it sounds like there is enough activity going on out there that has you excited about the opportunity; but are there a couple of big milestones that we should be paying attention to a revenue-generating or otherwise that illustrate that there is a firm commitment that you’ll continue to be in the platform on the services side as opposed to maybe going another route given just a competitive aspects of that marketplace?

Yes, let me start again with sort of the backend and then I’ll go back to the first item. So in terms of how we’re positioned, you’re right that there is a number, it’s a fairly competitive environment out there. It’s an interesting competition now because a lot of the things that are competing out there are proprietary platforms against standardized platforms. And then – and if you look at that competition, I actually think that the standard solutions are going to prevail and [indiscernible] before, it’s just the weight of research that goes on behind the standardized solution and the value that the standardized solution brings that I think ultimately drives people towards a standard. .: So the standards process is going, I think, very well for us. And then so – and if it goes down that path, then you actually have fewer competitors, because there are fewer folks out there that have platforms that are the oneMPOWERplatforms. Of course, people will come into the market later with that sort of standard versus nonstandard approach is decided that really. So at the moment, we have a market lead there, which is good. But then if others are interested in that platform, it creates a number of opportunities for us either in terms of partnering. It obviously creates sales opportunities for platform in front of market lead position. Also gives an opportunity if you want to sell that particular part of our business. And so, I think, it creates a lot of options for us there. And again, we’re all about value creation at the end of the day. We’re not at oneMPOWER building. And so, we’re going to pick the path that we think drives the highest level of value. Go back to your first question in terms of the mix of IoT revenue in Avanci, I think, that the opportunity in IoT is very significant. The ramp of IoT is, I think, we’re still sort of at the beginning and we don’t have that well-defined ramp yet. I think part of that’s going to be driven by 5G, it’s going to enable much more connectivity out there for things that are low-power, low-cost connections. So I think, that we’re still comfortable with the guidance that we gave around that business. The things that you would want to look for to see how we’re progressing towards that and we’ll inform people out are really two things. As on if we get deals done, we’ll certainly let people know that. And then second, as we get licensing – software licensing revenue, we’ll let people know that and talk about the scalability of each of those. And so hopefully give people a sense that we’re beyond just saying that we’re on track, but actually give you quantitative milestones you look at to say that, yes, these guys are on track for that.

Bill, will you see some revenue this year from that?

I would think so. I think for both pieces that we’re expecting revenue on both sides, I don’t think it’s significant. I think it’s more about, like I said before, it’s more about the quality of the revenue. And so that’s more important to me. I’d rather have something that’s that I see is scaling over time than sort of a one-time or something that hits in 2017. But I wouldn’t see how it translates into the 2018 right.

Okay, great. Thanks so much.

Hey, Scott, I just want to add one thing to my answer with respect to patent administration and licensing as well. I was kind of thinking about the operation of that function, but of course, litigation holds into that line when you look at the income statement. And year-over-year, that was down about $2.5 million, so that might be what you’re looking at there, okay?

Thank you.

We have no other questions at this time. I’d like to turn it back to our presenters for any additional or closing remarks.

Thank you, Augusta. Thanks to everyone for joining us this quarter, and we’ll look forward to seeing you in three more months.

That does conclude today’s conference. Thank you all for your participation. You may now disconnect.