Net Income Triples to $30.6 Million, or $0.69 per Share
KING OF PRUSSIA, Pa.--(BUSINESS WIRE)--
InterDigital, Inc. (NASDAQ:IDCC) today announced results for the third
quarter and nine months ended September 30, 2009. Highlights for third
quarter 2009 include:
-- Net income of $30.6 million, or $0.69 per diluted share;
-- Revenue of $75.5 million;
-- Operating Expense of $28.9 million; and
-- Cash and short-term investments totaling $429.7 million.
"The third quarter's results demonstrate the value of InterDigital's
core business -inventing and licensing our pioneering technologies to
the mobile wireless industry," commented William J. Merritt, President
and Chief Executive Officer. "As are result of our inventive strength,
licensing skill, and fiscal discipline, today, we are in a position of
unprecedented financial strength and stability. Looking forward, our
financial picture will continue to be bright as we continue to add new
licensees, like Pantech and Cinterion, and global demand for our
licensee's products, especially smartphones, increases as the industry
emerges from the economic downturn."
"We are also encouraged by emerging opportunities for developing the key
technologies that will drive the future of wireless," added Mr. Merritt.
"Mobile wireless technology is at the heart of an ever-broadening range
of consumer and enterprise products and applications. We see great
opportunity to develop advanced technology solutions that will drive
that expansion. So, whether it is inventions that increase bandwidth,
enhance wireless security, drive seamless mobility across different
networks, or enable ubiquitous machine-to-machine communications,
InterDigital will be there."
Third Quarter 2009 Summary
The company's net income of $30.6 million, or $0.69 per diluted share,
in third quarter 2009 more than tripled from third quarter 2008 net
income of $9.2 million, or $0.20 per diluted share. This year-over-year
increase was driven by revenue contributions from new patent license
agreements with Samsung (signed in January 2009) as well as Pantech and
Cinterion and reduced operating expenses resulting from the company's
repositioning announced on March 30, 2009.
Revenue in third quarter 2009 totaled $75.5 million, a 37 percent
increase over the $55.1 million in third quarter 2008. Patent licensing
royalties in third quarter 2009 of $73.0 million increased 38 percent
over $52.9 million in third quarter 2008 primarily due to the new patent
license agreement with Samsung signed in January 2009, as well as
revenue related to the new patent license agreements with Pantech and
Cinterion signed in third quarter 2009. Although third quarter 2009
per-unit royalties declined 6 percent on a year-over-year basis, these
royalties increased 17 percent sequentially as the overall 3G mobile
market improved.
Technology solutions revenue increased to $2.5 million in third quarter
2009 from $2.2 million in third quarter 2008, attributable to increased
royalties earned on the company's SlimChip(TM) modem IP in third quarter
2009. In third quarter 2009, 64 percent of total revenue of $75.5
million was attributable to companies that individually accounted for 10
percent or more of this amount, Samsung (34 percent), LG (19 percent),
and Sharp (11 percent).
Third quarter 2009 operating expenses decreased 31 percent to $28.9
million in third quarter 2009 from $42.0 million in third quarter 2008.
This reduction was due primarily to the company's repositioning
announced on March 30, 2009, which decreased development expenses by
$12.8 million, or 54 percent year-over-year, from $23.5 million in third
quarter 2008 to $10.7 million in third quarter 2009. Third quarter 2008
operating expenses included a $2.7 million reduction in litigation
contingency costs associated with the resolution of the Nokia U.K.
matters. In addition, based on revised expectations for the anticipated
payout associated with a long-term performance-based incentive program,
the company reduced the related accrual for the incentive program by
$4.0 million in third quarter 2009. This adjustment reduced third
quarter development expense, selling, general and administrative
expense, and patent licensing and administration expense by $2.4
million, $1.1 million, and $0.5 million, respectively. Excluding the
impact of this accrual adjustment, development expenses in third quarter
2009 would have been $13.1 million, a slight decline from $13.2 million
in second quarter 2009. Patent litigation and arbitration costs of $3.3
million in third quarter 2009 decreased 42 percent from third quarter
2008 expenses of $5.8 million, primarily due to the resolution of the
company's various disputes with Samsung.
Net interest and investment income of $0.5 million in third quarter 2009
decreased from $1.1 million in third quarter 2008 primarily due to lower
interest rates in third quarter 2009 compared to 2008.
The company's third quarter 2009 effective tax rate was 35.0 percent,
level with third quarter 2008.
Nine Months Summary
Net income for first nine months 2009 totaled $48.4 million, or $1.08
per diluted share, more than double the company's net income of $22.4
million, or $0.48 per diluted share, in first nine months 2008. This
year-over-year increase was driven by revenue contributions from new
patent license agreements with Samsung, Pantech, and Cinterion, as well
as reduced operating expenses resulting from the company's repositioning
announced on March 30, 2009.
Pro forma net income for first nine months 2009, which excludes a $37.0
million repositioning charge, totaled $72.4 million or $1.61 per diluted
share, reflecting an increase of $24.0 million, more than three times
the reported first nine months 2008 net income of $22.4 million, or
$0.48 per diluted share.
Revenues of $221.0 million in first nine months 2009 grew $51.2 million,
or 30 percent, over the $169.8 million in first nine months 2008. Patent
licensing royalties were $215.0 million in first nine months 2009, a 32
percent increase over the $163.0 million in first nine months 2008. The
increase in patent licensing royalties was primarily related to a $72.8
million increase in fixed-fee amortized royalty revenue associated with
the company's new patent license agreement with Samsung signed in
January 2009. This increase was partially offset by a decrease in
per-unit royalty revenue related to industry-wide declines in handset
sales in 2009 relative to 2008.
Technology solutions revenue in first nine months 2009 decreased 12
percent to $6.0 million from $6.8 million in first nine months 2008. The
decrease is primarily attributable to engineering service fees earned in
first nine months 2008 associated with the company's SlimChip modem IP
business, which did not recur in first nine months 2009. This decrease
was partially offset by an increase in royalties of $4.2 million earned
on the company's SlimChip modem IP. During first nine months 2009, 63
percent of the company's total revenue of $221.0 million was
attributable to companies that individually accounted for 10 percent or
more of total revenue, Samsung (33 percent), LG (20 percent), and Sharp
(10 percent).
Operating expenses in first nine months 2009 decreased 20 percent to
$111.0 million from $138.0 in first nine months 2008, excluding a first
nine month 2009 repositioning charge of $37.0 million. This
repositioning, which the company announced on March 30, 2009, decreased
development expenses by $17.7 million, or 26 percent year-over-year,
from $68.5 million in first nine months 2008 to $50.8 million in first
nine months 2009. Patent litigation and arbitration costs of $11.5
million decreased 64 percent year-over-year, primarily due to the
resolution of the company's various disputes with Samsung and the third
quarter 2008 resolution of the Nokia U.K. disputes.
Net interest and investment income of $2.0 million in first nine months
2009 decreased 29 percent from $2.8 million in first nine months 2008,
driven by lower rates of return in first nine months 2009 compared to
2008.
The company's effective tax rate was 35.5 percent for first nine months
2009, slightly higher than the 35.3 percent for first nine months 2008.
During first nine months 2009, the company generated $307.0 million of
free cash flow1 compared to $77.2 million in 2008. First nine
months 2009 free cash flow was driven by receipt of the first two of
four $100.0 million installments from Samsung under its patent license
agreement and new prepayments from two existing licensees totaling
$182.4 million, offset in part by cash-based operating expenses, capital
investments, and changes in working capital. As of October 28, 2009, the
company had repurchased approximately 1.0 million shares for $25.0
million since the inception of the March 2009$100.0 million share
repurchase program.
Scott McQuilkin, Chief Financial Officer, commented, "We continue to be
optimistic about the fundamental growth prospects for the 3G handset
market, which bodes well for our business model. Indeed, global economic
conditions appear to have stabilized. More importantly, the recent
ruling in our litigation with Nokia does not alter our confidence in our
ability to successfully add new licensees which could further increase
our royalty revenues."
"As for fourth quarter 2009, we will provide an update on our revenue
expectations after we receive and review the applicable patent license
and product sales royalty reports," concluded Mr. McQuilkin.
Due to the repositioning announced on March 30, 2009, the company
reclassified its income statement presentation to better align its
operating expense classifications with its ongoing activities. The
company eliminated the General and administrative and Sales
and marketing classifications within operating expenses and created
the Selling, general and administrative classification. All costs
previously reported under General and administrative have been
reclassified to Selling, general and administrative, while Sales
and marketing costs have been reclassified between Selling,
general and administrative and Patent administration and licensing.
Additionally, the company reclassified portions of its Development
costs to Patent administration and licensing.
Conference Call Information
InterDigital(R) will host a conference call on Thursday,
October 29, 2009 at 10:00 a.m. Eastern Time to discuss its third quarter
2009 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 homepage. The company
encourages participants to take advantage of the Internet option.
For telephone access to the conference, call (888) 802-2225 within the
U.S. or (913) 312-1254 from outside the U.S. Please call by 9:50 a.m. ET
on October 29 and ask the operator for the InterDigital Financial Call.
An Internet replay of the conference call will be available for 30 days
on InterDigital's web site in the Investor Relations section. In
addition, a telephone replay will be available from 1:00 p.m. ETOctober
29 through 1:00 p.m. ETNovember 3. To access the recorded replay, call
(888) 203-1112 or (719) 457-0820 and use the replay code 4990705.
About InterDigital
InterDigital designs, develops, and provides advanced wireless
technologies and products that drive voice and data communications.
InterDigital is a leading contributor to the global wireless standards
and holds a strong portfolio of patented technologies, which it licenses
to manufacturers of 2G, 2.5G, 3G, and 802 products worldwide.
InterDigital is a registered trademark and SlimChip is a trademark of
InterDigital, Inc.
For more information, visit: www.interdigital.com
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 the company's
current beliefs, plans and expectations, including, without limitation,
with respect to: (i)the company's ability to add new licensees, (ii)
global demand for mobile phones and the growth prospects for the 3G
handset market, (iii) the company's ability to develop the key
technologies that will drive the future of the wireless industry and
(iv) fourth quarter 2009 revenue guidance. Words such as "looking
forward," "continue to," "will" 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, but not limited to, 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) the company's ability to leverage our strategic
relationships and secure new patent licensing agreements on acceptable
terms; (iii) changes in the market share and sales performance of
our primary licensees, delays in product shipments of our licensees and
timely receipt and final reviews of quarterly royalty reports from our
licensees and related matters; (iv) unanticipated delays or difficulties
in our technology development efforts, testing and evaluations; (v)
changes in technology preferences, needs, availability, pricing and
features of competitive technologies; and (vi) the resolution of current
legal proceedings, including any awards or judgments relating to such
proceedings, additional legal proceedings, changes in the schedules or
costs associated with legal proceedings or adverse rulings in such legal
proceedings. The company undertakes no duty to update publicly any
forward-looking statements, 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.
1 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 operating cash
flow less purchases of property and equipment, technology licenses,
investments in patents, and unrealized (loss) gain on short-term
investments. 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 generally accepted
accounting principles (GAAP). A detailed reconciliation of free cash
flow to GAAP results 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 For the Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
REVENUES $ 75,486 $ 55,059 $ 220,975 $ 169,792
OPERATING EXPENSES:
Selling, general and 4,925 6,878 19,166 21,570
administrative
Patents administration 13,320 14,329 41,037 51,854
and licensing
Development 10,659 23,544 50,755 68,510
Repositioning - - 36,970 -
Arbitration and - (2,740 ) - (3,940 )
litigation contingencies
28,904 42,011 147,928 137,994
Income from operations 46,582 13,048 73,047 31,798
OTHER INCOME
Interest and investment 531 1,117 1,985 2,786
income, net
Income before income 47,113 14,165 75,032 34,584
taxes
INCOME TAX PROVISION (16,492 ) (4,956 ) (26,652 ) (12,206 )
NET INCOME $ 30,621 $ 9,209 $ 48,380 $ 22,378
NET INCOME PER COMMON $ 0.70 $ 0.20 $ 1.10 $ 0.49
SHARE - BASIC2
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 43,083 44,708 43,353 45,494
OUTSTANDING - BASIC2
NET INCOME PER COMMON $ 0.69 $ 0.20 $ 1.08 $ 0.48
SHARE - DILUTED2
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 43,819 45,619 44,196 46,358
OUTSTANDING - DILUTED2
2 Effective January 1, 2009, the company adopted new accounting guidance related
to the inclusion of instruments granted in share-based payment transactions in
calculating weighted average number of common shares, and, therefore, earnings
per share. As a result, the company has adjusted basic and diluted earnings per
share for all prior periods affected by this guidance. Refer to Footnote 1 in
the company's Form 10-Qs filed May 8, 2009 and July 27, 2009 for more
information.
SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Income before income $ 47,113 $ 14,165 $ 75,032 $ 34,584
taxes
Taxes paid (24,208 ) - (44,708 ) (15,689 )
Depreciation,
amortization, share based 7,277 8,792 55,944 26,120
compensation & asset
impairment
Increase in deferred 220,360 2,687 605,374 85,151
revenue
Deferred revenue (53,918 ) (33,531 ) (164,944 ) (92,156 )
recognized
Increase (decrease) in
operating working 32,588 (3,821 ) (194,196 ) 67,785
capital, deferred charges
and other
Capital spending & patent (8,680 ) (8,686 ) (25,473 ) (28,577 )
additions
FREE CASH FLOW 220,532 (20,394 ) 307,029 77,218
Long-term investment - - - (651 )
Tax benefit from 1,908 494 2,560 992
shared-based compensation
Debt decrease (340 ) (343 ) (1,803 ) (1,522 )
Repurchase of common (11,019 ) (30,653 ) (25,020 ) (67,233 )
stock
Proceeds from exercise of 1,915 744 5,156 1,700
stock options
Unrealized gain (loss) on 87 (377 ) 141 (304 )
short-term investments
NET INCREASE (DECREASE)IN
CASH AND SHORT-TERM $ 213,083 $ (50,529 ) $ 288,063 $ 10,200
INVESTMENTS
SUMMARY CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(unaudited)
September 30, 2009 December 31, 2008
Assets
Cash & short-term investments $ 429,723 $ 141,660
Accounts receivable, less allowance of 204,665 33,892
$2,000 & $3,000
Current deferred tax assets 69,176 49,002
Other current assets 14,685 16,467
Property & equipment and Patents (net) 123,425 123,782
Other long-term assets (net) 68,884 40,965
TOTAL ASSETS $ 910,558 $ 405,768
Liabilities and Shareholders' Equity
Current portion of long-term debt $ 586 $ 1,608
Accounts payable, accrued liabilities & 49,978 46,283
taxes payable
Current deferred revenue 193,527 78,646
Long-term deferred revenue 528,325 181,056
Long-term debt & long-term liabilities 13,179 10,515
TOTAL LIABILITIES 785,595 318,108
SHAREHOLDERS' EQUITY 124,963 87,660
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 910,558 $ 405,768
PRO FORMA SUMMARY CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands except per share data)
(unaudited)
For the Nine Months Ended
September 30, 2009
Actual Adjustments Pro Forma
REVENUES $ 220,975 $ 220,975
OPERATING EXPENSES:
Selling, general and administrative 19,166 - 19,166
Patent administration and licensing 41,037 - 41,037
Development 50,755 - 50,755
Repositioning 36,970 (36,970 ) -
147,928 (36,970 ) 110,958
Income from operations 73,047 36,970 110,017
OTHER INCOME:
Interest and investment income, net 1,985 - 1,985
Income before income taxes 75,032 36,970 112,002
INCOME TAX PROVISION (26,652 ) (12,976 ) (39,628 )
NET INCOME $ 48,380 $ 23,994 $ 72,374
NET INCOME PER COMMON SHARE - BASIC $ 1.10 $ 1.64
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 43,353 43,353
OUTSTANDING - BASIC
NET INCOME PER COMMON SHARE - DILUTED $ 1.08 $ 1.61
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 44,196 44,196
OUTSTANDING - DILUTED
The company's short-term investments are comprised of high quality
credit instruments including U.S. government agency instruments and
corporate bonds. Management views these instruments to be near
equivalents to cash and believes that investors may share this viewpoint.
This release includes a summary cash flow statement that results in the
change in both the company's cash and short-term investment balances.
One of the subtotals in the summary cash flow statement is free cash
flow. The table below presents a reconciliation of this non-GAAP line
item to net cash provided by operating activities.
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Net cash provided (used) $ 229,212 $ (11,708 ) $ 332,502 $ 105,795
by operating activities
Purchases of property,
equipment, & technology (540 ) (3,548 ) (3,527 ) (7,831 )
licenses
Patent additions (8,140 ) (5,138 ) (21,946 ) (20,746 )
Free cash flow $ 220,532 $ (20,394 ) $ 307,029 $ 77,218
Source: InterDigital, Inc.
Contact: InterDigital, Inc.
Media Contact:
Jack Indekeu, +1 610-878-7800
jack.indekeu@interdigital.com
or
Investor Contact:
Janet Point, +1 610-878-7800
janet.point@interdigital.com