Good day and welcome to the InterDigital's First Quarter 2018 Earnings Call. Today's conference is being recorded. At this time, I will like to turn the conference over to Patrick Van de Wille. Please go ahead.

Thanks very much, Alicia. Good morning, everyone and welcome to InterDigital's first quarter 2018 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 will offer some insights 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 and quarterly report on Form 10-Q, published this morning as well as those details in our Annual Report on Form 10-K for the year ended December 31, 2017 and from time-to-time and 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 first quarter 2018 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 Q1, 2018. With that taken care of, I'll turn the call over to Bill.

Good morning everyone. Thank you for joining us on the call today. As you saw in the press release this morning, the company delivered another very strong quarter both financially and strategically. Rich will go into the numbers in more details in his remarks including providing some added color around the impact of the new accounting standards and tax law. I want to do a quick review of the first quarter from a revenue and cost perspective before touching on the Technicolor transaction and then interesting events going on with respect to China. The first quarter revenue for the company was just over $87 million which reflects the impact of the new accounting standard ASC 606. Under the prior accounting standards first quarter revenue would have been $105 million. The overall level of revenue was solid and also included a variety of new contributions including new release of LG and Kyocera and a contribution by the Signal Trust which are licensed to get large InterDigital patent portfolio related to cellular infrastructure. The expense side was also very encouraging with a 5% year-over-year reduction in operating expenses. As I will talk about it a bit later after a transition period our goal with the Technicolor transaction is to maintain our cost of 2017 levels allowing the added revenue from the transaction to easily and directly drive profit. In the first quarter we began to take the steps internally to reduce our cost essentially making room for the Technicolor assets. We continue to carefully manage our patent portfolio, we've reduced our headcount modestly and we sold our [indiscernible] commercial initiative. We will have some additional work to do, but we are well on the path to delivering on the goal of maintaining our expenses flat notwithstanding the acquisition. Moving on to the…

Thanks, Bill. As Bill indicated there are few optics that lend themselves to additional discussion this quarter. My comments today will focus on three matters, one the new revenue recognition standard, two the positive impact of the recent US tax reform measures, and three our pending acquisition of the Technicolor patent licensing business. Let's start with our January 1st, adoption of ASC 606. As we discussed before the new revenue recognition standard is a sweeping change that impacts nearly all companies across all industries and is the result of the joint efforts of FASB and the IASC. While licensing companies receiving fixed payments or prepayments the critical question is whether technology developed and/or patents issued over the life of the agreement are inextricably linked to technology and/or patents delivered at the inception of the agreement. For InterDigital, this is most often the case which lessens the long-term impact of the rule change. However, we did have some unique circumstances that led to a few agreements where this was not the case. As a result, our adoption of ASC 606, results in us losing the ability to recognize an estimated $90 million of revenue in 2018 that we would have otherwise recognized under the old accounting rules. The most important point, I would like to drive home, is that this is no reflection of the ongoing success or health of our business or cash flows. This is purely a revenue recognition matter driven by new accounting standards. This quarter, our financial statements reflect the impact of the new accounting standards. We've adopted the standard using the modified retrospective method which does not restate prior periods but rather runs the cumulative effect of the adoption through retained earnings as a beginning balance sheet adjustment. As a result, any comparison between first quarter…

Thanks very much, Rich. Alicia, we'd like to open the call for questions.

Yes sir, thank you. [Operator Instructions] We'll go first to Charlie Anderson with Dougherty & Company.

Yeah. Thanks for taking my questions. So, Bill I want to ask Qualcomm's call last night. They talked a lot about sort of the new offering on patent licensing from them which is a kind of standard essential only version, sort of the way to quicken the pace and maybe in China and elsewhere where people can access the 5G. I wonder if that's something that you guys have contemplated as well that you have done something like that. To a degree that Qualcomm does that and does that change the environment at all separating now same essential patents from everything else? And then I've got another.

So, I think we've been flexible around that, we've done agreements that were SCP only, but frankly the customer really very rarely wants that. And I think there is a significant difference in the economics between our licenses and theirs. So, I think our program as always had a level of flexibility in it in terms of how we structure the deals, the discounts we offer and other elements that we bring in. The fact that they're doing something to bring flexibility into the business and doesn't really affect us we've always have flexibility in our system.

Got it. Got it. And then Rich I wanted to ask about the difference from ASC's impact on some of the variable royalties and also on the tax solution side. I might understand that that's basically the timing difference now from one quarter arrears versus real time. And so I guess what I should expect there is just a change in the seasonal pattern. And now within tax solution it seems like a pretty big haircut. So I just want to understand what's going on there specifically?

Yeah. So I'll start with tax solutions. The difference there is driven kind of by two things. Putting aside 606 we had the expiration of a tech solutions contract. Typically that fourth quarter that expiration may have resulted in some royalties that spill over into the first quarter on a lag basis. Like as a result of 606 you get that change over where you lose that. And I've seen impact in terms of moving from the lag to quarterly estimates shows up a little bit in the variable line as well. But really, if you look year-over-year on that variable line, which really driving that adjustment down was when you look to first quarter last year, I think it was maybe $60 million or so variable dropped down to 10 to 11 the balance of the year which is more consistent with what we have this year on the 605 basis. So you had in first quarter of '17 the recognition of a couple of variable agreements that expired in fourth quarter of '16. And then you have the drop off in Q2.

Got it. And then just one for me, for Bill. Bill I appreciate the commentary around the China stuff. I wonder if you could maybe just talk to in the real time how is it impacting the conversations you're having with potential licensees. Does that change any urgency one way or the other in terms of when people want to transact with you? Any additional commentary there will be helpful.

So we haven't seen anything in terms of a change. I think as I mentioned with respect to DC, the impact will really be on just some elements of flexibility in terms of other things we could add into the deal. But it doesn't impact our ability to do a deal with them, so there is conversations that continue with them. And everyone else is pretty much at least so far, and I expect this to be the case. It's been business as usual. So we continue to have good discussions there. I think not so much, the China trade issues, I think people are more interested now in terms of understanding the Technicolor impact with us. And I think that's a very positive thing as we work to close on that deal. Because obviously it brings added value into the transaction. So nothing specific around the trade thing and no specific change in the pace of the discussions, if anything the change in discussion has been more driven by Technicolor.

Just I got one more. Would it be your preference then to wait until you close Technicolor to close? I mean it would give you I assume a better overall rates with the counterparty. That's all I have.

You don't really need to wait. You can kind of build it in appropriately. Typically within license agreements we'll deal with acquisitions and what the impact of acquisitions would be. And so without getting too far ahead of ourselves, one way to deal with the Technicolor acquisition will be it's basically designed -- it's designed in rate bump when the transaction happens. So it leaves open the possibility which we think is well if the transaction doesn't close, but it provides a solution as soon as the transaction does close. So, the transaction isn't slowing anything down. It's just I think creating a better dialog and I think we had the flexibility to deal with that and other types of acquisition in the frameworks under the agreements.

Got it. That will make sense. Okay. Thanks so much.

Thanks, John.

Thanks John.

[Operator Instructions] We'll go next to Matthew Galinko of Sidoti.

Hi, good morning guys. Thanks for taking my question. I want to make sure I understand the 10% guideline you shared regarding potential incremental revenues from the Technicolor IP applied to your handset business. Is that regarding your long-term kind of platform target that you've talked about or is that of your 2017 kind of 605 revenue base or is it of your 2018 606 revenue base, just could you kind of collaborate that for me?

Sure. I'll take a shot at it and then Rich you can come on top. So, the 10% is, if you think about it in this way, it sort of put accounting standard to the side appreciate the clarity that they're bringing in. The thing about the 10% is, if we had an average rate of X in our system that the average rate goes up by 10% in our program. So, now it leads in over time right because we have agreement that are in place for a while that we'll go back to later and with respect to Technicolor asset there is other agreement that we will deal with now. So, I think it's a 10% increase in our base line revenue for that program over time. And that's a number as we said in the script that, when we look at the licensing history in video the strength of the Technicolor portfolio and a number of other factors that we're very comfortable setting as a guideline for the transaction. So, hope I got it right. Rich, anything else you want to add?

No I think that pretty well address it unless Matt you need further clarification.

No, no, I appreciate it, that's helpful. And then secondly another accounting question there on the acquisition. I think you have mentioned in terms of any revenue that Technicolor brings over from the existing licenses, any kind of preliminary thought on how purchase accounting goes through now under 606, are there any changes to how that looks?

Yeah. So, it's less about purchase accounting and more just about how revenue looks under 606, so that would be an impact on any contracts that come over. I think that we've spent a lot of time focusing on that though, because I did mention maybe you missed it Matt, but there is only a modest impact that we expect from kind of contracts that come over day one. It's much less about the contracts that we acquire and much more about the impact through our core business and adding new markets and the growth that provides going forward.

Got you. Appreciate that. All right, one last one, I know I think maybe at the last Analyst Day over the last little while you've talked about kind of managing the number of total maybe patents in your portfolio or kind of pruning where you have an opportunity to kind of manage your amortization expenses. I guess I'm just curious just given the large portfolio that comes in, do you have a perspective on kind of curating that at all to bring the number down in aggregate and focus on the higher quality assets in the portfolios or just how do you think about that with regards to the comments you've provided in the past?

Yeah so…

We estimate that…

Yes. Go ahead, Bill.

Yeah I'm just going to say that's certainly something that we and I think a lot of large scale licensing companies find to be a sensible activity in the norm. And when you have the opportunity to bring two very large assets together, it certainly create those kinds of opportunities as well.

Got it. All right, that's all for me. Appreciate it.

And that does conclude our conference for today. I would like to turn the call back over to our speakers for any additional or closing comments.

Thank you very much Alicia. And thank you for our shareholders for joining us again this quarter. We'll see you in three months.

Thank you. That does conclude the conference for today. We thank you for your participation. You may now disconnect.