Revenue Recognition

12 Months Ended

Dec. 31, 2019

Revenue from Contract with Customer [Abstract]

REVENUE RECOGNITION

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASC 606") which superseded most prior revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. We adopted the requirements of the new standard as of January 1, 2018 using the modified retrospective transition method applied to those contracts that were not completed as of January 1, 2018. Accordingly, all periods prior to January 1, 2018 are presented in accordance with ASC Topic 605, "Revenue Recognition" (“ASC 605”). Periods beginning January 1, 2018 are presented in accordance with ASC 606. See Note 2 "Summary of Significant Accounting Policies and New Accounting Guidance" for our revised revenue recognition accounting policy upon adoption of the new guidance.

For accounting purposes under ASC 606, we separate our fixed-fee license agreements into two categories: (i) those agreements that provide rights, over the term of the license, to future technologies that are highly interdependent or highly interrelated to the technologies provided at the inception of the agreement (“Dynamic Fixed-Fee Agreements”) and (ii) those agreements that do not provide for rights to such future technologies (“Static Fixed-Fee Agreements”). After the fair value allocation between the past and future components of the agreement, we recognize the future components of revenue from Dynamic Fixed-Fee Agreements on a straight-line basis over the term of the related license agreement, while we recognize most or all of the revenue from Static Fixed-Fee Agreements in the quarter the license agreement is signed. We did not recognize any ongoing revenue from Static Fixed-Fee Agreements already in existence at the time the guidance was adopted. Additionally, in the event a significant financing component is determined to exist in any of our agreements, we recognize more or less revenue and corresponding interest expense or income, as appropriate.

In addition, we record per-unit royalty revenue in the same period in which the licensee’s underlying sales occur. Because we generally do not receive the per-unit licensee royalty reports for sales during a given quarter within the time frame necessary to adequately review the reports and include the actual amounts in our quarterly results for such quarter, we accrue the related revenue based on estimates of our licensees’ underlying sales, subject to certain constraints on our ability to estimate such amounts. As a result of accruing revenue for the quarter based on such estimates, adjustments are required in the following quarter to true-up revenue to the actual amounts reported by our licensees. In addition, to the extent we receive non-refundable prepayments related to per-unit license agreements that do not provide rights over the term of the license to future technologies that are highly interdependent or highly interrelated to the technologies provided at the inception of the agreement, we recognize such prepayments as revenue in the period in which all remaining revenue recognition criteria have been met.

Finally, under ASC 606, we recognize a receivable, and any related deferred tax asset for foreign withholding taxes, for payments as they become due.

Timing of revenue recognition may differ significantly from the timing of invoicing to customers. Contract assets are included in accounts receivable and represent unbilled amounts expected to be received from customers in future periods, where the revenue recognized to date exceeds the amount billed, and right to payment is subject to the underlying contractual terms. Contract assets are classified as long-term assets if the payments are expected to be received more than one year from the reporting date.

Disaggregated Revenue

The following table presents the disaggregation of our revenue for the year ended December 31, 2019 and 2018 under ASC 606. Revenue for the year ended December 31, 2017 is presented in accordance with ASC 605. Amounts are in thousands.



	For the Year Ended December 31,
	2019		2018		2017
Variable patent royalty revenue	$	30,428	$	36,384	$	47,840
Fixed-fee royalty revenue	257,221		239,347		301,628
Current patent royalties ^a	287,649		275,731		349,468
Non-current patent royalties ^b	19,782		26,329		162,890
Total patent royalties	307,431		302,060		512,358
Current technology solutions revenue ^a	10,518		4,594		20,580
Patent sales	975		750		—
Total revenue	$	318,924	$	307,404	$	532,938

a. Recurring revenues consist of current patent royalties, inclusive of Dynamic Fixed-Fee Agreement royalties, and current technology solutions

revenue.


b.	Non-current patent royalties for the year ended December 31, 2019 and 2018 consist of past patent royalties and royalties from static agreements. For the year ended December 31, 2017, non-current patent royalties consist of past patent royalties.

During the year ended December 31, 2019, we recognized $214.0 million of revenue that had been included in deferred revenue as of the beginning of the period. As of December 31, 2019, we had contract assets of $16.2 million and $10.2 million included within "Accounts receivable" and "Other non-current assets" in the consolidated balance sheet, respectively. As of December 31, 2018, we had contract assets of $19.7 million and $5.5 million included within "Accounts receivable" and "Other non-current assets" in the consolidated balance sheet, respectively.

Impact of Adoption of ASC 606

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our current period consolidated income statement and balance sheet is presented below. We believe this additional information is vital to allow readers of our financial statements to compare financial results from the preceding financial years given the absence of restatement of the prior period. The adoption of ASC 606 did not affect our reported total amounts of cash flows from operating, investing and financing activities. Amounts contained in the tables below are in thousands, except per share data.



	For the Year Ended December 31,
	2019			2018									2017
	As Reported ASC 606			As Reported ASC 606			Adjustment			ASC 605			As Reported ASC 605
REVENUES:
Variable patent royalty revenue	$	30,428		$	36,384		$	461		$	36,845		$	47,840
Fixed-fee royalty revenue	257,221			239,347			79,341			318,688			301,628
Current patent royalties	287,649			275,731			79,802			355,533			349,468
Non-current patent royalties	19,782			26,329			(10,000		)	16,329			162,890
Total patent royalties	307,431			302,060			69,802			371,862			512,358
Patent sales	975			750			—			750			—
Current technology solutions revenue	10,518			4,594			4,907			9,501			20,580
	$	318,924		$	307,404		$	74,709		$	382,113		$	532,938
OPERATING EXPENSES:	281,089			244,809			—			244,809			231,443
Income from operations	37,835			62,595			74,709			137,304			301,495
Interest expense	(40,955		)	(35,956		)	16,655			(19,301		)	(17,845		)
OTHER INCOME (EXPENSE), NET	29,062			5,419			—			5,419			8,740
Income before income taxes	25,942			32,058			91,364			123,422			292,390
INCOME TAX BENEFIT (PROVISION)	(10,991		)	27,417			(6,686		)	20,731			(121,676		)
NET INCOME	$	14,951		$	59,475		$	84,678		$	144,153		$	170,714
Net loss attributable to noncontrolling interest	(5,977		)	(5,556		)	—			(5,556		)	(5,506		)
NET INCOME ATTRIBUTABLE TO INTERDIGITAL, INC.	$	20,928		$	65,031		$	84,678		$	149,709		$	176,220
NET INCOME PER COMMON SHARE — BASIC	$	0.66		$	1.89		$	2.45		$	4.34		$	5.09
NET INCOME PER COMMON SHARE — DILUTED	$	0.66		$	1.84		$	2.40		$	4.24		$	4.93

Contracted Revenue

Based on contracts signed and committed Dynamic Fixed-Fee Agreement payments as of December 31, 2019, we expect to recognize the following amounts of revenue over the term of such contracts (in thousands):



	Revenue
2020	$	260,813
2021	191,146
2022	86,728
2023	—
2024	—
Thereafter	—
	$	538,687