Please stand by. Good day and welcome to the InterDigital, Inc., First Quarter 2022 Earnings Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. Richard Lloyd. Please go ahead, sir.

Good morning to everyone, and welcome to InterDigital’s first quarter 2022 earnings conference call. I am Richard Lloyd, Communications Director. And with me in today’s call are Liren Chen, our President and CEO; and Rich Brezski, our CFO. Consistent with last quarter’s call, we will 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 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 2021 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 our financial measures, financial metrics tracker, which is available on the Investor Relations section of our website. With that taken care of, I will turn the call over to Liren.

Thanks, Richard. This was another strong quarter underlying our success in converting our current [ph] technology footprint into a strong recurring revenue base and in managing our cost base in a disciplined manner. [From our highlight numbers] [ph], total revenue increased by 23% year-over-year to $101.3 million, while net income increased to $18 million, up more than 3 times from $5.6 million in the first quarter of last year. Rich will provide more details in his section. Through the course of this quarter, we demonstrated our strength was a leading technology innovator in wireless and video expanded our patent portfolio, so several of our engineers upon into leadership position within standard and the industry bodies, and once again, added to this our 5G licensees. I would like to start with 5G to focus on where we stand closer the company and in the wider context of wireless industry. As you might be aware, sales of 5G smartphones have continued to gain momentum. And in January, the market reached a notable milestone with new 5G smartphone shipment, surpassing 4G shipment for the first time, nearly 3 years after the commercial launch of 5G devices. We hit this milestone 2 years ahead of time compared to the 4G device adoption. This is a remarkable achievement for everyone involved. And at InterDigital, we are proud of our foundational contributions to this latest GE that is proving such a success with consumers. While we have been working on 5G for many years, our engineers continue to contribute to the ongoing development of this exciting technology. In fact, in the first quarter, our 5G related invention disclosures was the height [ph] they have been in several years. In total, our cellular standard essential patent footprint for 5G mountable device has reached nearly 10,000 patents and…

Thanks, Liren, and good morning, everyone. As we were noted, we continue the momentum we established in 2021 with another quarter of strong financial performance, including our third consecutive quarter with revenue exceeding $100 million, another sequential reduction in expenses and overall strong profitability. We closed our license renewal with Sharp late in the quarter, pushing our total revenue above our guided range, which topped out at $100 million. Recurring revenue alone was just shy of $100 million and benefited not only from our Sharp renewal, but also from more than $8 million of recurring CE revenue. Importantly, our CE recurring revenue has more than doubled from the first quarter of last year as a result of signing 7 agreements covering the CE space over the last 12 months and strong underlying per unit sales. Moving on to expenses. We were reported a $15 million sequential decrease in operating expenses. Of this, $7 million was related to lower restructuring charges, with an $8 million sequential decrease across the balance of our expenses. On a year-over-year basis, our total operating expenses were relatively flat, but when you adjust for litigation and share-based compensation, our operating expenses in Q1 of this year were down by $7 million from the prior year. On the whole, we are pleased to see our efforts to reduce our expense base manifests in our latest results. Strong revenue and cost management leads to strong profit, and we are pleased to report $0.58 of GAAP EPS in the quarter, an increase of $0.40 from the prior year. We talked a lot about our strong business and financial performance in 2021. And looking at our year-over-year results for the first quarter of 2022 really shows how far we’ve come in this last year. Looking forward to Q2, we currently…

Thank you Rich and Liren. Operator, we will just take a pause for questions.

Thank you. [Operator Instructions] Our first question will come from Scott Searle with ROTH Capital.

Hey, good morning. Thanks for taking my questions. Nice job on the quarter, guys. Maybe start to dive right in on auto and IoT, it sounds like you’re getting more excited on that front as well as we’ll want to see in there. I was wondering if there was some revenue figures that you could attach to that in terms of the size of CE contribution right now, what video is kind of looking at? Or how we should be thinking about that? And then, specifically, I think you’ve called out. This quarter, we’ll start to see an acceleration in auto and IoT. And it sounds like it’s going to be both direct as well as through the advanced [ph] units. Just wonder if you could flush that out a little bit maybe the magnitude of the impact.

Yeah, Scott, this is Rich. So I did mention in the script that we have about $8 million in recurring CE revenue in Q1. So that’s one of the stronger quarters we had in CE, and double from a year ago. Now, of course, CE does have a lot of per unit, a lot of – overall, were 90% fixed-fee, it’s almost the inverse with close to 90% per unit in the CE space. So that is dependent on quarter-to-quarter shipments. But we’re really pleased that we’ve been able to sign agreements in 2021 and you see some of those results in Q1. On auto and IoT, we alluded to new agreements already signed in Q2, we’re expected to close. So I have more details there. Through the platform license, we participate, GM was announced a recent addition there. So we expect that to contribute in Q2.

Great. And Rich – sorry. Liren?

Yeah, Scott, the only thing I would add is, as I mentioned, in my portion of the script. Release 17 will expect to come on in June of this year. Release 17 has very specific features that we believe will enable IoT use cases as well as automobile use case from the standard development perspective.

Okay. Very helpful. And Rich, one other cost question, OpEx being down in the March quarter, particularly R&D and development was down. Is that a sustainable level that we should think about going forward? Or is there some one-time element going on in there?

Yeah, there’s, I mean, you have a little bit of seasonality, where sometimes some fringe and so forth is higher in Q1. But then there’s also some – we’ve benefited for some things that maybe aren’t going to recur in Q2. So I did note in the guidance reflects a little bit of an increase in recurring expense going into Q2. So, we think we’re at a pretty good level overall, but it always is going to move around just a little bit.

Got you. And Liren, if I could, there are a couple of big customers that have expiring relationships this year. I was wondering if you have any updated thoughts on that progress. Is there opportunity where those could actually be larger contracts and they’ve been in the past? I mean, how should we be thinking about that?

Yeah, Hey, Scott. As you’re mentioning here, so we do have the Oppo agreement expiring by end of Q3 and Samsung agreement in final this year, here. We are in active negotiation. And so we believe strongly that our technology has been more important than ever. And both of those vendors, they tend to compete in the higher end of the product offering that frankly benefit even more from 5G and have the high level features. So we are feeling comfortable about where we are, and we are being actively negotiation, try to get them done, obviously, by the time they are expiring.

Helpful. And lastly, if I could, and then, I’ll hop back in the queue. Some of the relationships with the unlicensed China-based OEMs. More and more, it seems like they’re relying on exports, I think, for Vivo and Oppo, 50% to 55% of their units in the first quarter continue to be from exports. Given the current global geopolitical landscape, what are your current thoughts on that front, is they’re creating more of a sense of urgency, given what we’re seeing in terms of 5G adoption, particularly in markets like Europe where they’re trying to gain share, that it’s driving them closer. Is the active discussions? Or are they better? How is that all kind of playing out in terms of the macro landscape? Thanks so much and congrats on the quarter again.

Yeah. Thanks, Scott. So, yes, you’re absolutely, right, that large vendors including Oppo, Vivo, and also Lenovo are exporting a lot more than half their sales outside China, and they are targeting Europe as well as India, is one of our major market. So we are definitely seeing that trend to continue. And our discussions, we are as we disclosed indeed using with Oppo and Lenovo, so the using strategy damping factor though seen, we are also currently active discussion with Vivo. So I see those as helpful trend in our negotiation dynamic. But the most important thing is we really drive value through our R&D, our patent portfolio is global base. And we have a very established licensing program with more than 80 current licensees that we can point to us, that’s very, very favorable comps. So I think all those parameters is helpful.

Great. Thanks so much.

And our next question comes from Anja Soderstrom with Sidoti.

Hi, thank you for taking my questions and congratulations on the good performance in the first quarter. A lot of good questions asked already. I’m just curious, whether consumer electronics you said that that has shown pretty good growth in the first quarter, should we expect that trajectory to contain? Or was this something special that happened in the first quarter?

Yeah, thanks for your question. We talked about CE kind of closing out the end of 2021, we noted that we added a number of significant agreements that year, a number of agreements, including a top 10 TV manufacturer, and we kind of do it at a – call it a $25 million run rate, obviously, at $8 million for the Q1 that’s running above that. So I don’t want to say it’s going to be $8 million every quarter without additional deals, which we’re working on. It’s going to depend in this business on or that end of the business on per unit sales and what those reports look like. But, in the last couple of quarters, they’ve been strong.

Okay. And those unit sales must have been affected then by the supply chain issues, right? So put it down the road, that’s very helpful to those units?

Yeah. So I think, particularly strong given supply chain issues. But there also can be a little bit more seasonality in that business, then we sometime see in the cellphone business. So you’re looking at, you said this that plays into it as well, when you look at the last couple of quarters.

Okay. Got it. And then I’m just curious. The fixed-fee royalty declined in the first quarter. Is there anything to call out there?

Do I think I’d point to is, we had disclosures in our 10-K for 2021, leading – a year ago, leading into the 2021 calendar year about what was going to expire and then updated that in our most recent 10-K. So you’ll note that there were a couple of fixed-fee expirations in that disclosure.

Okay. Great. That’s all for me. Thank you.

Great. Thanks, Anja.

[Operator Instructions] There are no further questions at this time. I’ll now turn the conference back over to you.

Thank you, operator. I’d like to turn it back to Liren for some final remarks.

Yeah, thank you all for joining the call. I just want to say thank you to our employees, to our customers as well to our shareholders for the past quarter. We appreciate your support, and also still hope everyone to stay safe as we continue to navigate the COVID pandemic. Thank you.

Thank you. And that does conclude today’s conference. We do thank you for your participation. Have an excellent day.