InterDigital, Inc. (IDCC) FY 2021 MD&A

Item 7.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

The following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto contained in this Form 10-K. The following section generally discusses our financial condition and results of operations for our fiscal year ended December 31, 2021 compared to our fiscal year ended December 31, 2020. A discussion regarding our financial condition and results of operations for December 31, 2020 compared to our fiscal year ended December 31, 2019 can be found in Part II, Item 7 of our Annual Report on Form 10-K for fiscal year 2020, filed with the Securities and Exchange Commission (the “SEC”) on February 18, 2021.

Throughout the following discussion and elsewhere in this Form 10-K, we refer to “recurring revenues” and “non-current patent royalties.”  For all periods presented, recurring revenues are comprised of “current patent royalties” and “current technology solutions revenue,”  while "non-current patent royalties" are comprised of past sales royalties and static fixed-fee agreement royalties.

29

Table of Contents

Business

InterDigital, Inc. ("InterDigital") is a global research and development company focused primarily on wireless, visual and related technologies. We design and develop advanced technologies that enable connected, immersive experiences in a broad range of communications and entertainment products and services. We license our innovations worldwide to companies in a variety of industries, including wireless communications, consumer electronics, personal computer, and automotive. Since our founding in 1972, our engineers have designed and developed a wide range of innovations that are used in wireless products and networks, from the earliest digital cellular systems to 5G. With the acquisitions of the patent licensing business (the "Technicolor Patent Acquisition") and research and innovation unit of visual technology industry leader Technicolor SA ("Technicolor") (together, the "Technicolor Acquisitions"), we are a leader in video processing, encoding/decoding, and display technology, with a significant Artificial Intelligence ("AI") research effort that intersects with both wireless and visual technologies.

InterDigital is one of the largest pure research and development and licensing companies in the world, with one of the most significant patent portfolios of fundamental wireless and video technologies. As of December 31, 2021, InterDigital's wholly owned subsidiaries held a portfolio of approximately 27,500 patents and patent applications related to wireless communications, video coding, display technology, and other areas relevant to the wireless and consumer electronics industries. Our portfolio includes numerous patents and patent applications that we believe are or may be essential or may become essential to standards established by many Standards Development Organizations ("SDOs"), including cellular and other wireless communications and video technology standards. Those wireless standards include 3G, 4G and the IEEE 802 suite of standards, as well as patents and patent applications that we believe are or may become essential to 5G standards that currently exist and as they continue to develop. Our video technology portfolio includes patents and applications relating to standards established by ISO/IEC Moving Picture Expert Group (MPEG), the ITU-T Video Coding Expert Group (VCEG), the Joint Collaborative Team on Video Coding (JCT-VC) and the Joint Video Expert Team (JVET), among others.

Our wireless portfolio has largely been built through internal development, supplemented by joint development projects with other companies, and select acquisitions of patents and companies. Our video technology portfolio combines patents and applications that InterDigital obtained through the Technicolor Acquisitions and patents and applications created by internal development. Our patented wireless inventions, our patented video inventions, or both have been implemented in a wide variety of products. Products incorporating our patented inventions include: mobile devices, such as cellular phones, tablets, notebook computers and wireless personal digital assistants; televisions, gaming consoles, set-top boxes, streaming devices and other consumer electronics; wireless infrastructure equipment, such as base stations; components, dongles and modules for wireless devices; and Internet of Things ("IoT") devices and software platforms.

Revenue

In 2021, 2020, and 2019, our total revenues were $425.4 million, $359.0 million, and $318.9 million, respectively. Our recurring revenues in 2021, 2020 and 2019 were $351.7 million, $336.8 million, and $298.2 million, respectively. In 2021, 2020, and 2019, we recognized $73.7 million, $21.6 million and $19.8 million, respectively, of non-current patent royalties as more fully discussed below. In 2021, fixed-fee royalties accounted for approximately 89% of our recurring revenues. These fixed-fee revenues are not affected by the related licensees’ success in the market or the general economic climate. The majority of the remaining portion of our recurring revenue was variable in nature due to the per-unit structure of the related license agreements.

30

Table of Contents

New Agreements

During 2021, we entered into thirteen patent license agreements, including agreements with Xiaomi, Sony, and a top ten TV manufacturer discussed below. We estimate these agreements will result in revenues exceeding $390 million over their respective lives.

Direct Licenses

During third quarter 2021, we entered into a multi-year, worldwide, non-exclusive, royalty bearing license with Xiaomi. The license covers Xiaomi’s cellular-enabled mobile devices under our standard essential patents related to 3G, 4G, 5G, WiFi and HEVC video technology. As part of the agreement, we and Xiaomi agreed to dismiss all pending patent litigation and other proceedings between the companies.

During fourth quarter 2021, we renewed our multi-year, worldwide, non-exclusive patent license agreement with Sony. In addition, we renewed our joint venture with Sony, Convida Wireless.

Licenses Through Platforms

During third quarter 2021, as part of the Madison Arrangement, we entered into a non-exclusive, per-unit royalty-bearing patent license agreement with a top ten global TV manufacturer, covering certain of the licensee’s sales of digital televisions.

Expiration of License Agreements

We had six patent license agreements that were scheduled to expire between January 1, 2021 and December 31, 2021. Of the six related customers, four were renewed during 2021. The two patent license agreements that have not yet been renewed contributed $13.2 million of recurring revenue in 2021.

Nine of our patent license agreements are scheduled to expire during 2022. Collectively, these agreements accounted for $211.5 million, or approximately 60%, of recurring revenue in 2021. Among the customers licensed under these agreements are Apple and Samsung, each of which comprised 10% or more of our consolidated revenues in 2021, 2020, and 2019.

We are actively working to renew these agreements on terms consistent with the licensees' respective market positions and utilization of our technology.

Restructuring Activities

On June 10, 2021, we announced that, as a result of a strategic review of our research and innovation priorities, we commenced the process of a collective economic layoff in which we proposed a reduction in force of 66 positions in our research and innovation unit, 60 of whom are based in France. On September 28, 2021, the Company finalized an agreement with the representative trade unions of certain of its French subsidiaries to commence the reorganization of the research and innovation unit located in France as part of the reduction in force announced in June. This agreement was validated by the Regional Director of Economy, Employment, Labor and Solidarity on October 25, 2021. During fourth quarter 2021, the list of impacted employees was finalized and included additional employees who voluntarily took the termination benefits. The company formally notified the impacted employees in fourth quarter 2021.

In October 2021, we expanded our restructuring efforts to include general and administrative functions largely centered in the U.S., which will result in a further reduction in force of approximately 8% of total headcount as well as cuts to our non-labor expenses. These employees were provided notification of termination during fourth quarter 2021.

During 2021, we recognized $27.9 million restructuring expenses including $22.6 million severance and other benefits, a $13.2 million asset impairment, and $1.7 million outside services and other associated costs, offset by a $9.6 million reimbursement agreement, which are included within “Restructuring Activities” in the consolidated statement of income.

We expect to recognize additional restructuring charges of approximately $1 million in first quarter 2022. We began to see related cost savings in late 2021 and expect to see further cost savings of approximately $15 million in 2022. However, such savings do not account for any changes in litigation, revenue share, or any new investments we may make.

Intellectual Property Rights Enforcement

If we believe a party is required to license our patents in order to manufacture, use and/or sell certain products and such party refuses to do so, we typically offer such party to have royalty rates, or other terms, set by third party adjudicators (such as arbitrators). If the party refuses that offer and we believe they are unwilling to agree to a patent license on a fair, reasonable and non-discriminatory basis, we may have no other viable recourse but to institute legal action against them to enforce our patent rights. This legal action has typically taken the form of a patent infringement lawsuit or an administrative proceeding. In addition, we and our licensees, in the normal course of business, might seek to resolve disagreements as to the rights and obligations of the parties under the applicable license agreement through arbitration or litigation. Such legal actions ultimately may be decided by the presiding court, third party adjudicator, or a negotiated resolution between the parties.

31

Table of Contents

In 2019 we were engaged in litigation with ZTE, Huawei, and Lenovo. During 2020, we filed patent infringement actions against Xiaomi. We negotiated resolutions to the matters involving ZTE, Huawei and Xiaomi in December 2019, April 2020 and July 2021, respectively, while our matters with Lenovo continue to proceed. During 2021, we filed patent infringement actions against Oppo, OnePlus and realme.

The matters are more fully discussed in Note 11, “Litigation and Legal Proceedings,” to the Notes to Consolidated Financial Statements included below in Part II, Item 8 of this Form 10-K and/or our 2019 Form 10-K. We filed these actions after lengthy periods of negotiation and after the refusal of our counterparties to accept our various proposals to them, including our proposal to have a third party adjudicator set a royalty rate and resolve certain other terms upon which we could not mutually agree.

In 2021, our intellectual property enforcement costs increased to $34.3 million, from $28.6 million and $25.4 million in 2020 and 2019, respectively. These costs represented 20% of our total patent administration and licensing costs of $175.7 million in 2021. Intellectual property enforcement costs will vary depending upon activity levels, and it is likely they will continue to be a significant expense for us in the future.

Cash and Short-Term Investments

As of December 31, 2021, we had $948.6 million of cash, restricted cash and short-term investments and an additional $230.0 million of cash payments due under contracted fixed price agreements, including $9.6 million recorded in our $31.1 million accounts receivable balance. The remaining accounts receivable is primarily related to variable patent royalty revenue.

Over 90% of our revenue comes from fixed price agreements. Such agreements often have prescribed payment schedules that are uneven and sometimes front-loaded, resulting in timing differences between when we collect the cash payments and recognize the related revenue. As a result, our cash receipts due in 2022 from existing agreements are expected to be lower than revenue to be recognized in 2022 from such agreements as noted in the deferred revenue amortization table below.

The following table reconciles the timing differences between cash receipts and recognized revenue on a quarterly basis for each of the last three years, including the resulting operating cash flow (in thousands):

32

Table of Contents

(a) Fixed fee cash receipts are comprised of cash receipts from Dynamic Fixed-Fee Agreement royalties, including the associated past patent royalties

(b) Other cash receipts are comprised of cash receipts related to our variable patent royalty revenue, including the associated past patent royalties, current technology solutions revenue, royalties from static agreements, and patent sales.

When we collect payments on a front-loaded basis, we recognize a deferred revenue liability equal to the cash received and accounts receivable recorded which relate to revenue expected to be recognized in future periods. That liability is then reduced as we recognize revenue over the balance of the agreement. The following table shows the projected amortization of our current and long term deferred revenue as of December 31, 2021 (in thousands):

Return of Capital

In June 2014, our Board of Directors authorized a $300 million share repurchase program (the “2014 Repurchase Program”). Subsequently our Board of Directors authorized four $100 million increases to the program, respectively, bringing the total amount of the 2014 Repurchase Program to $700 million. The Company may repurchase shares under the 2014 Repurchase Program through open market purchases, pre-arranged trading plans or privately negotiated purchases. Since 2014, we have repurchased $658.5 million of shares at an average price of $51.32, adjusted for dividends. As of December 31, 2021, there was approximately $41.5 million remaining under the share repurchase authorization.

Since January 2014, we have paid $313.2 million in dividends, bringing our total return of capital over the last eight years to $971.7 million.

33

Table of Contents

The table below sets forth the total number of shares repurchased and the dollar value of shares repurchased under the 2014 Repurchase Program, cash dividends on outstanding common stock declared, and the total capital returned to our shareholders (in thousands):

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization categorized the novel coronavirus ("COVID-19") as a pandemic, and it continues to significantly impact the United States and the rest of the world. Though the COVID-19 pandemic and the measures taken to reduce its transmission, such as the imposition of social distancing and orders to work-from-home and shelter-in-place, have altered our business environment and overall working conditions, we continue to believe that our strategic strengths, including talent, our strong balance sheet, stable revenue base, and the strength of our patent portfolio, will allow us to weather a rapidly changing marketplace.

While the environment in which we conduct our business and our overall working conditions have changed as a result of the COVID-19 pandemic, we experienced a limited impact on our operations and financial position during fiscal year 2021. Fixed-fee royalties accounted for 89% of our revenues in 2021. These fixed-fee revenues are not directly affected by our related licensees’ success in the market or the general economic climate. To that end, in fiscal year 2021, we did not experience a significant impact on our contracted revenue due to COVID-19. Meanwhile, we have taken steps to protect the health and safety of our employees and their families, with the majority of our workforce continuing to work remotely. We are currently planning for a return to in-person work as early as March 2022, however we continue to evaluate feasibility of this date based on the evolving environment and regulatory guidance. All of our locations are available on a limited and voluntary basis. Despite these remote working conditions, our business activities have continued to operate with minimal interruption, and we expect them to continue to operate efficiently. Although we have resumed work-related travel on a limited basis, we have conducted the majority of our licensing negotiations, investor presentations and participation in standards organizations and industry events virtually. Between March 12, 2020, when we began to work almost entirely remotely, and December 31, 2021, we successfully concluded eighteen new patent license agreements that we estimate will result in revenues exceeding $560.0 million over their respective lives. Our financial position remains strong, we have sufficient access to capital if needed, and we remain committed to our efforts around cost discipline.

Comparability of Financial Results

When comparing our 2021 financial results against the financial results of other periods, the following items should be taken into consideration:

•Our 2021 revenue includes $73.7 million of non-recurring revenue primarily related to the patent license agreements with Xiaomi and a top ten global TV manufacturer signed, as discussed above.

•During 2021, we recognized $27.9 million restructuring expenses including $22.6 million of severance and other benefits, a $13.2 million asset impairment and $1.7 million of associated outside services and other costs, offset by a $9.6 million reimbursement agreement. These costs resulted from our restructuring activities as described in Note 20, "Restructuring Activities" within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K. The patents held for sale are recorded at fair value on December 31, 2021 and are included within "Prepaid and other current assets" in the consolidated balance sheet.

•During 2021, we incurred $10.1 million of one-time share-based compensation costs driven by the impact of licensing success achieved during 2021.

34

Table of Contents

•Interest expense decreased in 2021 by $15.6 million, primarily due to a reduction in non-cash interest expense resulting from the accounting adoption of ASU 2020-06, related to the accounting for convertible debt.

•In 2021, "Other income, net" includes a $1.9 million gain on a contract termination, a $7.6 million gain resulting from observable price changes in orderly transactions of our long-term strategic investments, and a $2.3 million gain on the curtailment of our defined benefit plan.

Critical Accounting Policies and Estimates

Our consolidated financial statements are based on the selection and application of GAAP, which require us to make estimates and assumptions that affect the amounts reported in both our consolidated financial statements and the accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from these estimates and any such differences may be material to the financial statements. Our significant accounting policies are described in Note 2, "Summary of Significant Accounting Policies and New Accounting Guidance" within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K. We believe the accounting policies that are of particular importance to the portrayal of our financial condition and results and that may involve a higher degree of complexity and judgment in their application compared to others are those relating to revenue recognition, compensation, business combinations and goodwill, and income taxes. If different assumptions were made or different conditions existed, our financial results could have been materially different.

Revenue Recognition

We derive the vast majority of our revenue from patent licensing. The timing and amount of revenue recognized from each licensee depend upon a variety of factors, including the specific terms of each agreement and the nature of the deliverables and obligations. Such agreements are often complex and include multiple performance obligations. These agreements can include, without limitation, performance obligations related to the settlement of past patent infringement liabilities, patent and/or know-how licensing royalties on covered products sold by licensees, access to a portfolio of technology as it exists at a point in time, and access to a portfolio of technology at a point in time along with promises to provide any technology updates to the portfolio during the term.

In accordance with US GAAP, we use a five-step model to achieve the core underlying principle that an entity should recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. These steps include (1) identifying the contract with the customer, (2) identifying the performance obligations, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations, and (5) recognizing revenue as the entity satisfies the performance obligation(s). Additionally, we have elected to utilize certain practical expedients in the application of ASC 606. In evaluating the presence of a significant financing component in our agreements, we utilize the practical expedient to exclude any contracts wherein the gap between payment by our customers and the delivery of our performance obligation is less than one year. We have also elected to utilize the practical expedient related to costs of obtaining a contract where an entity may recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. Timing of revenue recognition may differ significantly from the timing of invoicing to customers. Contract assets are included in accounts receivable and represent unbilled amounts expected to be received from customers in future periods, where the revenue recognized to date exceeds the amount billed, and right to payment is subject to the underlying contractual terms. Contract assets are classified as long-term assets if the payments are expected to be received more than one year from the reporting date. Contract assets due within less than twelve months of the balance sheet date are included within accounts receivable in our consolidated balance sheets. Contract assets due more than twelve months after the balance sheet date are included within other non-current assets.

Patent License Agreements

Upon signing a patent license agreement, we provide the licensee permission to use our patented inventions in specific applications. We account for patent license agreements in accordance with the guidance indicated above. Certain patent license agreements contain revenue from non-financial sources in the form of patents received from the customer. Under our patent license agreements, we typically receive one or a combination of the following forms of payment as consideration for permitting our licensees to use our patented inventions in their applications and products:

Consideration for Past Patent Royalties

Consideration related to a licensee’s product sales from prior periods may result from a negotiated agreement with a licensee that utilized our patented inventions prior to signing a patent license agreement with us or from the resolution of a disagreement or arbitration with a licensee over the specific terms of an existing license agreement. We may also receive consideration for past patent royalties in connection with the settlement of patent litigation where there was no prior patent license agreement. In each of these cases, we record the consideration as revenue as prescribed by the five-step model.

35

Table of Contents

Fixed-Fee Agreements

Fixed-fee license agreements include fixed, non-refundable royalty payments that fulfill the licensee’s obligations to us under a patent license agreement for a specified time period or for the term of the agreement for specified products, under certain patents or patent claims, for sales in certain countries, or a combination thereof - in each case for a specified time period (including for the life of the patents licensed under the agreement).

Dynamic fixed-fee license agreements contain a single performance obligation that represents ongoing access to a portfolio of technology over the license term, since our promise to transfer to the licensee access to the portfolio as it exists at inception of the license, along with promises to provide any technology updates to the portfolio during the term, are not separately identifiable. Upon entering a new agreement, we allocate the transaction price to the performance obligations delivered at signing (e.g. our existing patent portfolio) and future performance obligations (e.g. the technology updates). We use a time-based input method of progress to determine the timing of revenue recognition, and as such we recognize the future deliverables on a straight-line basis over the term of the agreement. We utilize the straight-line method as we believe that it best depicts efforts expended to develop and transfer updates to the customer evenly throughout the term of the agreement.

Static fixed-fee license agreements are fixed-price contracts that generally do not include updates to technology we create after the inception of the license agreement or in which the customer does not stand to substantively benefit from those updates during the term. Although we have few static fixed-fee license agreements, we generally satisfy our performance obligations under such agreements at contract signing, and as such revenue is recognized at that time.

Variable Agreements

Upon entering a new variable patent license agreement, the licensee typically agrees to pay royalties or license fees on licensed products sold during the term of the agreement. We utilize the sales- or usage- based royalty exception for these agreements and recognize revenues during the contract term when the underlying sale or usage occurs. Our licensees under variable agreements provide us with quarterly royalty reports that summarize their sales of covered products and their related royalty obligations to us. We typically receive these royalty reports subsequent to the period in which our licensees’ underlying sales occurred. As a result, we are required to estimate revenues, subject to the constraint on our ability to estimate such amounts and will record a true-up when we receive the actual royalty report from the licensee. Estimating licensees’ quarterly royalties prior to receiving the royalty reports requires us to make assumptions and judgments related to forecasted trends and growth rates used to estimate our licensees’ sales, which could have an impact on the amount of revenue we report on a quarterly basis.

Technology Solutions

Technology solutions revenue consists primarily of revenue from royalty payments, software licenses, and engineering services. The nature of these contracts and timing of payments vary. We recognize revenue from royalty payments and license agreements using the same methods described above under our policy for recognizing revenue from patent license agreements. We recognize revenue from engineering services using percentage of completion method.

Patent Sales

Our business strategy of monetizing our intellectual property includes the sale of select patent assets. As patent sales executed under this strategy represent a component of our ongoing major or central operations and activities, we will record the related proceeds as revenue. We will recognize the revenue in accordance with the five-step model, generally upon closing of the patent sale transaction.

Agreements with Multiple Performance Obligations

During 2021, we signed three new fixed-fee agreements that had multiple performance obligations. Consistent with the revenue recognition policies disclosed above, we (1) identified the contract with the customer, (2) identified the performance obligations, (3) determined the transaction price, (4) allocated the transaction price to the performance obligations, and (5) recognized revenue as we satisfy the performance obligations. We allocated the transaction price to each performance obligation for accounting purposes using our best estimate of the term and value. The process for determining the value of the standalone selling prices of identified performance obligations in dynamic fixed-fee license agreements requires the exercise of significant judgment when evaluating the valuation methods and assumptions, including the assumed royalty rates, projected sales volumes, discount rate, identification of comparable market transactions which are not directly observable and other relevant factors. Changes in any of a number of these assumptions could have had a substantial impact on the relative fair value assigned to each performance obligation for accounting purposes. These inputs and assumptions represent management's best estimates at the time of the transaction.

36

Table of Contents

The impact that a five percent change in the aggregate amount allocated to past patent royalties under these agreements would have had on 2021 revenue is summarized in the following table (in thousands):

Revenue from Non-financial Sources

During 2021, 2020 and 2019, approximately 5%, 7% and 6%, respectively, of our total revenue was based on the estimated fair value of patents. The process for determining the value of revenue from non-financial sources requires estimating the fair value of patents received. We estimated the fair value of the patents in the above transactions using one of, or a combination of, an analysis of comparable market transactions (the market approach), a discounted cash flow analysis (the income approach) and/or by quantifying the amount of money required to replace the future service capability of the assets (the cost approach). For the market approach, judgment was applied as to which market transactions were most comparable to the transaction. For the income approach, the inputs and assumptions used to develop these estimates were based on a market participant perspective and included estimates of projected royalties, discount rates, economic lives and income tax rates, among others. For the cost approach, we utilized the historical cost of assets of similar technologies to determine the estimated replacement cost, including research, development, testing and patent application fees. The development of a number of these inputs and assumptions requires a significant amount of management judgment and is based upon a number of factors, including identification of comparable market transactions, assumed royalty rates, projected sales volumes, economic lives of the patents and other relevant factors. Changes in any of a number of these assumptions could have had a substantial impact on the fair value assigned to the patents for accounting purposes. These inputs and assumptions represent management's best estimates at the time of the transaction.

The impact that a five-percent change in the estimated aggregate value of the patents acquired would have had on 2021 revenue, patent amortization and pre-tax income is summarized in the following table (in thousands).

Compensation Programs

We use a variety of compensation programs to attract, retain and motivate our employees, and to align employee compensation more closely with company performance. These programs include, but are not limited to, short-term incentives tied to performance goals, cash awards to inventors for filed patent applications and patent issuances, and long-term incentives in the form of stock option awards, time-based restricted stock unit (“RSU”) awards, performance-based RSU awards and cash awards, noting equity awards are granted pursuant to the terms and conditions of our Equity Plans (as defined within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K). Our long-term incentives, including equity awards, typically include annual equity or cash award grants with three to five year vesting periods; as a result, in any one year, we are typically accounting for at least three active cycles.

The aggregate amount of performance compensation expense we record in a period, under both short-term and long-term incentive compensation programs, requires the input of subjective assumptions and is a function of our estimated progress toward performance goals at both the beginning and the end of the period. Our estimated progress toward goals under performance equity grants is based on meeting a minimum confidence level of achievement in accordance with accounting rules for share-based compensation. Due to the binary nature of patent license agreements, performance awards with milestone goals are typically not expensed until the goal has been achieved. Achievement rates can vary by performance cycle and from period to period, resulting in variability in our compensation expense.

37

Table of Contents

We account for compensation costs associated with share-based compensation based on the fair value of the instruments issued. The estimated value of stock options includes assumptions around expected life, stock volatility and dividends. The expected life of our stock option awards is based on the simplified method as prescribed by Staff Accounting Bulletin Topic 14. In all periods, our policy has been to set the value of RSUs awards equal to the value of our underlying common stock on the date of measurement. For grants with graded vesting, we amortize the associated unrecognized compensation cost using an accelerated method. For grants that cliff vest, we amortize the associated unrecognized compensation cost on a straight-line basis over their vesting term.

In the event of canceled awards, we adjust compensation expense recognized to date as they occur. Tax windfalls and shortfalls related to the tax effects of employee share-based compensation are included in our tax provision. On the consolidated statements of cash flows, tax windfalls and shortfalls related to employee share-based compensation awards are included within operating activities and cash paid to tax authorities for shares withheld are included within financing activities. The inclusion of windfalls and shortfalls in the tax provision could increase our earnings volatility between periods. Tax windfalls related to share-based compensation for the years ended 2021, 2020 and 2019 were $0.8 million, $0.2 million and $0.2 million, respectively.

The below table summarizes our supplemental compensation expense for 2021, 2020 and 2019, in thousands:

(a) For 2021, 2020 and 2019, approximately 7%, 12%, and 5%, respectively, of the aggregate expense associated with time-based and performance-based awards related to cash awards.

Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statement of income in the period in which the change was enacted. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if management has determined that it is more likely than not that such assets will not be realized.

In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. We are subject to examinations by the U.S. IRS and other taxing jurisdictions on various tax matters, including challenges to various positions we assert in our filings. In the event that the IRS or another taxing jurisdiction levies an assessment in the future, it is possible the assessment could have a material adverse effect on our consolidated financial condition or results of operations.

The financial statement recognition of the benefit for an uncertain tax position is dependent upon the benefit being more likely than not to be sustainable upon audit by the applicable tax authority. If this threshold is met, the tax benefit is then measured and recognized at the largest amount that is greater than 50 percent likely of being realized upon ultimate settlement. In the event that the IRS or another taxing jurisdiction levies an assessment in the future, it is possible the assessment could have a material adverse effect on our consolidated financial condition or results of operations.

Between 2014 and 2021, we paid approximately $134.6 million in foreign taxes to foreign governments that have tax treaties with the U.S., for which we have claimed foreign tax credits against our U.S. tax obligations, and for which the tax treaty procedures are still open. It is possible that as a result of tax treaty procedures, the U.S. government may reach an agreement with the related foreign governments that will result in a partial refund of foreign taxes paid with a related reduction in our foreign tax credits. Due to foreign currency fluctuations, any such agreement could result in foreign currency gain or loss.

38

Table of Contents

On November 8, 2019, the Company received notification that its request for competent authority pertaining to Article 25 (Mutual Agreement Procedure) of the United States-Republic of Finland Income Tax Convention had been reviewed by the IRS and an agreement has been reached (the “Finland Competent Authority Proceeding”). As a result of this agreement, the Company does not anticipate any tax consequences.

New Accounting Guidance

Refer to Note 2, "Summary of Significant Accounting Policies and New Accounting Guidance" within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for a discussion of recently issued accounting guidance.

Legal Proceedings

We are routinely involved in disputes associated with enforcement and licensing activities regarding our intellectual property, including litigations, arbitrations and other proceedings. These litigations, arbitrations and other proceedings are important means to enforce our intellectual property rights. We are a party to other disputes and legal actions not related to our intellectual property, but also arising in the ordinary course of our business. Refer to Note 11, “Litigation and Legal Proceedings,” to the Notes to Consolidated Financial Statements included below in Part II, Item 8 of this Form 10-K for a description of our material legal proceedings.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash, cash equivalents and short-term investments, as well as cash generated from operations. We believe we have the ability to obtain additional liquidity through debt and equity financings. Based on our past performance and current expectations, we believe our available sources of funds, including cash, cash equivalents and short-term investments and cash generated from our operations, will be sufficient to finance our operations, capital requirements, debt obligations, existing stock repurchase program, dividend program, and other contractual obligations discussed below in both the short-term over the next twelve month, and the long-term beyond twelve months.

Cash, cash equivalents, restricted cash and short-term investments

As of December 31, 2021 and December 31, 2020, we had the following amounts of cash, cash equivalents, restricted cash and short-term investments (in thousands):

The net increase in cash, cash equivalents, restricted cash and short-term investments was attributable to cash provided by operating activities of $130.4 million. This increase was partially offset by cash used in investing activities, excluding sales and purchases of short-term investments, of $36.9 million and cash used in financing activities of $74.5 million. Cash used in investing activities, excluding sales and purchases of short-term investments, primarily related to capital investments for patents and fixed assets, and patent acquisitions, was partially offset by net cash receipts from sales of our long-term investments. Cash used in financing activities primarily related to dividend payments and repurchases of common stock. Refer to the sections below for further discussion of these items.

Cash flows from operations

We generated the following cash flows from our operating activities in 2021 and 2020 (in thousands):

39

Table of Contents

Our cash flows provided by operating activities are principally derived from cash receipts from patent license and technology solutions agreements, offset by cash operating expenses and income tax payments. The $33.1 million change in net cash provided by operating activities was primarily driven by an increase in cash operating expenses primarily due to restructuring activities and revenue share costs, along with other factors further discussed below in the "Results of Operations". Additionally, lower cash receipts contributed to the change, and was primarily attributable to the timing of cash receipts related to existing patent license agreements and reduction in cash receipts resulting from a handset manufacturer exiting the handset business, offset by cash receipts from new patent license agreements signed in 2021. The table below sets forth the significant items comprising our cash flows provided by operating activities during the years ended December 31, 2021 and 2020 (in thousands):

(a) Cash operating expenses include operating expenses less depreciation of fixed assets, amortization of patents, and non-cash compensation.

(b) Income taxes paid include foreign withholding taxes.

Cash provided by or used in investing and financing activities

Net cash provided by investing activities in 2021 was $179.6 million, a $489.7 million change from $310.0 million net cash used in investing activities in 2020. During 2021, we sold $216.6 million of short-term marketable securities, net of purchases, capitalized $35.9 million of patent costs and property plant and equipment purchases, acquired $2.4 million of patents, and received $1.4 million of net cash receipts from our long-term strategic investments. During 2020, we purchased $272.8 million of short-term marketable securities, net of sales, capitalized $42.4 million of patent costs and property plant and equipment purchases, and received $4.3 million of net cash receipts from the sale of one of our long-term strategic investments.

Net cash used in financing activities for 2021 was $74.5 million, a $58.4 million change from net cash used in financing activities of $132.9 million in 2020. This change was primarily attributable to a $94.9 million payment on long-term debt related to the repayment of our 2020 Notes in 2020, offset by $29.7 million of additional repurchases of common stock in 2021 compared to 2020.

Other

Our combined short-term and long-term deferred revenue balance at December 31, 2021 was $311.1 million, a decrease of $16.9 million from December 31, 2020. Based on current license agreements, we expect the amortization of dynamic fixed-fee royalty payments to reduce the December 31, 2021 deferred revenue balance by $291.7 million over the next twelve months.

40

Table of Contents

Convertible Notes

Our Convertible Notes are included in the dilutive earnings per share calculation using the treasury stock method. Under the treasury stock method, we must calculate the number of shares of common stock issuable under the terms of the 2024 Notes (as defined herein) based on the average market price of our common stock during the applicable reporting period and include that number in the total diluted shares figure for the period. At the time we issued the 2024 Notes, we entered into the 2024 Call Spread Transactions (defined in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K). The 2024 Call Spread Transactions were designed to have the economic effect of reducing the net number of shares that will be issued in excess of the principal amount of converted Notes in the event of conversion of the 2024 Notes if the market price per share of our common stock is greater than the strike price of the 2024 Note Hedge Transactions by, in effect, increasing the conversion price of the 2024 Notes from our economic standpoint. However, under GAAP, since the impact of the 2024 Note Hedge Transactions (the "Note Hedge Transactions") is anti-dilutive, we exclude from the calculation of fully diluted shares the number of shares of our common stock that we would receive from the counterparties to these agreements upon settlement.

During periods in which the average market price of our common stock is above the applicable conversion price of the 2024 Notes ($81.29 per share as of December 31, 2021) or above the strike price of the warrants ($109.43 per share for the 2024 Warrant Transactions as of December 31, 2021), the impact of conversion or exercise, as applicable, would be dilutive and such dilutive effect is reflected in diluted earnings per share. As a result, in periods when the average market price of our common stock is above the conversion price or strike price, as applicable, under the treasury stock method, we calculate the number of shares issuable under the terms of the 2024 Notes and the warrants based on the average market price of the stock during the period, and include that number in the total diluted shares outstanding for the period.

Under the treasury stock method, changes in the price per share of our common stock can have a significant impact on the number of shares that we must include in the fully diluted earnings per share calculation. As described in Note 9, "Obligations" within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K, as of December 30, 2021, we made the irrevocable election to settle all conversions of the 2024 Notes through a combination settlement of cash and shares of common stock, with a specified dollar amount of $1,000 per $1,000 principal amount of the 2024 Notes and any remaining amounts in shares ("net share settlement"). Assuming net share settlement upon conversion, the following table illustrates how, based on the $400.0 million aggregate principal amount of the 2024 Notes as of December 31, 2021, and the approximately 4.9 million warrants related to the 2024 Notes, outstanding as of the same date, changes in our stock price would affect (i) the number of shares issuable upon conversion of the 2024 Notes, (ii) the number of shares issuable upon exercise of the warrants subject to the 2024 Warrant Transactions (the "Warrant Transaction"), (iii) the number of additional shares deemed outstanding with respect to the 2024 Notes, after applying the treasury stock method, for purposes of calculating diluted earnings per share ("Total Treasury Stock Method Incremental Shares"), (iv) the number of shares of common stock deliverable to us upon settlement of the Note Hedge Transactions, and (v) the number of shares issuable upon concurrent conversion of the Convertible Note, exercise of the warrants subject to the Warrant Transactions, and settlement of the Note Hedge Transactions (shares in thousands):

(a) Represents incremental shares issuable upon concurrent conversion of convertible notes, exercise of warrants and settlement of the hedge agreements.

41

Table of Contents

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2021 (in thousands). As discussed above we believe our available sources of funds, including cash, cash equivalents and short-term investments and cash generated from our operations, will be sufficient to finance these contractual obligations discussed below in both the short-term over the next twelve month, and the long-term beyond twelve months.

(a)Refer to Note 9, “Obligations,” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for details of our 2024 Notes.

(b)Refer to Note 10, "Commitments," within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for details of our defined benefit plan obligations. Estimated future benefit payments included above are through 2030.

(c)Purchase obligations consist of agreements to purchase goods and services that are legally binding on us, as well as accounts payable. Our consolidated balance sheet as of December 31, 2021 includes a $15.7 million non-current liability for uncertain tax positions. The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amounts and timing of cash settlement with the taxing authorities.

As of December 31, 2021, we have recorded long-term debt of $27.1 million related to the Technicolor Patent Acquisition. Additionally, we are subject to a revenue-sharing arrangement with Technicolor resulting from the Technicolor Acquisitions. There is no liability associated with the revenue-share agreement at December 31, 2021, as there are no minimum or maximum payments under the revenue-sharing arrangement, and, except in certain circumstances, the arrangement continues through December 31, 2038. Refer to Note 9, "Obligations," within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for further information. Due to the uncertainty regarding the timing and amount of future payments related to these items, the amounts are excluded from the contractual obligations table above.

42

Table of Contents

RESULTS OF OPERATIONS

2021 Compared with 2020

Revenues

The following table compares 2021 revenues to 2020 revenues (in thousands):

(a)    Recurring revenues are comprised of current patent royalties, inclusive of Dynamic Fixed-Fee Agreement royalties, and current technology solutions revenue.

(b)    Non-recurring revenues are comprised of non-current patent royalties, which includes past patent royalties and royalties from static agreements, as well as patent sales.

The $66.4 million increase in total revenue was primarily driven by the third quarter 2021 Xiaomi and top ten global TV manufacturer patent license agreements, which primarily drove both a $14.9 million increase in recurring revenue and a $52.1 million increase in non-current patent royalties. The increase in recurring revenues was also driven by revenue other new patent license agreements, including the Huawei PLA signed in second quarter 2020. These increases were partially offset by a reduction in recurring revenues due to a handset manufacturer exiting the handset business. The increase in non-current patent royalties was also primarily related to revenues from a static fixed-fee patent license agreement signed in second quarter 2021, offset by the prior period including past sales recognized from the Huawei patent license agreement signed in second quarter 2020. The decrease in technology solutions revenue was primarily due to reduced revenue from a strategic partner, whose contract was terminated in the first half of 2021.

In 2021 and 2020, 70% and 68% of our total revenues, respectively, were attributable to companies that individually accounted for 10% or more of our total revenues. In 2021 and 2020, the following licensees or customers accounted for 10% or more of our total revenues:

43

Operating Expenses

The following table summarizes the change in operating expenses by category (in thousands):

Operating expenses increased 17% to $354.2 million in 2021 from $303.8 million in 2020. The $50.4 million increase in total operating expenses was primarily due to increases/(decreases) in the following items (in thousands):

The $50.4 million increase in operating expenses was driven by restructuring activities, share-based compensation, and revenue share costs related to the license agreements signed in 2021. The share-based compensation increase was driven by the impact of licensing success achieved during 2021 on performance based equity awards, including previously granted awards, a new hire equity award granted to our CEO, and our 2019 grant for which we modified the goal for all participants in first half 2021. The $9.4 million increase in revenue share costs related to the above-noted patent license agreement with a top ten global TV manufacturer. In addition, $27.9 million of the increase related to non-recurring restructuring costs incurred as part of our overall restructuring plan, $5.8 million related to an increase in intellectual property enforcement costs, primarily driven by the Xiaomi and Lenovo litigations, and $7.2 million related to increased personnel-related costs primarily driven by new employment agreements. These increases were primarily offset due a one-time $7.5 million non-cash charge to write-off the remaining book value of patents we disposed of in 2020 as part of our ongoing patent portfolio management and by a $4.0 million decrease due to 2020 efforts to optimize our cost structure in 2020, including the closure of our San Diego office. Additionally, ongoing efforts to effectively manage our patent portfolio size drove the $2.8 million reduction in patent maintenance costs and the $2.6 million reduction in depreciation and amortization costs.

Patent administration and licensing expense:  The $5.6 million increase in patent administration and licensing expense primarily resulted from the above noted $9.4 million increase in revenue share costs, $5.8 million increase in intellectual property enforcement costs, and share-based compensation costs. These increases were partially offset by the above noted decrease in depreciation and amortization costs and the $7.5 million one-time non-cash charge to write-off the remaining book value of patents disposed in 2020.

Development expense:  Development expense increased by $4.7 million primarily resulting from the increases in share-based compensation discussed above.

Selling, general and administrative expense:  The $12.2 million increase in selling, general and administrative expense primarily resulted from the above-noted increases in share-based compensation and personnel-related costs, partially offset by the above-noted corporate initiatives, as well as a decrease in outside consulting costs.

44

Restructuring Activities:  The Company incurred $27.9 million of restructuring expenses associated with the Company's overall restructuring plan, as described in Note 20, "Restructuring Activities" within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for further information.

Non-Operating Expense

The following table compares 2021 non-operating expense to 2020 non-operating expense (in thousands):

The change in non-operating expense between periods was primarily driven by $15.6 million of reduced non-cash interest expense primarily due to the removal of the accretion of the debt discount on the 2024 Notes resulting from the adoption of ASU 2020-06 and a decrease in interest and investment income of $4.0 million in 2021, primarily due to reduced rates of return on our short-term investments.

Other decreased $1.4 million driven primarily by a $3.0 million foreign currency translation loss in 2021, compared to a $4.6 million gain in 2020 arising from euro translation of our foreign subsidiaries. This decrease was offset by gains recognized in 2021 including a $1.9 million gain on a contract termination and a $2.3 million gain on the curtailment of our defined benefit plan, as discussed further in Note 10, "Commitments," within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K. Additionally, during 2021 and 2020 we recognized $7.6 million and $5.6 million, respectively, of gains resulting from observable price changes of our long-term strategic investments. All of these items are included in the "Other" caption in the table above.

Income Taxes

In 2021, based on the statutory federal tax rate net of discrete federal and state taxes, our effective tax rate is 27.0%. The effective tax rate was driven by a net expense of $10.8 million that primarily relates to non-deductible officer’s compensation and losses in certain jurisdictions where the Company presently has recorded a valuation allowance against the related tax benefit. The current year effective tax rate is compared to an effective tax rate benefit of 21.2% in 2020. The effective tax rate for 2020 was favorably impacted by a net benefit of $19.7 million associated with amendment of prior year tax returns to utilize a tax asset generated during the year, as well as the reversal of a tax reserve.

45

Table of Contents

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include certain information in “Part I, Item 1. Business” and “Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” and other information regarding our current beliefs, plans and expectations, including, without limitation, the matters set forth below. Words such as "believe," “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “forecast,” "goal," "could," "would," "should," "if," "may," "might," "future," "target," "trend," "seek to," "will continue," "predict," "likely," "in the event," variations of any such words or similar expressions contained herein are intended to identify such forward-looking statements. Forward-looking statements are made on the basis of management’s current views and assumptions and are not guarantees of future performance. Although the forward-looking statements in this Form 10-K reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements concerning our business, results of operations and financial condition are inherently subject to risks and uncertainties. We caution readers that actual results and outcomes could differ materially from those expressed in or anticipated by such forward-looking statements due to a variety of factors, including those set forth below:

•unanticipated delays, difficulties or accelerations in the execution of patent license agreements;

•our ability to leverage our strategic relationships and secure new patent license agreements on acceptable terms;

•our ability to enter into sales and/or licensing partnering arrangements for certain of our patent assets;

•our ability to enter into partnerships with leading inventors and research organizations and identify and acquire technology and patent portfolios that align with our roadmap;

•our ability to commercialize our technologies and enter into customer agreements;

•the failure of the markets for our current or new technologies and products to materialize to the extent or at the rate that we expect;

•unexpected delays or difficulties related to the development of our technologies and products;

•changes in our interpretations of, and assumptions and calculations with respect to the impact on us of, the 2017 Tax Cuts and Jobs Act, as well as further guidance that may be issued regarding such act;

•risks related to the potential impact of new accounting standards on our financial position, results of operations or cash flows;

•failure to accurately forecast the impact of our restructuring activities on our financial statements and our business;

•the resolution of current legal proceedings, including any awards or judgments relating to such proceedings, additional legal proceedings, changes in the schedules or costs associated with legal proceedings or adverse rulings in such proceedings;

•the timing and impact of potential administrative and legislative matters;

•changes or inaccuracies in market projections;

•our ability to obtain liquidity through debt and equity financings;

•the potential effects that the ongoing COVID-19 pandemic and/or corresponding macroeconomic uncertainty could have on our financial position, results of operations and cash flows; and

•changes in our business strategy.

You should carefully consider these factors as well as the risks and uncertainties outlined in greater detail in Part I, Item 1A, of this Form 10-K before making any investment decision with respect to our common stock. These factors, individually or in the aggregate, may cause our actual results to differ materially from our expected and historical results. You should understand that it is not possible to predict or identify all such factors. In addition, you should not place undue reliance on the forward-looking statements contained herein, which are made only as of the date of this Form 10-K. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law.

46

Table of Contents