Patrick Van de Wille - Vice President, Communications and IR Bill Merritt - President and CEO Rich Brezski - CFO.

Charlie Anderson - Dougherty & Company Matthew Galinko - Sidoti James Berkley - Barclays Eugene Fox - Cardinal Capital.

Good day everyone and welcome to today's InterDigital Third Quarter 2015 Earnings Conference Call. Just a reminder that this call is being recorded. At this time, it's my pleasure to turn the conference over to Mr. Patrick Van de Wille. Please go ahead, sir..

Thank you very much. Good morning, everyone and welcome to InterDigital's third quarter 2015 earnings conference call. With me this morning are Bill Merritt, our President and CEO; and Rich Brezski, our CFO. Consistent with last quarter’s call, we'll offer some highlights about the quarter and company and then open the call up for questions.

Before we begin our remarks, I need to remind you that in this call we will make forward-looking statements regarding our current beliefs, plans and expectations, which are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results and events to differ materially from results and events contemplated by such forward-looking statements.

These risks and uncertainties include those set forth in our earnings release published yesterday as well as those detailed actually this morning as well as those detailed in our Annual Report on Form 10-K for the year ended December 31, 2014, our Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, and September 30, 2015 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 third 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 Q2 2015.

And with that, let me turn the call over to Bill..

Thanks, Patrick and good morning to everyone. As you saw up in this morning’s release, we delivered another very strong quarter, indeed our sixth quarter in the last two years with revenue of approximately $100 million or more.

Rich will get into the numbers in more detail, but the combination of a continued strong topline and dropping expenses demonstrates the underlying strength of our business model and the scale at which we're executing against it. A couple of points to note for the quarter.

First with recurring revenue at $78 million and that number does not include any contribution from Huawei we remain very comfortable that our wireless terminal unit business can reach an annual royalty platform of around $500 million to $600 million based on existing agreements and the additional licensing opportunity ahead of us.

When you match that up against the annual expenses of running that business, which is in the $150 million range if you don't include litigation expenses you have truly remarkable opportunity for shareholder value creation.

I can assure you, we're completely focused as an organization in driving that additional revenue, but we have more than just desire. We've incredible resources at our disposal as demonstrated by the new transaction that we entered into with Sony in the third quarter.

As you know, the agreement we announced in 2013 with Sony included a joint venture to drive higher IoT research for the mutual benefit of both companies. We've now expanded that collaboration, which showcases a vast array of tools that we've used to create an even stronger relationship with an already important customer.

Of course the transaction included a new license with them for their wireless products, but it also included an extension of the existing IoT research we're conducting with them, the addition of 5G research we'll conduct with them and various other elements at Interdigital Technologies that make this agreement a great reflection of the alignment between our two companies.

It’s the type of relationship that reflects on the hallmarks of our licensing program. Flexibility and creativity. It also sets this apart from other licensing companies the fact that we are highly respected research organization with solutions and research capability that customers can find very valuable.

We will continue to pursue these types of relationships with both the remaining licence companies as well as with our existing customers to build stronger ties.

With success we would expect to drive not just higher revenue levels but more predictability and repeatability in our revenue streams as well, which should drive even higher value in the overall enterprise. Based on what we can bring to bear on license discussion, I remain very confident we can deliver on the revenue line.

Rich and I are also very confident we can continue maintain very strong investment discipline within the organization. That discipline is very important as it is the massive operating leverage within this business model and our ability to increase revenues with stable costs that drive shareholder value. Our investment discipline is very simple.

Any investment we make has to meaningful exceed the value of the returning capital shareholders.

For the core licensing business that needs investing at appropriate levels to drive current value, which means working shoulder-to-shoulder with our licenses in the standards to drive repetition and brand and give us other tools to conclude deals like we just did with Sony.

The investment must also drive a long term value of the business in terms of fundamental innovation for the next generation of wireless services. And we will begin licensing 5 to 10 years from now. and that will layer on to our existing technologies. We had a great deal of experienced managing this type of investor with significant success.

Based on our knowledge of the innovation opportunities and the value that can be delivered back to shareholders we expect the R&D investment to continue to hold relatively steady. We also expect litigation expenses to continue to come down. This is all very good in terms of appropriately maximizing the operating leverage of that core business.

We also have tightly controlled investment in additional growth businesses where we believe we have unique capability that gives us competitive agenda for creating substantial value for shareholders. This opportunity is licensing IOT driven markets. As we have discussed before IOT is not in market but a market driver like the original internet.

It will substantially and disruptively change out every industry and all parts of society operate. In doing so, it is going to create massive in markets create new companies and make others obsolete.

It will also drive substantial new revenue streams and in doing so, create a tremendous profit opportunity for those that drive innovations critical to those future IOP systems. Interdigital is very well positioned to presume those opportunity.

Our understanding of current wireless networks enables us to innovate a new technologies that can read into those networks to effectively connect the 10s of billions of data producing elements that will drive this future state.

Our nearly decade long pursuit of middle wear innovation that will help manage, secure, and distribute the massive America data produced by these connections gives an additional strong competitive edge.

Indeed over the past six months you have seen a steady stream of news from the company about the advantage we are making in driving the one standard including the significant demonstrations of capability of our 1M power platform in Korea this week.

Over the coming quarters we will continue to provide details on this investment including what technologies we think will be central for this market, how we are organizing our approach and the overall incremental value we receive for shareholders from our successful pursuit of this tremendous opportunity.

Our third area of investment is our small commercial start up and strategic external investments. From an extend stand point these investments are relatively small, with our 2016 expense to this activity targeted at less than 20 million.

despite the small investment the impact of this activity can be significant in terms of help him to drive the ultimate success of our core licensing business and driving new business opportunity in IOT. The reason is simple. The investments must pass two tests. First they must withstand significant independent financial scrutiny.

Second they must be filtered from the same spaces where the company itself is conducting research and development activity. The result is financially attracted investments that also connect the company up for the broader set of customers as well as create a new company’s driving new technologies.

That will provide significant value back to our main research engine enhancing the efficiency of that research and helping to guide as direction. So to summarize I am very happy with the opportunities we have in the company, how we are pursuing those opportunities. The results we are driving and the future value we are creating.

The wireless will continue to be create craze and reward innovation and that is where we live. Let me turn the call over to Rich..

Thanks, Bill. We are pleased to report another quarter of strong financial results including our third consecutive quarter with revenue in excess of $100. As many of you know, when looking at our revenue I focus on the contribution from returning revenue.

This past quarter we reported about $79 million of recurring revenue an increase of 7% compared to the third quarter of 2014. This increase was driven by continuation of the strong results we have seen from our Taiwanese-based licensees all year and does not include any revenue recognition related to our patent licence agreement with wild way.

Our post-arbitration award proceedings with wild way continue and we will continue to defer any revenue recognition until all of the criteria for such revenue recognition have been met. The most recent quarter is also the latest demonstration of the operating leverage that exists within our business.

Despite the 7% increase in recurring revenue and a 29% increase in total revenue we reduced our operating expenses by 12% compared to the third quarter of 2014 an 8% sequentially from second quarter 2015. The reduced operating expenses will primarily attributable to lower litigation expenses.

Even on a pro forma basis, which excludes litigation expenses among other items our pro forma operating expenses were down slightly compared to third quarter of 2014 and approximately 7% sequentially. The combination of increased revenue and decreased expenses resulted in operating profit that was nearly three times as great as third quarter 2014.

In fact even on a year-to-date our operating profit is up over 2014. This increase in year-to-date operating profit this is driven by an increase in year-to-date recurrent revenue of more than $75 million compared with a decrease in year-to-date operating expense.

The fact that we were able to drive an increase in year-to-date operating profit is all the more impressive when you consider that 2014 was a very tough comparative year with nearly $125 million of past sales.

As I previously discussed our potential to maintain similar operating leverage in the future combined with an opportunity to significantly expand our share of the 3G, 4G, market under license serve as the greatest catalyst for near term growth. Moving on to other areas I’d like to take the moment to discuss our capital allocation.

We continue to maintain a strong balance sheet with substantial cash reserves. I don’t expect that to change anytime soon. A strong cash position is important to our companies success.

Even as we continue to return value to shareholders to our regular quarterly dividend and our existing stock repurchase authorization, which today has approximately $150 million remaining. During the most recent quarter we repurchased over $18 million of our stock.

Taking a boarder view between the beginning of 2012 and September 30, 2015 we have returned almost $565 million to our shareholders including the repurchase of more than 11 million shares for approximately $425 million plus $141 of regular and special dividends.

To put that in perspective over the last three years and nine months we have repurchased approximately one-quarter of the company’s share count. Not only have we brought back shares, but we have done so intelligently. Our weighted average purchase price over that period is $38.53.

our careful execution of these programs has created significant value for shareholders and it’s a record we are very proud of. With that I’ll turn the call back over to Patrick..

Thank you Rich. Thank you Bill. Lori if you could open the call for questions right now..

Thank you. [Operator Instructions] Our first question today is from Charlie Anderson at Dougherty and Company..

Yes. Thank you for taking my questions and congrats on the strong quarter on the Sony renewal. I wanted to start with the Sony renewal. You're recognizing some past sales from that and it sounded like in the language in the Q, that you’re expanding that to some new products. I wonder if you could add color there.

Their volumes have shrunk since the last deal. So the interplay between lower volumes, but then maybe more products covered.

How should we think about sort of the size of Sony going forward for you guys?.

So you are right that Sony's market position is not the same as it was three years ago and so that will be reflected going forward in the transaction.

The other parts of the -- that’s the fact the other parts of the transaction are, in fact all parts of the transaction are very attractive to us in terms of not only it is a patent license, but there is access to technology going on within the agreement that would be very, very valuable to us in terms of having a customer out there in the market for the things that we are doing and to provide a validation for the things that we are doing.

So we have great relationship with them to the top to bottom in that organization between myself and senior leadership there and a bunch of other people so and I said in my comments its certainly the type of relationship that we would love to have with many, many of our licenses because all the things we talked about Charlie with the respect to Sony by building a strong relationship it made the renewal so much easier to do.

Obviously we had some long nights with them, but we have a lot of tools that are disposal and there was a lot of trust between the parties and it worked really well..

Okay great then Bill you mentioned lot of confidence in that $500 million to $600 million royalty base, obviously I think may be the biggest way to get there is more China. You got the wild way proceeding that’s pushed out into next year.

I wonder how much that will play into sought of the speed that which you are able to license other people in the market or does everyone see the writing on the wall because you own the arbitration any color on that would be helpful..

People understand arbitration word that’s very hard undo and so I think so writing is on wall in terms of what the result of that is going to be now it became guarantee success we have typical with most enforcement proceeding as they are moving along.

So I take the French proceeding is schedule for a try out hearing in March I think of next year with a decision of quickly follow that so I don’t think we are in a long time period for next year which is good and I also don’t expect because it typically never happens this thing to kind of consume all litigation space.

At some point the parties come to an agreement that certainly what we want to do.

So I do think it's somewhat of a gating item for the rest of China but it may not be an absolute necessity because for the reason I gave that I think people who have been writing on the wall there would be some motivation by people to actually get ahead of that decision if they feel they could negotiate something that for them may be a little bit better.

So the dialogue over there is better than it has been in China which is good. It’s never an easy discussion but I think we have got pretty good game plan..

Perfect. Thank you so much..

Our next question today is from Matthew Galinko at Sidoti..

Hi guys. Thanks you for taking my question.

Just a couple quick ones, one being I guess vis-à-vis where we are in the Huawei I am curious post conclusion of that, do you expect to continue the downtrend of litigation expenses and is that a meaningful piece in the next couple of quarters or is this pretty low cost process?.

So Matt we had litigation expense just over $6 million for the quarter in Q3.

If you remember on conference calls a year or two ago as we are coming off higher periods of litigation people would say where you would think that litigations spend could be and I would site $25 million as being a point in our history that I thought we might return to at one point. We're on that kind of run rate now.

I wouldn’t expect it to go dramatically below because in our history it is relatively low now, but there are certainly opportunities to keep it lower than it's been and again litigation is an very important investment for us when we make it but there is we must preferred to have an agreement like Sony where we bring and other resources to bear and use that as a way to reaching agreement with our customers..

Got it. Thanks and one other would be I guess if you could just talk a big picture about your thoughts on timing of one IoT might become, fairly significant or material to you..

Yeah, there is a couple components of IoT, right we always talk about at three layers so we had the connection layer so that actually devices themselves that are producing a data and have communication capability associated with them.

It have this middleware there which is really consumes the data coming up a devices secures it, manages it and distributes it up to application layer where the magic happens. I think if you look at the revenue opportunity for us almost follows a free track right so, we have revenue today coming in on connection.

And one of the opportunities near term that build on that is obviously volume because volume is a negative provider of margins and things like that and so that I think near term opportunity to really start to share some strength in the IoT market.

The next layer is this middleware layer I think that what you see in the market today is a lot of propriety implementations that middleware layer, what we’re doing is where, you will create this week demonstrating, one end power platform which on middleware platform.

There is a lot of interest in Asia in terms of deploying that standard and we actually have the most mature solution for that standard so, in terms of timing and revenue on that, my guess is which still, it’s not a 2016 of them but its I think its starts to build after that as people begin to deploy more standardized IoT solutions and beyond at the application and service levels, that’s the little further down the path for us it’s not exactly where we play as a company but I think as we gain expertise in those first two layers opportunities in the third layer will become more apparent to us.

.

Great, that’s all from me. Thank you..

[Operator Instructions] And we’ll go next to James Berkley at Barclays..

Hi, guys. How are you doing? Congrats on a quarter..

Thanks..

Thanks..

May as you could just touch on the value that you bring into the table regards the JV or Sony how you expanded on the relationship and the opportunity for other deals and JVs like the one you have what Sony going forward. That will be great..

Yeah, so as I went through much script we not only our providing a back license but we’re extending the IoT research.

That research they done with us for a three years now extending it for I take a pretty obvious reason not only as a big market but were a really good partner to have driving IoT innovation so obviously there is very happy customer from the perspective and then not only as we continuing the research that we had done with them, they extending that the 5G, I think again evidencing there.

The way value our research capability and then there is other technologies that are being shared with the part of the arrangements as well which I think also the flexibility well in terms of what almost were doing as a company.

I think in terms of other opportunities I can’t say that our organization enough telling, this is the type of deal we want to do and we need to align ourselves in a way that drives these kind of deals.

I think our research capability is probably the strongest asset that we have to in fact sales in these licensing relationships if you look at historically or relationships with customers like this, we had a relationship actually affinity, we had a relationship with, we had a relationship with, really, really strong research that once we get involved with people they love what we do alright.

I think that certainly one of the strong things we can bring to the table I think when you think about China not only can bring that research capability but our ability to manage patterns to pattern portfolio becomes another asset that we can use in terms of getting people access not only to license to our patterns but actually we are capable of transferring assets the companies as well because we have more than we need.

So, I think it’s the thing that make us different then a lot of other licensing companies that thing I want to be emphasize as an organization because ultimately these really, really sticky relationships benefit us in many, many ways and I think ultimately benefit the share price because the business is just so much more repeatable..

Okay, thank you appreciate that color and then just switching gears or click here just on the $5 to $600 million that you guy have, been talking about for the last two quarters here, are you able to frame that a bit in terms of timing and then just giving that the $400 million given that fact that both $400 million right now represents around 50% of the handset opportunity in total, how do you think about the potential to may be go or update on $600 million if that is that all possible longer term..

So I think that certainly possible and I think we’re not updating our goal to increase it, I think the goal is the goal to increase it I think the goal is the goal but there is the always the possibility that we can exceed it.

And as far as timing in the may be the next most obvious step is a resolution with wild way, given the proceedings that we have in place with them Bill talked about the timing just a couple moments ago with respect to that and then whether or not that accelerates other agreements in China or where able to use the writing on the wall as we talked about as a way to get their sooner with their different levers that you are looking at but we’re confident that we can get there.

We think that we make progress since we initially set out the goal and look forward to taking the next steps.

It is one other thing to note on that, I think as we talk with you before I miss this it’s not like we have to sign a 100 people to get this scope we have a very short list of licensees they get us up to goal because the market is its consolidated You think about it it's wild way, it's LG.

And, you Lenovo if we do those successfully were so it’s a relatively short list allows us to focus us an organization on that short list and drive them as hard as we can..

Great, that’s very helpful. Thank you..

And we’ll go next to Eugene Fox at Cardinal Capital..

Thanks gentlemen. Congratulations..

Thanks..

Can you talk about the sort of the next gen of LTE, your thoughts Bill on your positioning their overall relative to this standard as body and how should, we should think about that makes it how that makes its way into your licensing agreements..

So, generally on LTE, we’re very, very comfortable with the research that we done our position in the standards we’ve got really good coverage across the standard, one of the things with the LTE standard there is a, there is a number of optional features in there, they get deployed over time and we got only really to coverage on a bunch of those as well so I think while we can attract to the accuracy of any report that comes out on LTE positioning.

They all are very consistent in terms of how they position a company as one of the leaders about the LTE, the technology so we’re happy there I think, 5G opportunity is our really good opportunity for us because it’s going to be a little bit more crowded of a space.

As they have a chip off meaning in phoenix about a month ago and there were 300 participants which is much more than we ever seen and in terms of people wanting to get the long term property and their design but we have our leadership positions in this standards give us leg up.

I think our knowledge of the underlying systems give us a leg up because you are not starting from Greenfield you have to read these solutions into what’s there and that our knowledge of what’s out there and that’s a 40 year knowledge of what’s out there gives us a really good position.

So, we got the organization into a laser focused on 5G really, good work at all parts of our organization and say particularly strong work coming out of Europe. So I’m happy with the way that part of business is operating so no issues. .

Bill, can you talk a little bit about sort of market for tons any changes that you seen in terms of sort of buyers, sellers and values there?.

Yeah, not a lot of change in the last couple of quarters. I mean I think we continued to be in a market where I guess I break the market down a couple pieces right. There is a not a lot of quality portfolio today we’re seeing coming on to the market. I think part of that is pricing.

Pricing issues down, the people with really good stuff or not necessarily bring them on the market and that said we still have opportunities in licenses discussions with folks because that is where they will bring patents to bear because more value and good patent in an appropriate way and its allowed us to close license transaction it’s a good way for us to do it.

I think generally in the IPO or landscape, you have a number of companies out there that were very, very focus on small portfolios and assertion-based entities, they are really struggling.

My sense is those patent portfolios are probably worth may be what the companies are trading for so, I think there is a buying opportunity for us and so, we’re focused seeing if we can find good portfolios that maybe we can pull out some organizations, what will now be very reasonable prices and I think our history has shown that, if we get a portfolio at a good price we have a very good track record on making money of that so and that’s not a world’s greatest environment and it is in some but I think it’s a good opportunity in the right situation for us to require..

Last question Bill, can you give us an update on sort of, on the process of negotiating patents relative to the legal environment and just that the notion of using arbitration as the preferred vehicle for resolving these disputes..

Yeah. Generally I'd say the overall legal environment and regulatory environment I say it has gotten better, I still say certainly not the way it was number of years ago so better from couple of perspectives I think certainly from U.S.

perspective I think we were very successful in discouraging Congress from pursuing what was really ill-advised changes to the patent laws. So that looks like it has been shelved and with the Presidential Election next year, we would hope that and shelved appropriately and I think it’s going to continue we hope.

I think that generally we’ve been and others we're partnering with Qualcomm and others on this very successful and kind of making people understand lot of what is going on in the patent side was not spaced it was sort of based upon just people who want it, other to business objectives in terms of underlying the patent system.

There was an interesting article the other day that actually talked about how China's respect for intellectual property is on a track to surpass United States and that I think those types of articles when they come out they open people’s eyes like to the quality of the reforms that have been done.

Arbitration I think there is a number of parties that are in arbitration with companies I think it is the best way for us to position the company as a reasonable licensor and we’re willing to arbitrate at least disputes we are going to do it on a very simple basis unbounded basis, I think that approach by the company has served us really, really well.

It says we are not afraid to have a third-party determine this for us. So as long as that third party it qualified to do it and also does it in an efficient way, so we don’t want every patent in every jurisdiction to be arbitrated by somebody different that is a very inefficient process.

But a single party to do it in a fair and unbiased way we are happy to do. So I think all of that sort of is why the company is doing as well is I think we are a very, very reasonable company with really strong technology and we are open to very reasonable approaches and we are going to ride that horse..

Congratulations, thanks Bill..

Okay..

And that does conclude today’s question-and-answer session. Mr. Van de Wille, I would like to turn to turn the program back over to you for any additional or concluding remarks..

Thank you, Laurie and thanks to Gene, Matt, James and Charlie for your question. Just a final reminder before we log off. The easiest way to track all the financial metrics that matter in relation to our company is to access our website at www.interdigital.com. Click on the link on the left of the homepage of the financial metrics tracker for Q3 2015.

Thanks everybody for joining us today..

Ladies and gentlemen, once again, that does conclude today's conference and again thank you for joining us..