InterDigital Inc.

10/29/2026 | Press release | Distributed by Public on 10/29/2026 06:36

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
The following discussion should be read in conjunction with the unaudited, condensed consolidated financial statements and notes thereto contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, in addition to our 2025 Form 10-K, other reports filed with the SEC and the Statement Pursuant to the Private Securities Litigation Reform Act of 1995 - Forward-Looking Statements below.
Throughout the following discussion and elsewhere in this Quarterly Report on Form 10-Q, we refer to "catch-up revenue." "Catch-up revenue" primarily represents revenue associated with reporting periods prior to the entry of the agreement.
New Agreements
During third quarter 2026, we entered into an arbitration agreement with a top PC manufacturer to determine the final terms of a new patent license covering certain of our patents. During third quarter 2026, we began recognizing revenue based on a conservative estimate, consistent with Generally Accepted Accounting Principles in the United States ("GAAP"), in respect of this agreement.
Additionally, we signed a new patent license agreement with KEBA Energy Automation GmbH. The agreement covers certain KEBA EV charger products under InterDigital's global patent portfolio related to the 3G, 4G and Wi-Fi standards.
Disney UPC Injunctions
During the third quarter of 2026, the Dusseldorf Local Division of the Unified Patent Court ("UPC") issued two additional injunctions against Disney. In July 2026, the court found that Disney infringed an InterDigital patent covering certain video encoding techniques related to HEVC. In September 2026, the court found that Disney infringed an InterDigital patent that covers technology that enables seamless viewing when sharing video content between different devices. Both rulings confirmed the validity of the patents and issued injunctions spanning across multiple countries in the European Union. Disney may appeal each decision. In their rulings, both UPC tribunals concluded that Disney is an "unwilling licensee" based on its conduct.
These decisions represent the second and third injunctions that InterDigital has received from the UPC against Disney. The first UPC injunction related to patents covering certain video encoding techniques associated with HEVC. Outside of the UPC, InterDigital has been awarded injunctions from national courts in Germany and Brazil for Disney's infringement of InterDigital's intellectual property related to high dynamic range (HDR) technology, the dynamic overlaying of multiple video streams, and additional encoding technologies related to HEVC and AVC.
For more information on these proceedings, see Note 6, "Litigation and Legal Proceedings," to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Notes, Hedge, and Warrant Transactions
During third quarter 2026, the 2027 Notes had a dilutive impact of 3.5 million shares, which is offset from an economic standpoint by the 2027 Note Hedge Transactions and would result in no incremental outstanding shares after conversion. However, under GAAP, we are required to exclude the impact of the shares received from the 2027 Note Hedge Transactions counterparties from the calculation of weighted-average diluted shares outstanding.
From the period January 1, 2024 through December 31, 2026, the holders of the 2027 Notes have the right, but not the obligation, to convert any portion of the principal amount of the 2027 Notes. As of September 30, 2026, $296.7 million in principal of the 2027 Notes remains outstanding, of which holders had elected to convert $2.2 million principal amount, which will settle in fourth quarter 2026. No incremental outstanding shares will result from such conversions.
As of September 30, 2026, 6.0 million warrants remain outstanding related to the 2027 Warrant Transactions at a strike price of $105.30 per share, subject to adjustment, which mature on a net-share basis beginning September 2027 through April 2028. Refer to "Financial Position, Liquidity, and Capital Resources - Convertible Notes" for further information regarding how changes in our stock price would affect the number of shares issuable related to the 2027 Warrant Transactions. For example, if the share price averaged $325 between September 2027 and April 2028, we would issue 4.1 million shares of common stock related to the 2027 Warrant Transactions.
Return of Capital
In September 2026, we announced an increase to our regular quarterly cash dividend from $0.70 per share to $0.75 per share, beginning with the dividend paid in fourth quarter 2026. During third quarter 2026, we repurchased $18.7 million of common stock and declared $19.3 million in cash dividends, or $0.75 per share, representing a total of $38.0 million in share repurchases and dividends declared. We also reduced our debt through $83.2 million principal payments on conversions of the 2027 Notes.
As of October 29, 2026, there was $66.9 million remaining under the share repurchase authorization, which we plan to utilize to periodically repurchase additional common shares. See Part II - Other Information, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds-Issuer Purchases of Equity Securities of this Quarterly Report on Form 10-Q.
Cash and Short-term Investments
As of September 30, 2026, we had $1.1 billion of cash, cash equivalents, restricted cash, and short-term investments and approximately $1.8 billion of cash payments due under contracted fixed price agreements, which includes our conservative estimates of the minimum cash receipts that we expect to receive under our three ongoing arbitrations.
95% of our third quarter 2026 revenue came from fixed-fee 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.
The following table reconciles the timing differences between cash receipts and recognized revenue during the three and nine months ended September 30, 2026 and 2025, including the resulting operating cash flow (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
Cash vs. Non-cash revenue: 2026 2025 2026 2025
Fixed-fee cash receipts (1)
$ 225,698 $ 492,020 $ 524,918 $ 676,739
Other cash receipts (2)
9,801 8,390 28,894 41,834
Change in deferred revenue 8,914 (119,991) (98,694) (48,785)
Change in receivables and contract assets (56,831) (222,066) 188,354 (12,661)
Other 5,847 6,329 15,543 18,658
Total Revenue $ 193,429 $ 164,682 $ 659,015 $ 675,785
Net cash provided by operating activities $ 150,356 $ 395,930 $ 248,973 $ 481,059
(1) Fixed-fee cash receipts are comprised of cash receipts from Dynamic Fixed-Fee Agreement royalties, including the associated catch-up revenue.
(2) Other cash receipts are primarily comprised of cash receipts related to our variable patent royalty revenue and catch-up revenue.
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 September 30, 2026 (in thousands):
Deferred Revenue
Remainder of 2026 $ 116,506
2027 236,157
2028 78,159
2029 1,206
2030 1,270
Thereafter -
Total $ 433,298
Revenue
Third quarter 2026 revenue of $193.4 million includes $36.2 million of catch-up revenue, while third quarter 2025 revenue of $164.7 million includes $17.7 million of catch-up revenue. The $28.7 million increase in total revenue was driven by higher catch-up revenue and recurring revenue recognized from eleven patent license agreements signed since third quarter 2025. In third quarter 2026, revenue (in descending order) from Dell, Apple, and Samsung each comprised 10% or more of our consolidated revenue. Refer to "Results of Operations - Third Quarter 2026 Compared to Third Quarter 2025" for further discussion of our 2026 revenue.
Smartphone, CE, IoT/Auto, and Streaming and Cloud Services are the Company's licensing programs. The Smartphone revenue grouping consists primarily of smartphones and also includes other wireless communication devices and infrastructure equipment, such as tablets, and base stations. The CE, IoT/Auto revenue grouping consists of consumer electronics and IoT products, such as televisions, laptops, gaming consoles, set-top boxes, streaming devices, and connected automobiles. The Streaming and Cloud Services revenue grouping consists of SVOD, AVOD, global pay-TV, video conferencing, cloud gaming, and other cloud-based services.
Impact of Macroeconomic and Geopolitical Factors
We have been actively monitoring the impact of the current macroeconomic environment in the U.S. and globally characterized by market volatility, inflation, supply chain issues, recent increases in interest rates, tariffs and other potential trade-related sanctions, and the potential for a recession. These market factors, as well as the impacts of global conflicts, have not had a material impact on our business to date. However, if these conditions continue or worsen, they could have an adverse effect on our operating results and our financial condition.
Comparability of Financial Results
When comparing third quarter 2026 financial results against other periods, the following items should be taken into consideration:
Revenue
•Our third quarter 2026 revenue includes $36.2 million of catch-up revenue primarily related to the arbitration agreement signed with a top PC manufacturer in third quarter 2026.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are described in Note 2, "Summary of Significant Accounting Policies and New Accounting Guidance", in the notes to condensed consolidated financial statements included in our 2025 Form 10-K. A discussion of our critical accounting policies, and the estimates related to them, are included in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2025 Form 10-K. There have been no material changes to our existing critical accounting policies from the disclosures included in our 2025 Form 10-K. Refer to Note 1, "Basis of Presentation," in the notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for updates related to new accounting pronouncements and changes in accounting policies.
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. From time to time, we may engage in a variety of transactions to augment our liquidity position as our business dictates and to take advantage of favorable interest rate environments or other market conditions, including the incurrence or issuance of debt and the refinancing or restructuring of existing debt. Based on our past performance and current expectations, we believe our available sources of funds, including cash, cash equivalents, short-term investments, and cash generated from our operations, will be sufficient to finance our operations, capital requirements, debt obligations, existing share repurchase program, dividend program, and other contractual obligations discussed below in both the short-term over the next twelve months, and the long-term beyond twelve months.
Cash, cash equivalents, restricted cash, and short-term investments
As of September 30, 2026 and December 31, 2025, we had the following amounts of cash, cash equivalents, restricted cash, and short-term investments (in thousands):
September 30, 2026 December 31, 2025 Increase/(Decrease)
Cash and cash equivalents $ 639,193 $ 738,960 $ (99,767)
Restricted cash included within prepaid and other current assets 7,508 15,308 (7,800)
Short-term investments 483,410 504,200 (20,790)
Total cash, cash equivalents, restricted cash, and short-term investments
$ 1,130,111 $ 1,258,468 $ (128,357)
The net decrease in cash, cash equivalents, restricted cash, and short-term investments was attributable to cash used in financing activities of $338.8 million and cash used in investing activities of $43.4 million, excluding sales and purchases of short-term investments, partially offset by cash provided by operating activities of $249.0 million. Refer to the sections below for further discussion of these items.
Cash flows provided by operating activities
Cash flows provided by operating activities in the first nine months 2026 and 2025 (in thousands) were as follows:
Nine Months Ended September 30,
2026 2025 Change
Net cash provided by operating activities $ 248,973 $ 481,059 $ (232,086)
Our cash flows provided by operating activities are principally derived from cash receipts from patent license agreements, offset by cash operating expenses and income tax payments. The $232.1 million change in cash provided by operating activities was primarily driven by lower cash receipts due to the timing of receipts under new and existing agreements and due to higher cash operating expenses, including increased revenue share and intellectual property enforcement costs. The table below sets forth the significant items comprising our cash flows provided by operating activities during the nine months ended September 30, 2026 and 2025 (in thousands):
Nine Months Ended September 30,
2026 2025 Change
Total Cash Receipts $ 553,812 $ 718,573 $ (164,761)
Cash Outflows:
Cash operating expenses (1)
(232,039) (174,518) (57,521)
Income taxes paid (2)
(55,000) (92,711) 37,711
Total cash outflows (287,039) (267,229) (19,810)
Other working capital adjustments (17,800) 29,715 (47,515)
Cash flows provided by operating activities $ 248,973 $ 481,059 $ (232,086)
______________________________
(1) Cash operating expenses include operating expenses less depreciation and disposals of fixed assets, amortization of patents, and non-cash compensation. Amount includes revenue share costs of $29.3 million and $7.6 million in first nine months 2026 and 2025, respectively.
(2) Income taxes paid include foreign withholding taxes.
Cash flows from investing and financing activities
Net cash used in investing activities for first nine months 2026 was $17.7 million, a $19.2 million change from $36.9 million in first nine months 2025. During first nine months 2026, we sold $25.8 million of short-term marketable securities, net of purchases, and capitalized $45.2 million of patent costs and capital expenditures. During first nine months 2025, we sold $18.3 million of short-term marketable securities, net of purchases, and capitalized $55.3 million of patent costs and capital expenditures.
Net cash used in financing activities for first nine months 2026 was $338.8 million, a change of $191.8 million from $147.0 million in first nine months 2025. This change was primarily attributable to an $163.2 million payment related to partial conversions of the 2027 Notes in first nine months 2026. The change also reflects higher cash outflows in 2026, including a $19.5 million increase in taxes withheld on restricted stock unit vestings due to a higher share price at vesting and a $11.5 million increase in dividends paid following the increases in the declared dividend from $0.60 to $0.70. In addition, during first nine months 2025, we received $7.3 million due to the exercise of stock options. These changes were offset by a $16.8 million decrease in repurchases of common stock.
Other
Our combined short-term and long-term deferred revenue balance as of September 30, 2026 was approximately $433.3 million, a net increase of $103.7 million from December 31, 2025. This increase in deferred revenue was primarily due to cash receipts on new and existing patent license agreements, partially offset by amortization of deferred revenue recognized in the period.
Based on current license agreements, we expect the amortization of dynamic fixed-fee royalty payments to reduce the September 30, 2026 deferred revenue balance of $433.3 million by $294.9 million over the next twelve months.
Convertible Notes
See Note 5, "Obligations" to the Notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for definitions of capitalized terms below.
From January 1, 2024 through December 31, 2026, the holders of the 2027 Notes have the right, but not the obligation, to convert any portion of the principal amount of the 2027 Notes.
Our 2027 Notes are included in the diluted earnings per share ("diluted EPS") calculation using the if-converted method in accordance with GAAP. Under the if-converted method, we assume that conversion of convertible securities occurs at the beginning of the reporting period. The 2027 Notes are convertible into cash up to the aggregate principal amount of the 2027 Notes to be converted and any value in excess of the principal amount (the "conversion spread") may be settled in cash, shares of the Company's common stock, or a combination thereof. As the principal amount is required to be paid in cash and only the conversion spread may result in shares being issued, we only include the net number of incremental shares that would be issued upon conversion. We calculate the number of shares of our common stock issuable under the terms of the 2027 Notes based on the average market price of our common stock during the applicable reporting period and include that number in the weighted-average diluted shares outstanding for the period.
At the time we issued the 2027 Notes, we entered into the 2027 Note Hedge Transactions and 2027 Warrant Transactions (collectively, the "2027 Call Spread Transactions") that together were designed to have the economic effect of reducing potential dilution upon conversion of the 2027 Notes by, in effect, increasing the conversion price of the 2027 Notes on an economic basis. However, under GAAP, since the impact of the 2027 Note Hedge Transactions is anti-dilutive, we exclude from the calculation of diluted EPS the shares of our common stock that we would receive from the counterparties upon settlement of the 2027 Note Hedge Transactions.
During periods in which the average market price of our common stock is above the applicable conversion price of the 2027 Notes (conversion price of approximately $76.72 per share, subject to adjustment), or above the strike price of the warrants (strike price of $105.30 per share, subject to adjustment), the impact of conversion of the 2027 Notes or exercise of the warrants, as applicable, would be dilutive and such dilutive effect is reflected in diluted earnings per share. In those periods, we calculate the incremental shares associated with the 2027 Notes (under the if-converted method) or the warrants based on the average market price of our common stock during the period and include those incremental shares in weighted-average diluted shares outstanding.
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 diluted EPS calculation. As described in Note 5, "Obligations" in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, the 2027 Notes are convertible into cash up to the aggregate principal amount of 2027 Notes to be converted and any remaining obligations may be settled in cash, shares of the Company's common stock or a combination thereof ("net share settlement"). Assuming net share settlement upon conversion, the following table illustrates how changes in our stock price would affect the shares issuable under the 2027 Notes and related warrant transactions, the incremental shares included in diluted EPS under the if-converted method ("Total Incremental Shares"), the shares deliverable to us under the 2027 Note Hedge Transactions, and the resulting net incremental shares, based on $296.7 million aggregate principal amount outstanding and approximately 6.0 million related warrants as of September 30, 2026 (in thousands):
2027 Notes
Market Price
Per Share 		Shares Issuable Upon Conversion of the 2027 Notes Shares Issuable Upon Exercise of the 2027 Warrant Transactions Total If-Converted Method Incremental Shares
Shares Deliverable to InterDigital Upon Settlement of the 2027 Note Hedge Transactions
Incremental Shares Issuable (1)
A B C=A+B D E=C-D
$105 1,042 - 1,042 (1,042) -
$125 1,494 945 2,439 (1,494) 945
$150 1,890 1,787 3,677 (1,890) 1,787
$175 2,172 2,388 4,560 (2,172) 2,388
$200 2,384 2,839 5,223 (2,384) 2,839
$225 2,549 3,190 5,739 (2,549) 3,190
$250 2,681 3,471 6,152 (2,681) 3,471
$275 2,789 3,700 6,489 (2,789) 3,700
$300 2,879 3,892 6,771 (2,879) 3,892
$325 2,955 4,053 7,008 (2,955) 4,053
$350 3,020 4,192 7,212 (3,020) 4,192
$375 3,077 4,312 7,389 (3,077) 4,312
$400 3,126 4,418 7,544 (3,126) 4,418
$425 3,170 4,511 7,681 (3,170) 4,511
$450 3,209 4,593 7,802 (3,209) 4,593
$475 3,243 4,667 7,910 (3,243) 4,667
$500 3,275 4,733 8,008 (3,275) 4,733
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(1) Represents incremental shares issuable upon concurrent conversion of convertible notes, exercise of warrants and settlement of the hedge agreements.
RESULTS OF OPERATIONS
Third Quarter 2026 Compared to Third Quarter 2025
Revenue
The following table compares third quarter 2026 revenue to third quarter 2025 revenue (in thousands):
Three Months Ended September 30,
2026 2025 Increase/(Decrease)
Smartphone $ 122,631 $ 136,407 $ (13,776) (10) %
CE, IoT/Auto 55,712 28,219 27,493 97 %
Streaming and Cloud Services
15,000 - 15,000 N/M
Other 86 56 30 54 %
Total Revenue $ 193,429 $ 164,682 $ 28,747 17 %
Catch-up revenue(1), included above
$ 36,208 $ 17,678 $ 18,530 105 %
(1) Catch-up revenue represents revenue associated with reporting periods prior to the entry of the agreement.
N/M indicates not meaningful.
Total revenue of $193.4 million increased compared to third quarter 2025, primarily due to revenue recognized from the top PC manufacturer and Amazon arbitration agreements and nine other agreements signed over the last twelve months. The increase was partially offset by catch-up revenue recognized in third quarter 2025 primarily resulting from the Honor agreement and the expiration of the Samsung TV agreement at the end of 2025.
In third quarter 2026 and 2025, 54% of our total revenue was attributable to licensees that individually accounted for 10% or more of our total revenue. In third quarter 2026 and 2025, the following licensees accounted for 10% or more of our total revenue:
Three Months Ended September 30,
2026 2025
Customer A 20% -%
Customer B 17% 20%
Customer C 17% 23%
Customer D <10% 11%
Operating Expenses
The following table summarizes the changes in operating expenses between third quarter 2026 and third quarter 2025 by category (in thousands):
Three Months Ended September 30,
2026 2025 Increase/(Decrease)
Research and portfolio development $ 56,692 $ 53,068 $ 3,624 7 %
Licensing 24,371 19,715 4,656 24 %
General and administrative 13,001 16,091 (3,090) (19) %
Total operating expenses
$ 94,064 $ 88,874 $ 5,190 6 %
Operating expenses increased to $94.1 million in third quarter 2026 compared to $88.9 million in third quarter 2025. The $5.2 million increase in total operating expenses was primarily due to changes in the following items (in thousands):
Increase/(Decrease)
Intellectual property enforcement, net $ 4,809
Share-based compensation 4,015
Revenue share costs (1,517)
Other (2,117)
Total increase in operating expenses
$ 5,190
The $5.2 million increase in operating expenses was driven by a $4.8 million increase in intellectual property enforcement costs related to ongoing proceedings and a $4.0 million increase in performance related share-based compensation costs due to recent business successes. These increases were offset by a $1.5 million decrease in revenue share costs due to the expiration of the Samsung TV agreement.
Research and portfolio development expense: Research and portfolio development expense increased compared to third quarter 2025 primarily due to increased share-based compensation costs and depreciation.
Licensing expense: Licensing expense increased compared to third quarter 2025 primarily due to the above-noted change in intellectual property enforcement and share-based compensation costs, partially offset by the decreased revenue share costs.
General and administrative expense: General and administrative expense decreased compared to third quarter 2025 primarily due to lower personnel-related costs and other corporate expenses, partially offset by increased share-based compensation expenses.
Non-Operating Income, net
The following table compares third quarter 2026 non-operating income, net to third quarter 2025 (in thousands):
Three Months Ended September 30,
2026 2025 Increase/(Decrease)
Interest expense $ (8,956) $ (10,019) $ 1,063 11 %
Interest and investment income 10,176 9,484 692 7 %
Other non-operating (expense) income, net (1,078) 704 (1,782) (253) %
Total non-operating income, net $ 142 $ 169 $ (27) (16) %
The change in other non-operating (expense) income, net was primarily due to fair value adjustments on our investments, which resulted in a $0.1 million net loss in third quarter 2026 compared with a $1.7 million net gain in third quarter 2025.
Income Taxes
In third quarter 2026 and 2025, based on the statutory federal tax rate net of discrete federal and state taxes, we had an effective tax rate of 19.4% and 11.2%, respectively. The change in effective tax rate was primarily due to a lower proportion of income qualifying for the Foreign-Derived Deduction Eligible Income ("FDDEI") benefit.
First Nine Months 2026 Compared to First Nine Months 2025
Revenue
The following table compares first nine months 2026 revenue to first nine months 2025 revenue (in thousands):
Nine Months Ended September 30,
2026 2025 Increase/(Decrease)
Smartphone $ 368,722 $ 555,482 $ (186,760) (34) %
CE, IoT/Auto 165,073 119,817 45,256 38 %
Streaming and Cloud Services
125,000 - 125,000 N/M
Other 220 486 (266) (55) %
Total Revenue $ 659,015 $ 675,785 $ (16,770) (2) %
Catch-up revenue(1), included above
$ 203,576 $ 264,791 $ (61,215) (23) %
(1) Catch-up revenue represents revenue associated with reporting periods prior to the entry of the agreement.
N/M indicates not meaningful.
Total revenue of $659.0 million decreased $16.8 million compared with the first nine months of 2025, primarily due to catch-up revenue recognized in first nine months 2025 under the Samsung arbitration and the vivo, HP, and Honor agreements. Additionally, the expiration of the Samsung TV agreement contributed to the decrease. These decreases were mostly offset by revenue recognized from the Amazon and top PC manufacturer arbitration agreements and LG TV agreement, as well as revenue from fourteen other new patent license agreements signed in the last eighteen months.
In first nine months 2026 and 2025, 49% and 64% of our total revenue, respectively, was attributable to companies that individually accounted for 10% or more of our total revenue. In first nine months 2026 and 2025, the following companies accounted for 10% or more of our total revenue:
Nine Months Ended September 30,
2026 2025
Customer E 19% -%
Customer B 15% 15%
Customer C 15% 33%
Customer F <10% 16%
Operating Expenses
The following table summarizes the changes in operating expenses between first nine months 2026 and first nine months 2025 by category (in thousands):
Nine Months Ended September 30,
2026 2025 Increase/(Decrease)
Research and portfolio development $ 168,934 $ 154,172 $ 14,762 10 %
Licensing 111,215 61,301 49,914 81 %
General and administrative 58,001 47,245 10,756 23 %
Total operating expenses $ 338,150 $ 262,718 $ 75,432 29 %
Operating expenses increased 29% to $338.2 million in first nine months 2026 from $262.7 million in first nine months 2025. The $75.4 million increase in total operating expenses was primarily due to changes in the following items (in thousands):
Increase/(Decrease)
Intellectual property enforcement $ 28,790
Revenue share 21,706
Share-based compensation 17,123
Other 7,813
Total change in operating expenses
$ 75,432
The $75.4 million increase in operating expenses was primarily driven by a $28.8 million increase in intellectual property enforcement costs related to ongoing proceedings, a $21.7 million increase in revenue share costs primarily associated with catch-up revenue recognized under the LG TV agreement signed during first nine months of 2026, and a $17.1 million increase in performance related share-based compensation costs related to recent business successes.
Research and portfolio development expense: Research and portfolio development expense increased compared to first nine months 2025 primarily due to increases in share-based compensation costs, personnel-related costs, and depreciation costs.
Licensing expense: Licensing expense increased by $49.9 million compared to first nine months 2025 primarily driven by the above-noted increased revenue share costs and intellectual property enforcement costs.
General and administrative expense: General and administrative expense increased $10.8 million primarily due to the above-noted increase in share-based compensation.
Non-Operating Income, net
The following table compares first nine months 2026 non-operating income, net to first nine months 2025 (in thousands):
Nine Months Ended September 30,
2026 2025 Increase/(Decrease)
Interest expense $ (26,606) $ (29,427) $ 2,821 10 %
Interest and investment income 30,805 27,576 3,229 12 %
Other non-operating (expense) income, net (2,385) 8,014 (10,399) (130) %
Total non-operating income, net $ 1,814 $ 6,163 $ (4,349) (71) %
The change in other non-operating (expense) income, net was primarily due to a foreign currency translation net loss arising from translation of our foreign subsidiaries of $5.3 million in first nine months 2026, compared to a $5.9 million net gain in first nine months 2025.
Income Taxes
In first nine months 2026 and 2025, we had an effective tax rate of 15.7% and 13.3%, respectively. The change in effective tax rate was primarily due to a lower proportion of income qualifying for the FDDEI benefit.
STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 - FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include certain 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," and 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 Quarterly Report on Form 10-Q 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. These risks and uncertainties include, but are not limited to, the risks and uncertainties described in Part I, Item 1A of our 2025 Form 10-K and in this Quarterly Report on Form 10-Q and the risks and uncertainties set forth below:
•unanticipated delays or difficulties in the execution of patent license agreements on acceptable terms or at all;
•our ability to expand our revenue opportunities by entering into licensing arrangements with streaming and cloud-based service providers;
•the initiation of new legal proceedings or the resolution of ongoing legal proceedings, including any awards or judgments relating to such proceedings, and changes in the schedules or costs associated therewith;
•our ability to successfully integrate Deep Render and to recognize the anticipated benefits of the transaction;
•our ability to maintain a strong patent portfolio and make strategic decisions related to our intellectual property protection;
•the failure of markets for our technologies to materialize to the extent that we expect;
•our continued ability to develop new technologies;
•changes in our interpretations of, and assumptions and calculations with respect to the impact on us of, the One Big Beautiful Bill Act, the 2017 Tax Cuts and Jobs Act and other U.S. and non-U.S. tax laws;
•the timing and impact of potential regulatory, administrative and legislative matters;
•the potential effects of macroeconomic conditions or global conflicts;
•our ability to hire and retain key personnel;
•operational risks, including cybersecurity events, human failures or other difficulties with our information technology systems; and
•risks related to any new accounting standards or our estimates, assumptions and the application of relevant accounting standards, including with respect to revenue recognition.
You should carefully consider these factors 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 Quarterly Report on Form 10-Q. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law.
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