InterDigital, Inc. (Nasdaq:IDCC), a wireless research and
development company, today announced results for the fourth quarter
and full year ended December 31, 2013.
Fourth Quarter 2013 Financial Highlights:
- Revenue of $99.7 million;
- Net income1 of $14.5 million, or $0.35 per diluted share;
and
- Ending cash and short-term investments totaling $698.5 million
at December 31, 2013.
Full Year 2013 Financial Highlights:
- Revenue of $325.4 million;
- Net income of $38.2 million, or $0.92 per diluted share;
and
- Free cash flow2 of $179.5 million.
"2013 was, by and large, a successful year for the company.
While we weren't able to announce the completion of major licensing
milestones, we did execute strongly on various other aspects of our
business, delivering strong free cash flow and profitability and
demonstrating the strength and versatility of the business. These
successes, including the Huawei arbitration agreement and our
various arbitration wins, put us in a position to deliver
additional value in 2014. This year begins with an expected
resolution with Huawei in 2014, developments at the ITC that we
view as very positive, and a structure in place for licensing the
considerable infrastructure portfolio we developed, leading us to
be hopeful that 2014 will be another strong year," said William J.
Merritt, President and CEO of InterDigital.
Fourth Quarter 2013 Summary
Revenue in fourth quarter 2013 totaled $99.7 million, including
$63.3 million of royalty and technology solutions revenue
(including $1.7 million of past technology solutions revenue) and
$36.4 million in past patent royalties primarily related to
Pegatron Corporation. This is an increase in total revenue of $11.8
million compared to total revenue for fourth quarter 2012 of $87.9
million, which included $64.2 million of royalty and technology
solutions revenue and $23.7 million of past patent royalties
primarily attributable to the Sony patent license agreement we
signed in December 2012. The company's fourth quarter 2013 net
income was $14.5 million, or $0.35 per diluted share, compared to
net income of $15.5 million, or $0.38 per diluted share, in fourth
quarter 2012.
Total revenue increased $11.8 million, or 13%, compared to
fourth quarter 2012, driven by increases to: past patent royalties
of $12.7 million, per-unit royalties of $11.2 million and
technology solutions revenue of $4.7 million. The increases to past
patent royalties and per-unit royalties were primarily due to
royalties received for certain additional products as result of the
Pegatron and Apple arbitration awards. Additionally, the technology
solutions revenue increase was a result of the third quarter
arbitration award related to one of the company's technology
solutions agreements. These increases were partially offset by
a $16.8 million decrease in fixed-fee royalty revenue year over
year driven mainly by the expiration of the 3G portion of the
company's patent license agreement with Samsung at the end of 2012,
partially offset by the addition of the Sony patent license
agreement in fourth quarter 2012. Companies that accounted for
ten percent or more of fourth quarter 2013 total revenue were
Pegatron ($56.9 million, or 57%, of which $35.6 million was past
patent royalties) and Sony Corporation of America ($10.0 million or
10%).
Fourth quarter 2013 operating expenses totaled $61.7 million,
compared to $69.0 million in fourth quarter 2012, a decrease mainly
attributable to a $12.5 million repositioning charge incurred in
fourth quarter 2012 associated with the company's voluntary early
retirement program ("VERP"). This decrease was partially
offset by increases to intellectual property enforcement and patent
amortization, among other items. Intellectual property
enforcement costs increased $2.2 million primarily due to the
company's USITC actions, and patent amortization increased $1.4
million driven by recent patent acquisitions.
Fourth quarter 2013 other expense was $13.7 million, compared to
$2.5 million in fourth quarter 2012, primarily driven by the
recognition of a $15.1 million investment impairment during fourth
quarter 2013.
The company's fourth quarter 2013 effective tax rate was
approximately 42.9 percent based on the statutory federal tax rate
net of discrete federal and state taxes, as compared to 5.1 percent
in fourth quarter 2012 based on the statutory federal tax rate net
of discrete foreign taxes. The increase in the effective tax
rate resulted from the impact of additional state tax expense,
resulting, in part, from the company's income mix related to the
increase in technology solutions revenue, on the effective tax rate
in 2013. The fourth quarter 2012 tax rate included a $4.5
million benefit related to the reversal of a valuation
allowance against certain deferred tax assets.
In fourth quarter 2013, the company used $14.9 million of free
cash flow compared to $133.0 million used in fourth quarter
2012. This change in free cash flow primarily resulted from a
decrease in cash payments related to taxes as a result of the
estimated tax payments made in fourth quarter 2012 related to the
patent sale to Intel Corporation.
Full Year 2013 Summary
The company's full year 2013 revenue totaled $325.4 million,
including $251.6 million of royalty and technology solutions
revenue (including $53.3 million of past technology solutions
revenue) and $73.8 million of past patent royalties primarily as a
result of arbitration awards received during the year. Revenue
for 2012 was $663.1 million, which included: $384.0 million of
patent sales revenue, primarily from the company's patent sale to
Intel; $252.8 million of royalty and technology solutions revenue;
and $26.2 million of past patent royalties primarily
attributable to the Sony patent license agreement. The
company's full year 2013 net income was $38.2 million, or $0.92 per
diluted share, compared to net income of $271.8 million, or $6.26
per diluted share, in full year 2012.
Total revenue decreased $337.7 million as compared to full year
2012, driven mainly by a $384.0 million decrease in patent sales
and a $67.4 million decrease in fixed-fee amortized royalty
revenue. These decreases were partially offset by increases
to: technology solutions revenue of $58.7 million, past patent
royalties of $47.6 million and per-unit royalty revenue of $7.4
million. The technology solutions revenue increase was as a
result of the third quarter arbitration award related to one of the
company's technology solutions agreements. Past patent
royalties increased due to success in arbitrations in
2013. Per-unit royalty revenue increased primarily due to
royalties received for certain additional products as a result of
the Pegatron and Apple arbitration awards. Fixed-fee amortized
royalty revenue decreased $67.4 million year over year due to the
expiration of the 3G portion of the Samsung agreement at the end of
2012, partially offset by the addition of the Sony patent license
agreement signed in fourth quarter 2012. Companies that
accounted for ten percent or more of full year 2013 total revenue
were Pegatron ($96.4 million, or 30%, of which $71.4 million was
past patent royalties), Intel Mobile Communications GmbH ($59.3
million or, 18%, of which $53.3 million was past technology
solutions revenue) and Sony Corporation of America ($40.0 million
or 12%).
Full year 2013 operating expenses totaled $240.6 million,
compared to $244.0 million in full year 2012. Full year 2012
expenses included $16.7 million of costs associated with the
company's patent sale to Intel in 2012. Other decreases
compared to 2012 include repositioning charge ($11.0 million
decrease), personnel-related costs ($4.7 million decrease) and
long-term compensation expense ($1.1 million decrease), all of
which are primarily a result of the VERP. These year-over-year
decreases were partially offset by a $14.9 million increase in
intellectual property enforcement and non-patent litigation costs,
a $7.0 million increase in patent amortization, a $4.1 million
increase in patent maintenance and patent evaluation and a $2.5
million increase in consulting services. The increases in
intellectual property enforcement and non-patent litigation costs
and patent amortization are discussed above. The increase in
patent maintenance and patent evaluation was primarily related to
due diligence associated with both patent acquisition and patent
sale opportunities. The increase in consulting services
resulted from the transition from internal labor to outsourced, in
part as a result of the VERP.
Full year 2013 other expense of $23.2 million increased from
$10.4 million in full year 2012. The increase primarily
resulted from the recognition of a $21.7 million investment
impairment during 2013, partially offset by an increase in interest
income as result of interest paid to the company pursuant to
arbitration awards.
The company's full year 2013 effective tax rate was
approximately 42.0 percent based on the statutory federal tax rate
net of discrete federal and state taxes. The company's full
year 2012 effective tax rate was approximately 33.5 percent based
on the statutory federal tax rate net of discrete foreign
taxes. The increase in the effective tax rate was driven by
additional state tax expense, resulting, in part, from the
company's income mix related to the increase in technology
solutions revenue in 2013, partially offset by a discrete first
quarter 2013 reversal of a valuation allowance against certain
deferred tax assets. The full year 2012 effective rate
included $6.7 million of benefits related to the reversal
of a valuation allowance against deferred tax assets.
In 2013, the company generated $179.5 million in free cash flow
compared to $145.7 million generated in 2012. This increase is
primarily attributable to the receipt of both prepayments from
existing licensees and payments related to the resolution of the
Pegatron arbitration.
Near Term Outlook
"We expect our solid base of current royalties from existing
licensees to continue in first quarter 2014, driving expected first
quarter 2014 total revenue to a range of $54 million to $59
million, comprised entirely of recurring revenue," said
Richard J. Brezski, Chief Financial Officer. "This revenue guidance
is based on royalty reports received to date, and does not include
the potential impact of any new patent license, technology
solutions or patent sale agreements that may be signed, or any
arbitration or dispute resolutions that may occur, during the
balance of first quarter 2014."
Conference Call Information
InterDigital will host a conference call on Thursday, February
20, 2014 at 10:00 a.m. Eastern Time to discuss its 2013 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 under the Events section on
the homepage. The company encourages participants to take
advantage of the Internet option.
For telephone access to the conference, call (800) 768-6570
within the United States or (785) 830-1942 from outside the United
States. Please call by 9:50 a.m. ET on February 20 and ask the
operator for the InterDigital Financial Call.
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 February 20
through 1:00 p.m. ET February 25. To access the recorded
replay, call (888) 203-1112 or (719) 457-0820 and use the replay
code 7820520.
About InterDigital®
InterDigital develops wireless technologies that are at the core
of mobile 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: (i) our belief that our 2013 successes, including
the Huawei arbitration agreement and various arbitration wins, put
us in a position to deliver additional value in 2014, (ii) our
expectation that we will reach a resolution with Huawei in 2014,
(iii) our hope that 2014 will be another strong year, (iv) our
expectation that our solid base of current royalties from existing
licensees will continue in first quarter 2014 and (v) our
expectations regarding first quarter 2014 revenue. Words such
as "anticipate," "estimate," "expect," "project," "intend," "plan,"
"forecast," "will," "continue to," "work to," "hope" 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) the ability of our Innovations Group 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) the ability of our Solutions Group
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 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; (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 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; (x) changes or inaccuracies in market projections;
(xi) the terms of the final Huawei arbitration procedures and any
subsequent changes thereto; and (xii) 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 and diluted earnings
per share 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/(used in) 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 generally accepted accounting
principles ("GAAP"). A detailed reconciliation of free cash flow to
net cash provided by / (used in) 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 December 31, |
For the Year
Ended December 31, |
|
2013 |
2012 |
2013 |
2012 |
REVENUES: |
|
|
|
|
Per-unit royalty revenue |
$ 40,994 |
$ 29,821 |
$ 122,709 |
$ 115,295 |
Fixed fee amortized royalty
revenue |
16,917 |
33,764 |
67,658 |
135,056 |
Past patent royalties |
36,388 |
23,652 |
73,808 |
26,238 |
Patent sales |
— |
— |
— |
384,000 |
Technology solutions
revenue |
5,384 |
640 |
61,186 |
2,474 |
|
99,683 |
87,877 |
325,361 |
663,063 |
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
Patent administration and
licensing |
36,212 |
31,305 |
143,037 |
126,284 |
Development |
17,935 |
16,821 |
63,330 |
67,862 |
Selling, general and
administrative |
7,556 |
8,383 |
32,694 |
37,351 |
Repositioning |
— |
12,536 |
1,544 |
12,536 |
|
61,703 |
69,045 |
240,605 |
244,033 |
|
|
|
|
|
Income from operations |
37,980 |
18,832 |
84,756 |
419,030 |
|
|
|
|
|
OTHER EXPENSE (NET) |
(13,706) |
(2,470) |
(23,237) |
(10,396) |
Income before income taxes |
24,274 |
16,362 |
61,519 |
408,634 |
INCOME TAX PROVISION |
(10,404) |
(830) |
(25,836) |
(136,830) |
NET INCOME |
$ 13,870 |
$ 15,532 |
$ 35,683 |
$ 271,804 |
Net loss attributable to
noncontrolling interest |
$ (666) |
$ — |
$ (2,482) |
$ — |
NET INCOME ATTRIBUTABLE TO INTERDIGITAL,
INC. |
$ 14,536 |
$ 15,532 |
$ 38,165 |
$ 271,804 |
NET INCOME PER COMMON SHARE — BASIC |
$ 0.35 |
$ 0.38 |
$ 0.93 |
$ 6.31 |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING — BASIC |
40,977 |
40,981 |
41,115 |
43,070 |
NET INCOME PER COMMON SHARE — DILUTED |
$ 0.35 |
$ 0.38 |
$ 0.92 |
$ 6.26 |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING — DILUTED |
41,298 |
41,339 |
41,424 |
43,396 |
CASH DIVIDENDS DECLARED PER COMMON SHARE |
$ 0.10 |
$ 1.60 |
$ 0.40 |
$ 1.90 |
|
SUMMARY CONSOLIDATED
CASH FLOWS |
(dollars in thousands) |
(unaudited) |
|
|
|
|
|
|
FOR THE THREE
MONTHS ENDED DECEMBER 31, |
FOR THE YEAR
ENDED DECEMBER 31, |
|
2013 |
2012 |
2013 |
2012 |
Income before income taxes |
$ 24,274 |
$ 16,362 |
$ 61,519 |
$ 408,634 |
Taxes paid |
(21,625) |
(108,997) |
(24,961) |
(116,871) |
Non-cash expenses |
30,982 |
11,252 |
80,771 |
52,562 |
Increase in deferred
revenue |
22,654 |
145,384 |
209,930 |
174,604 |
Deferred revenue
recognized |
(38,827) |
(68,075) |
(174,014) |
(223,419) |
(Decrease) increase in
operating working capital, deferred charges and other |
(18,003) |
(118,740) |
64,930 |
(117,902) |
Capital spending and
capitalized patent costs |
(14,379) |
(10,176) |
(38,648) |
(31,938) |
FREE CASH FLOW |
(14,924) |
(132,990) |
179,527 |
145,670 |
|
|
|
|
|
Tax benefit from share-based
compensation |
52 |
(608) |
815 |
898 |
Payments on long-term debt,
including capital leases |
— |
— |
— |
(180) |
Acquisition of patents |
(12,000) |
(1,700) |
(25,013) |
(15,450) |
Long-term investments |
445 |
— |
— |
— |
Proceeds from noncontrolling
interests |
1,276 |
— |
7,652 |
— |
Dividends paid |
(4,121) |
(69,689) |
(12,354) |
(83,077) |
Share repurchases |
(29,134) |
— |
(29,134) |
(152,694) |
Net proceeds from exercise of
stock options |
298 |
1,398 |
1,032 |
2,111 |
Unrealized (loss) gain on
short-term investments |
(283) |
(459) |
(1,353) |
2,007 |
NET (DECREASE) INCREASE IN CASH AND
SHORT-TERM INVESTMENTS |
$ (58,391) |
$ (204,048) |
$ 121,172 |
$ (100,715) |
|
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(dollars in thousands) |
(unaudited) |
|
|
|
|
December 31, |
December 31, |
|
2013 |
2012 |
ASSETS |
|
|
Cash & short-term
investments |
$ 698,451 |
$ 577,279 |
Accounts receivable (net) |
92,830 |
169,874 |
Current deferred tax
assets |
26,197 |
36,997 |
Other current assets |
40,036 |
30,197 |
Property & equipment and patents
(net) |
215,906 |
185,381 |
Other long-term assets (net) |
39,763 |
56,881 |
TOTAL ASSETS |
$ 1,113,183 |
$ 1,056,609 |
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY |
|
|
Accounts payable, accrued
liabilities, taxes payable & dividends payable |
$ 66,262 |
$ 66,608 |
Current deferred revenue |
60,176 |
106,305 |
Long-term deferred revenue |
243,864 |
161,820 |
Long-term debt & other
long-term liabilities |
209,061 |
203,171 |
TOTAL LIABILITIES |
579,363 |
537,904 |
TOTAL INTERDIGITAL, INC. SHAREHOLDERS'
EQUITY |
528,650 |
518,705 |
Noncontrolling interest |
5,170 |
— |
TOTAL EQUITY |
533,820 |
518,705 |
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY |
$ 1,113,183 |
$ 1,056,609 |
|
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 / (used in)
operating activities, the most directly comparable GAAP financial
measure. |
|
|
|
|
|
|
|
|
|
|
|
FOR THE THREE
MONTHS ENDED DECEMBER 31, |
FOR THE YEAR
ENDED DECEMBER 31, |
|
2013 |
2012 |
2013 |
2012 |
Net cash provided by (used in) operating
activities |
$ (545) |
$ (122,814) |
$ 218,175 |
$ 177,608 |
Purchases of property, equipment, &
technology licenses |
(1,859) |
(1,642) |
(4,591) |
(3,621) |
Capitalized patent costs |
(12,520) |
(8,534) |
(34,057) |
(28,317) |
Free cash flow |
$ (14,924) |
$ (132,990) |
$ 179,527 |
$ 145,670 |
CONTACT: InterDigital, Inc:
Patrick Van de Wille
patrick.vandewille@interdigital.com
+1 (858) 210-4814
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