Patrick Van de Wille - Vice President-Communications & Investor Relations William J. Merritt - President, Chief Executive Officer & Director Richard J. Brezski - Chief Financial Officer & Treasurer.

Charles L. Anderson - Dougherty & Company LLC Eugene Fox - Cardinal Capital Management Michael Collin - MDC Financial Research.

Good day and welcome to the InterDigital First Quarter 2015 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Patrick Van de Wille. Please go ahead, sir..

Thank you and good morning, everyone. We are joining you live from the NASDAQ exchange in New York City. A few moments ago our executive team and some of our leading inventors rang the bell to signal the start of trading.

The occasion for the bell ringing was our 2015 Innovators' Awards were the company’s leading innovators are honored by the company and I would like to take this occasion to salute our entire team of almost 200 engineers around the world. And thank them for their incredible contributions to our success.

Before we begin our remarks, I need to remind you that during 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 and detailed in our Annual Report on Form 10-K for the year ended December 31, 2014, our most recent Quarterly Report on Form 10-Q 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 first quarter 2015 financial metrics tracker, which can be accessed on our homepage, www.interdigital.com, by clicking the link on the left side of the page that says, "Financial Metrics Tracker" for Q1 2015.

And with that, let me turn it over to Bill Merritt, President and CEO..

Thank you and good morning, everyone. As we announced this morning the company had another outstanding quarter, our recurring revenue was $110 million a record for the company.

We also continued to show strong management discipline over our expense line result of those two efforts was a significant increase in our profits demonstrating the remarkable operating leverage of our business model. Rich will take you through the numbers in more detail they’re obviously very good.

I wanted to address our continuing R&D efforts our new efforts to commercialize the technologies developed in our labs are continuing licensing efforts and of course our recent success with the ITC and how all that creates the status of our successful R&D based licensing business. So let me start with the R&D.

we had a busy first quarter both inside our labs and out in the market at some key trade shows. The results were terrific. First we continue to successfully drive our vision of 5G. In the first quarter, we won three different bids in Europe on government sponsored 5G studies.

And we have additional news about a very important study that will be leading that we will announce very soon. Our success in securing a position in these studies demonstrated the clarity of our 5G vision as well as the industries recognition of our ability to solve the difficult technical problems that 5G will present.

We are thrilled to be able to drive these studies in Europe and congratulate our R&D team in the London office for these important research wins. We also had a very successful trade show at Mobile World Congress in March. Our focus for the show was also 5G and our message was very well received, indeed it was clear.

While 5G deployment maybe a number of years away, there are significant technical issues that need to be addressed today to bring that next generation into the services. InterDigital is extremely well positioned to solve those problems and contribute them to the market and we look forward for the opportunity.

Third, we also demonstrated other technologies that are newer to market deployment. For example, we continue to showcase our Smart Access Manager or SAM, while the market for the solution has developed slowly.

We continue to deploy the solution with different operators around the world demonstrating the significant benefits of policy-based stand over and in future we also believe we will become increasingly important in future networks.

With the R&D investment in the SAM largely behind us we are able to have that great customer and channel partner engagement at nominal cost and gain significant strategic intelligence. This will position us I believe for a hopefully larger future opportunity.

At Mobile World Congress, we also featured a world’s first public demo of a working millimeter-wave mesh backhaul a technology that generated tremendous traffic and interest. The solution XHAUL is driven by innovative InterDigital software that is definitely manages the mesh network to connect small cells to backhaul.

XHAUL is a strong contender for substantially accelerating the phase of small cell deployments which have been hampered by that challenge of providing low cost access to backhaul. And let’s begin with our promotional startups wot.io and XL Air.

We are now shifting this project from a mostly invention driven effort to a pre-commercial project bringing in new talent to develop the business case and better understand the market opportunities.

At Mobile World Congress, we also demonstrated our latest video bandwidth reduction solution to Perceptual Pre-filter drawing on our historic expertise in wireless with our growing expertise in video technologies. The PPF reduces by up to 40%, the bandwidth needed to deliver high resolution video over wireless networks.

We are currently in trials with cable operators with the technology. Last, our two new commercial ventures showcased their [indiscernible] of their partner on holdings wot.io demonstrated its data services marketplace averaging wot.io was ranked seventh in the IoT Nexus Power Players in the Internet of Things report in February of 2015.

As we continue to work across many parts of the IoT space is becoming clear to all that the brass ring in the IT world is not making the connections, but managing, analyzing and exploiting the massive amount of data that will be produced by the tens of billions of connected device. wot.io sits directly in the middle of that opportunity.

XL Air, our second commercial start up demonstrated at mobile and congress its cloud-based management systems for small cell deployment.

XL Air leverages years of InterDigital resource in interference management and other critical technologies that will be necessary to effectively deploy and run the small cells and emerging critical component of tomorrow’s networks.

XL Air is currently engaged with the wide range of customers and channel partners and demonstrates the advantages that our startup efforts have over their competitors. They begin their life with a mature functioning technology and built-in experience teams.

All combined these initiatives demonstrates the growing breadth of our research, the increase mix of commercial options and our greater engagement with customers all of which I believe is important to the continued success of our core licensing business. On the licensing side we continue to have discussions with all the major unlicensed buyers.

As always we bring a flexible approach to these discussions offering a ray of means by which we can amicably resolve our licensing matters. We offer a range of license agreement structures. We are also willing to engage in research as a component of a licensing deal as we did with Sony.

We can allow them to participate in some of our commercial ventures as well as find other ways to create a broader relationships involving the company. We also offer arbitration as a means of resolving license disputes when the company’s are unable to come to agreement like we did with Huawei.

In that regard we look forward to receiving a decisions in our Huawei arbitration and hopefully in the near future as our hope that the decision will provide additional validation of our licensing practices providing even more reason for unlicense companies to reach agreement with us and join our customer base.

In short, we feel very good about our licensing business and we should. We do really important research. We offer many avenues to product manufactures to get access to that body of work and we cannot agree, we offer to have an independent third-party decide the issue.

This flexible approaches of licensing combined with the strength of our R&D organization is a reason that our licensing business has driven our overall business to record levels even in the phase of generally difficult licensing climate and we are confident that success will continue.

It’s also why anyone litigation are sometimes necessary to protect our patterns is not a similar event for our company as it can be for other licensing companies. So as example last week we completed the trials in the liability phase of our Delaware District Court action against DTE.

Between October’s jury trial and last weeks jury trial the overall result is that ZTE has been found to infringe three of the four patterns we have asserted in that case. The completion of this phase allows us to move the damages portion of the case in an appropriate time.

However, perhaps more importantly we continue to be open to more productive ways and which we can create a worldwide license that would provide ZTE with lawful access to our valuable technologies. We hope our flexible approach combined with our strong research can convince them to deal in a reasonable manner.

Similar with Microsoft we’re of course pleased with the ALJ’s initial determination this week that confirms the strength of our patents.

Just as importantly this determination also validated for the third time are fair and good faith approach to licensing and even went so far at the characterize in Microsoft as having engaged in a reverse patent hold up. While the case isn’t over its great to get a win and what has become a very difficult venue.

That aside we will continue to enforce our patents and an exclusion order against Microsoft’s products if need be, we prefer the recent amicable arrangement with Microsoft and we believe we have much to offer Microsoft in terms of existing patents and technologies new research and product solutions.

So like with ZTE we will work hard to find an amicable means to resolve what has become a very long and sometimes a difficult dispute. All in our research based licensing business had never been in better position.

Our financials are strong, our business model continues to deliver and we continued to develop the technology that world wants and needs where we’re also finding ways to extend our reach to commercial initiatives that economically leverage the strong work of our labs.

Those initiatives are being pursued within our current budget by creating value that it’s designed to be meaningful overtime it is a great time to lead the company. With that, let me turn the call over to Rich..

Thanks, Bill. As Bill noted we had another fantastic quarter with $110 million in recurring revenue. That is nearly double our recurring revenue from Q1 2014 and represents our highest level of recurring revenue reported to date.

Our first quarter results included strong royalties from Pegatron which was coming off its first full quarter of iPhone 6 sales. I am also happy to report that our other licensees are also doing well underscoring the continued growth of the mobile industry.

Our recurring revenue excluding Pegatron still would have been up 11% on a sequential basis and 77% year-over-year. Perhaps it is obvious that the year-over-year increase is driven by Samsung and other agreements we signed in 2014.

But the sequential increase results from the strong royalties from many of our other Asian-based OEMs and ODMs that we have under license.

As I indicated when we published our Q1 guidance we expect to report a sequential decline in royalties from Pegatron in Q2 which due to a one quarter royalty reporting lag is based on their sales in the first quarter of this year. Beyond that expected decline our overall licensing business is very strong.

All together we now see our annual recurring revenue base as having increased from roughly $300 million as discussed last year to roughly $350 million in 2015. We look forward to growing the space through the resolution of our arbitration with Huawei and potential new agreements with other players in the mobile market.

I am also very happy to report that both our operating expense and pro forma operating expense were at their lowest levels since the first quarter of last year, while this is good news, I would again like to highlight that our operating expenses in revenues don’t move in long step and that isn’t useful to read too much into any single quarter fluctuations.

Our revenue from licensing 3G and 4G products this quarter ultimately results from innovations we developed as much five years ago, or more. While much of our current research is centered around wireless technologies that will not become commercial until five years or more into the future.

Overall, we continue to carefully manage expenses and our goal continues to be to hold operating expenses at a relatively flat level. As strong as our first quarter was you might be surprised to see that we had slightly negative free cash flow in the quarter. This results primarily from two things.

First, there is sometimes a timing difference between the collection of royalty payments and the reporting of related revenues. This often incurs in fixed price agreements and can sometimes occur in per unit agreements when the customer takes advantage of upfront prepayments.

Second, during the first quarter we typically payout annual bonus compensation and taxes on share with holdings related to RSU vestings. Moving on to capital, during the quarter we raised $316 million through a convertible debt offering.

We decided to move forward now taking advantage of a very favorable convertible debt market to put us in a position to retire our existing convertible notes next year while maintaining our significant balance sheet strength.

We believe the additional balance sheet strength afforded us by our debt financings has been and will continue to be beneficial in positing us and licensing negotiations. Concurrent with the offerings, we repurchased approximately $44 million of stock bring the total for the quarter to just over $50 million.

Including activity through last Friday, we now have executed on just over two thirds of the $300 million authorization we announced in June of 2014. In summary, we had a great quarter and we continue to work to grow our revenue while carefully managing expenses. With that let me turn it back over to Patrick..

Thanks very much Rich. Moderator, if you could open the call for questions..

[Operator Instructions] And we will take our first question from Charlie Anderson with Dougherty & Company..

Good morning and thanks for taking my questions. You guys didn’t offer revenue guidance you know sometimes you do, sometimes you don’t for the quarter. So we just expect that in a few weeks roughly, Rich..

Yes, that’s right that just comes down to when we receive reports for in this case first quarter sales by our licensees, which become the basis of our second quarter revenue. So you can certainly expect that in a couple of weeks..

Perfect, and then as it relates to the covert can you walk us through once you have a full quarter of that on the income statement interest expense and other expenses associated with it.

What that looks like and sort of a quarterly basis sort of all in?.

Yes, so we close the convert as you said are indicated in - I guess beginning of March there basically had one-third of the interest expense that you would expect over a full quarter.

So there is a couple of components to that, there is obviously the face interest expense on the note of 1.5% and then there is other interest components associated with cost related to the deal as well as the bottom edge which affectively lift the strike price on the conversion to the company.

So we amortize that effectively OID into interest expense, the warrant that we sold was treat as an equity item and doesn’t affect our P&L..

Got it.

I think you are running about $4 million all expenses from the prior converts, so just how much incremental are we adding from the new one roughly?.

On hand I don’t have that number Charlie, but I can take a look at and see if we have that available to make in future disclosure..

Okay, perfect and then Bill I’ve wondered if you could make just kind of a general comment around Nokia. So do we have a feeling that we are basically one step away and we are done with this as far as 6/2013 is concerned or there other revenues beyond final determination.

And then also it was the sort of postponement in the 244 in the Delaware case that was suppose to quarter later date at the Q says, was that related to what happen in 6/2013 just any color on the Nokia situation, Nokia/Microsoft will be helpful..

So in terms of the ITC case the next step is the commissions reduced, we think we are well-positioned for that I mean we appreciate the commission is going to – take a look at things, but given the history of the case given the guidance that came down originally from the federal circling on this given the rules that the commission itself put in place in this case.

We feel good about that case going forward and that in terms of further steps as you know the processes, commission review and with that if that goes in our favor then there is a presidential review I think we have done everything that the President asked for in terms of the analysis of hold up versus reverse hold up and came out with flying colors on our side and frankly Microsoft did not do well on that.

So I think we have checked that box and so if the President met what he said, the trade rep met what he said when he wrote the letter in the Apple case we have satisfied that requirement. And so I think we can get through that next step in the process and at that point it’s done.

I mean the recent opportunity that they can ask for a stay at The Federal Circuit but it’s rarely granted. So I think we’re - from where we said I think we’re in a good position that case obviously very happy with the ALJ’s decision here.

In terms of the 244 delay really we want to run some additional briefing that needed to be done there was a further change in the claim construction that the judge came out with and he wanted – the Microsoft wanted the opportunity to brief that, we want to get make sure when it goes to trial it’s going to trial on a solid footing.

And so that was really the reason for putting that off - really was not connected at all to the ITC case you know what happens typically when you put a case off in District Court, we have to then find the next available slot. It’s not typically the next week it’s usually a few months out and that’s what happened there..

Okay perfect and then you did have a few filings against you from some certain Taiwanese companies we knew Pegatron, but then ASUS Tech came in and obviously there is sort of a back and forth with the Arima. So it feels like there is some sort of under current in Taiwan maybe similar to what Qualcomm went through in China.

And I wonder how you see that resolving itself, does there need to be some sort of settlement type at a higher level in Taiwan or these are the case-by-case situation just really comment on what we’re seeing and sort of the letter from the Taiwanese licensees would be helpful..

I am not sure that there is a – at the beginning sort of a global thing you can do I think it’s on an individual company basis. I think that once you work through these the issues with one company and others will follow for the most part. And we are very comfortable with our position in those cases.

I mean these are challenges to the contract that we negotiated in some cases almost a decade ago. If you look at our success rate in arbitration on our contracts we are undefeated on our contracts. We know our contracts well if you look at the ITC they’ve reviewed our licensing practices now three times and come out with flying colors each time.

So these are not cases that worry us, they are - we got deal with them of course, but I think we will work through them just fine and I think while there may not be a sort of a global thing that you can do – that impacts for all the companies, right.

I think if we can and we will successfully work our way through the first one than the other I think will follow. So again very comfortable with where we sit, we’ve been down this road before and had successfully gotten through all these things before or so and I’m confident that we’re able to do so again..

Perfect. That’s it from me. Thanks so much..

[Operator Instructions] And we will take our next question from Eugene Fox with Cardinal Capital Management..

Thanks gentlemen and congratulations, very, very nice job.

And again I apologize if I missed did you guys talk about the patent acquisition that you did in the quarter?.

I’m trying to recall if there is anything specific about it, I don’t recall actually disclosing anything, we’re talking about it. So….

You spent $20 million Bill at least that's what is indicated - just any color you can give us on it?.

Without having the Q in front of me, we spend money every quarter on capitalized patent costs associated with filing or organically developed innovations..

Yes, it look like this was an acquisition, so….

I think yes, it wasn’t so..

Okay..

We are fishing for the information that might answer your question Gene..

It reads in the release acquisition of patents $20 million, okay, got it. I’ll leave that. And again you may have just answered this for Charlie.

But just - Bill in your release you indicated a date of August 28 for the full panel to decide, is there any elections that Microsoft can make or is it just automatically appealed to the full panel who will ultimately take the ALJ’s decision and decide what to do with it..

So there is no election by them, so it goes to a full panel review, it kind of comes in stages right, there is a interim step where the commission can decide whether it’s going to conduct a review and then if it decides to do that then it will make its decision - scheduled to make its decision by that day in August, but that’s pretty well set by ITC procedures and there is not much that the parties can do to change that..

Is it still up to the full commission to decide whether here this appeal or just simply a firm what they ALJ has done as it has in past decisions that we’ve been involved them?.

Yes, I think it’s a same process right, so we will get the interim decision on whether or not they are going to review the decision or not right, and if they decide not to review it then decision becomes final.

And then if they do decide to review it then there is a process that takes place to commission on that review and then that decision would come a little bit later. But all scheduled to be done by that August date..

Okay, got it.

And any further insight in terms of when we would expect to hear on Will from your comments it’s like anytime now, is that fair?.

Yes, I think we are looking for something in hopefully near future on that we don’t control that schedule entirely, but we are happy with the progress that’s being made there and again we hope to see something in the near future..

Eugene, its Rich just getting back to your initial question perhaps since the way that you phrase it perhaps it’s the fog of having open the earlier this morning, but what I can tell you is that was actually a schedule payment under a prior acquisition.

So there is a cash flow item during the quarter, but there wasn’t actually an acquisition during the quarter..

Got it. Okay, is the any other….

Receptive question you indicated….

Okay, are there any other remaining payments on that or are all pending payments for our patent acquisitions behind us?.

Yes, I am trying to think if there is anything remaining I think there is – if they are smaller going forward..

Okay, share repurchase Rich, what you did was primarily associated with the hedge, but you did indicate in the release you bought about $10 million to $8.8 million I think to be specific.

On any insight into your thoughts on the share repurchase going forward?.

Yes, I mean I think my comments this quarter would be the same as what I typically say and really supported what I said around expenses I don’t ever focus too much on any one point in time, I think particularly when it comes to share repurchases the long-term history suggest that we’ve been very aggressive in buying back our stock have delivered a lot of value to our shareholders in the process and we continue to plan to execute on that authorization..

Okay, great. Well, congratulation guys. It’s nice to get away with the ITC my fingers are crossed that Microsoft will be rational and come to some sort of reasonable deal. So, again, thank you gentlemen..

Thank you..

Thank you..

[Operator Instructions] And we will take our next question from Michael Collin with MDC Financial Research..

Congratulations on initial determination by the ALJ and the remand of the 613 investigation. My first question is kind to revisiting the Huawei arbitration.

Do you think that it’s likely to come in the second quarter? Do you really not have clarity on that?.

So we don’t control the schedule at this point, as I said we’re hopeful, we’ll get in the near future.

And so that’s about – this much of detail as we can give on that and we continue to feel good about our position in that case and as I mentioned today I think its going to be really important in terms of – we think it will validate our practices and with those practices now validated yet again and this time by another independent reporting we think it will be very, very useful in future license negotiations..

Okay and revisiting the delay of the Microsoft trial on that claims 118 of the 244 patent. There was the claim construction of this one kind of last minute term that happened on Friday.

That was through field motion that Microsoft had that it had apparently unique reading of that claim construction it wanted to make some re-judgment motion on, it seemed that that was just going to result in one day delay of the trial, that’s the way was headed and then right at the end it was actually your attorney that have the change of heart that decided to delay agree with Microsoft who want to continue and delay the trial and the date was subsequently tentatively said I guess for September 21.

What was kind of the reason why you would rather put it out there as opposed to just look like you could have started a trial on Wednesday..

Yes, I wasn’t at the court but my understand is a little bit different, its hard to put a one day delay into things, so as an example if you wanted to correctly brief Microsoft’s issues and get the judge to decide it before you go to trial because you need to get that – you may need to get that decision even though the trial itself was going to be short.

You have to find a slot within the judges schedule to be able to do that, and I think that ultimately was the challenge I mean we don’t want to go to trial on a case that doesn’t have a really solid footing meaning we want when the thing is done and particularly win that there is not a lot of things that can go sideways in that case.

So obviously trial counsel is making those decisions on the fly in court as to what’s the best way that to manage the request. As I said it’s difficult when you seek to continue a case it don’t often get to continue it to the next week, because there is no time in the next week and so you end up getting pushed out so.

I think it was really just nearly that management of that case in the appropriate way really not connected to anything else..

Okay. Well, a lot of the conversation was done inside, but it appeared from judge Andrew’s comments that he was willing to entertain it in a very quick fashion and told the jury initially that there would be a one-day delay in the start of the trial and it look like and very quick motions could just be done on a Tuesday.

Thank you and congratulations on the quarter..

Great. Thanks Mike..

Thank you. End of Q&A.

And it appears there are no further questions at this time. So I’ll turn the conference back over to our host for any additional or closing remarks..

Well, thank you very much and thanks to everybody who joined our call today after what we feel was a really great quarter. We’ll look forward to talking to you for an update next quarter. Thank you very much..

Thank you for your participation. This does conclude today’s call..