InterDigital Announces Financial Results for Third Quarter 2017

Year-over-year Growth in Recurring Revenue, Strong Cash From Operating Activities

Company Release - 10/26/2017 8:30 AM ET

WILMINGTON, Del., Oct. 26, 2017 (GLOBE NEWSWIRE) -- InterDigital, Inc. (NASDAQ:IDCC), a mobile technology research and development company, today announced results for the third quarter ended September 30, 2017.

Third Quarter 2017 Financial Highlights

  • Recurring revenue grew 5% to $88.5 million, compared to $84.3 million in 2016, primarily driven by an increase in fixed-fee revenue due to new agreements entered into in second half 2016.  Recurring revenue consists of current patent royalties and current technology solutions revenue.
  • Third quarter 2017 total revenue was $97.3 million, compared to $208.3 million in third quarter 2016.  Third quarter 2016 included $124.0 million of past patent royalties, as compared to $8.8 million in third quarter 2017.
  • Third quarter 2017 operating expenses were $56.5 million, compared to $51.6 million in third quarter 2016.  The increase in operating expenses was primarily due to a $2.7 million increase in costs associated with commercial initiatives and a $1.3 million increase in depreciation and amortization, both of which were primarily attributable to the acquisition of Hillcrest Labs during fourth quarter 2016.  
  • Fixed-fee amortized royalties constituted 88% of company's current patent royalties in third quarter 2017, compared to 56% in third quarter 2016.
  • Net income1 was $35.5 million, or $1.00 per diluted share, compared to $104.5 million, or $2.99 per diluted share, in third quarter 2016. 

“This quarter’s results highlight the tremendous stability of our business, emphasizing our company’s continued efforts to manage for the long term,” said William J. Merritt, President and CEO of InterDigital. “The strong visibility over our revenues and future cash flows, given our high fixed-fee revenue contribution and long-term agreements, put us once again in a position to return value to shareholders with last month's announcement of our third dividend increase in the past four years.”

Additional Highlights

  • The company's third quarter 2017 effective tax rate was 10.2% compared to 32.3% during third quarter 2016.  The change in effective tax rate was attributable to a discrete benefit of $9.1 million primarily related to the reversal of a previously recorded tax reserve.
  • In third quarter 2017, the company recorded $104.7 million of cash provided by operating activities, compared to $10.1 million of cash used in third quarter 2016.  The company generated $94.9 million of free cash flow2 in third quarter 2017, compared to $19.2 million of free cash flow used in third quarter 2016.  These changes were primarily due to the timing of cash receipts under fixed-fee agreements.  Ending cash and short-term investments totaled $967.2 million.
  • On September 14, 2017, the company announced an increase in its quarterly cash dividend from $0.30 to $0.35 per share ($1.40 per share on an annual basis), as well as a $100 million increase to its existing stock repurchase program.
  • On October 24, 2017, InterDigital received notice of a favorable decision from the Taiwan Fair Trade Commission, stating that the Commission did not find that InterDigital had violated Taiwan’s Fair Trade Act and has closed the investigation that was initiated in 2013.

Conference Call Information

InterDigital will host a conference call on Thursday, October 26, 2017 at 10:00 a.m. Eastern Time to discuss its third quarter 2017 financial performance and other company matters. For a live Internet webcast of the conference call, visit www.interdigital.com and click on the link to the live webcast on the Investors page. The company encourages participants to take advantage of the Internet option.

For telephone access to the conference, call (877) 830-2636 within the United States or +1 (785) 424-1802 from outside the United States. Please call by 9:50 a.m. ET on October 26 and give the operator conference ID number 6767363.

An Internet replay of the conference call will be available on InterDigital's website in the Investors section. In addition, a telephone replay will be available from 1:00 p.m. ET October 26 through 1:00 p.m. ET October 31. To access the recorded replay, call (888) 203-1112 or +1 (719) 457-0820 and use the replay code 6767363.

About InterDigital®

InterDigital develops mobile technologies that are at the core of devices, networks, and services worldwide. We solve many of the industry's most critical and complex technical challenges, inventing solutions for more efficient broadband networks and a richer multimedia experience years ahead of market deployment. InterDigital has licenses and strategic relationships with many of the world's leading wireless companies. Founded in 1972, InterDigital is listed on NASDAQ and is included in the S&P MidCap 400® index.

InterDigital is a registered trademark of InterDigital, Inc.

For more information, visit the InterDigital website: www.interdigital.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.  Such statements include information regarding our current beliefs, plans and expectations, including, without limitation, our visibility with respect to revenues and future cash flows.  Words such as "believe," "anticipate," "estimate," "expect," "project," "intend," "plan," "forecast," "goal," and variations of any such words or similar expressions are intended to identify such forward-looking statements.

Forward-looking statements are subject to risks and uncertainties.  Actual outcomes could differ materially from those expressed in or anticipated by such forward-looking statements due to a variety of factors, including, without limitation, those identified in this press release, as well as the following: (i) unanticipated delays, difficulties or acceleration in the execution of patent license agreements; (ii) our ability to leverage our strategic relationships and secure new patent license agreements on acceptable terms; (iii) our ability to enter into sales and/or licensing partnering arrangements for certain of our patent assets; (iv) our ability to enter into partnerships with leading inventors and research organizations and identify and acquire technology and patent portfolios that align with InterDigital's roadmap; (v) our ability to commercialize the company's technologies and enter into customer agreements; (vi) the failure of the markets for the company's current or new technologies and products to materialize to the extent or at the rate that we expect; (vii) unexpected delays or difficulties related to the development of the company's technologies and products; (viii) changes in the market share and sales performance of our primary licensees, delays in product shipments of our licensees, delays in the timely receipt and final reviews of quarterly royalty reports from our licensees, delays in payments from our licensees and related matters; (ix) the resolution of current legal or regulatory proceedings, including any awards or judgments relating to such proceedings, additional legal or regulatory proceedings, changes in the schedules or costs associated with legal or regulatory proceedings or adverse rulings in such legal or regulatory proceedings; (x) changes or inaccuracies in market projections; and (xi) changes in the company's business strategy.

We undertake no duty to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by applicable law, regulation or other competent legal authority.

Footnotes

1 Throughout this press release, net income (loss) and diluted earnings per share ("EPS") are attributable to InterDigital, Inc. (e.g., after adjustments for noncontrolling interests), unless otherwise stated.

2 Free cash flow is a supplemental non-GAAP financial measure that InterDigital believes is helpful in evaluating the company's ability to invest in its business, make strategic acquisitions and fund share repurchases, among other things.  A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in the company's cash balance for the period. InterDigital defines “free cash flow” as net cash provided by operating activities less purchases of property and equipment, technology licenses and investments in patents.  InterDigital's computation of free cash flow might not be comparable to free cash flow reported by other companies.  The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.  A detailed reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable GAAP financial measure, is provided at the end of this press release.

 
SUMMARY CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands except per share data)
(unaudited)
 
 For the Three Months
Ended September 30,
 For the Nine Months
Ended September 30,
 2017 2016 2017 2016
REVENUES:       
Per-unit royalty revenue$10,081  $35,804  $37,338  $154,018 
Fixed fee amortized royalty revenue73,653  45,740  220,083  103,936 
Current patent royalties83,734  81,544  257,421  257,954 
Past patent royalties8,832  123,973  56,692  129,417 
Total patent licensing royalties92,566  205,517  314,113  387,371 
Current technology solutions revenue4,759  2,790  13,521  4,615 
 $97,325  $208,307  $327,634  $391,986 
        
OPERATING EXPENSES:       
Patent administration and licensing28,673  26,149  83,559  81,601 
Development15,924  15,560  52,228  50,438 
Selling, general and administrative11,853  9,880  36,056  31,790 
 56,450  51,589  171,843  163,829 
        
Income from operations40,875  156,718  155,791  228,157 
        
OTHER EXPENSE (NET)(2,187) (3,798) (7,331) (11,641)
Income before income taxes38,688  152,920  148,460  216,516 
INCOME TAX PROVISION(3,963) (49,397) (29,413) (46,813)
NET INCOME$34,725  $103,523  $119,047  $169,703 
Net loss attributable to noncontrolling interest(811) (943) (2,744) (2,828)
NET INCOME ATTRIBUTABLE TO INTERDIGITAL, INC.$35,536  $104,466  $121,791  $172,531 
NET INCOME PER COMMON SHARE — BASIC$1.02  $3.05  $3.52  $4.99 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC34,709  34,280  34,589  34,607 
NET INCOME PER COMMON SHARE — DILUTED$1.00  $2.99  $3.40  $4.92 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED35,388  34,953  35,865  35,091 
CASH DIVIDENDS DECLARED PER COMMON SHARE$0.35  $0.30  $0.95  $0.70 
                


SUMMARY CONSOLIDATED CASH FLOWS
(dollars in thousands)
(unaudited)
 
 For the Three Months
Ended September 30,
 For the Nine Months
Ended September 30,
 2017 2016 2017 2016
Income before income taxes$38,688  $152,920  $148,460  $216,516 
Taxes paid(15,063) (6,341) (29,173) (58,626)
Non-cash expenses21,772  21,048  66,463  66,529 
Increase in deferred revenue142,610  41,952  330,387  324,122 
Deferred revenue recognized(84,594) (172,681) (240,331) (242,104)
Increase (decrease) in operating working capital, deferred charges and other1,336  (47,026) (177,465) (105,573)
Capital spending and capitalized patent costs(9,872) (9,117) (27,248) (27,751)
FREE CASH FLOW94,877  (19,245) 71,093  173,113 
        
Payments on long-term debt      (230,000)
Long-term investments(2,500)   (3,201) (2,000)
Acquisition of patents  (300)   (4,800)
Dividends paid(10,413) (6,858) (31,107) (20,849)
Taxes withheld upon vesting of restricted stock units(46) (43) (22,236) (3,368)
Share repurchases  (5,690)   (64,685)
Net proceeds from exercise of stock options  74  82  302 
Unrealized (loss) gain on short-term investments(93) (287) (180) 128 
NET (DECREASE) INCREASE IN CASH AND SHORT-TERM INVESTMENTS$81,825  $(32,349) $14,451  $(152,159)
                


CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
 
 SEPTEMBER 30,
 2017
 DECEMBER 31,
2016
ASSETS   
Cash & short-term investments$967,212  $952,761 
Accounts receivable (net)400,126  228,464 
Other current assets52,966  39,894 
Property & equipment and patents (net)321,359  323,394 
Other long-term assets (net)194,459  183,340 
TOTAL ASSETS$1,936,122  $1,727,853 
    
LIABILITIES AND SHAREHOLDERS’ EQUITY   
Accounts payable, accrued liabilities, taxes payable & dividends payable$89,427  $65,288 
Current deferred revenue351,012  360,192 
Long-term deferred revenue373,049  261,013 
Long-term debt & other long-term liabilities290,618  286,992 
TOTAL LIABILITIES1,104,106  973,485 
TOTAL INTERDIGITAL, INC. SHAREHOLDERS' EQUITY820,101  739,709 
Noncontrolling interest11,915  14,659 
TOTAL EQUITY832,016  754,368 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$1,936,122  $1,727,853 
        

RECONCILIATION OF FREE CASH FLOW TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES

In the summary consolidated cash flows and throughout this release, the company refers to free cash flow.  The table below presents a reconciliation of this non-GAAP financial measure to net cash provided by operating activities, the most directly comparable GAAP financial measure.

  For the Three Months
Ended September 30,
 For the Nine Months
Ended September 30,
  2017 2016 2017 2016
Net cash provided by (used in) operating activities $104,749  $(10,128) $98,341  $200,864 
Purchases of property, equipment, & technology licenses (117) (1,211) (942) (3,477)
Capitalized patent costs (9,755) (7,906) (26,306) (24,274)
Free cash flow $94,877  $(19,245) $71,093  $173,113 
                 


CONTACT:InterDigital, Inc.:
 Patrick Van de Wille
 patrick.vandewille@interdigital.com
  +1 (858) 210-4814

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Source: InterDigital, Inc.