InterDigital, Inc. (NASDAQ:IDCC), a mobile technology research and
development company, today announced results for the second quarter
ended June 30, 2016.
Second Quarter 2016 Financial Highlights
- Second quarter 2016 total revenue was $75.9 million, compared
to $118.6 million in second quarter 2015. Second quarter 2015
included $27.3 million of past patent royalties.
- Second quarter 2016 recurring revenue was $74.6 million,
consisting of current patent royalties and current technology
solutions revenue, compared to $91.2 million in second quarter
2015. This decrease in recurring revenue was primarily
attributable to seasonality in shipments by certain of our
licensees.
- Second quarter 2016 operating expenses were $52.8 million,
compared to $60.0 million in second quarter 2015.
Intellectual property enforcement expenses were $5.1 million, a 47%
decrease compared to $9.7 million in second quarter 2015.
- The company recognized a $23.1 million discrete net tax
benefit in second quarter 2016, related to refund claims for prior
year domestic production activities deductions.
- Net income1 was $40.0 million, or $1.14 per diluted share,
compared to $32.6 million, or $0.89 per diluted share, in second
quarter 2015.
- In second quarter 2016, the company had cash flow from
operating activities of $191.4 million and free cash flow2 of
$182.5 million, compared to $25.3 million and $17.0 million,
respectively, in second quarter 2015. These increases are
primarily attributable to cash collected under an arbitration award
and related patent license agreement. The amounts collected
have been included in deferred revenue, as all criteria for revenue
recognition have not yet been met. The company will recognize
the related revenue from these payments, including both a recurring
and past sales component, in the period in which it believes the
revenue to be fixed or determinable. The company currently
expects to reach that conclusion, and recognize the related
revenue, in third quarter 2016.
- Ending cash and short-term investments totaled $813.9
million.
“The company delivered another very solid quarter,” commented
William J. Merritt, President and CEO. “While recurring
revenue declined from first quarter, that decline was driven by
expected seasonality in phone sales and has no impact on our
confidence in our ability to drive the annual royalty platform for
our core terminal unit licensing business to between $500 and $600
million. We also continued our strong work around expenses
this quarter, taking some significant steps to lower our tax burden
and drive higher profitability. Lastly, our engineers and
scientists continued to drive substantial new innovation at the
company, including making numerous contributions into the
developing 5G standard. InterDigital was among the leaders in
driving 3G and 4G innovation and we are working to drive a similar
position for the company in 5G, where the opportunity to innovate
is substantial and the technology needs are right in our
wheelhouse.”
Additional Financial Highlights for Second Quarter
2016
- The decrease in operating expenses of $7.1 million was
primarily attributable to a $4.5 million decrease in intellectual
property enforcement and non-patent litigation. Additionally,
consulting services, commercial initiatives and personnel-related
costs collectively decreased $5.7 million. These decreases
were partially offset by a $2.9 million increase in
performance-based compensation and depreciation and
amortization.
- During second quarter 2016, the company repurchased 0.3 million
shares of common stock for $18.6 million. From July 1, 2016
through July 29, 2016, the company repurchased an additional 0.1
million shares at a cost of $5.7 million, bringing the total number
of shares repurchased under the company's current $400 million
stock repurchase program to 6.7 million shares at a cost of $313.7
million.
- The company's second quarter 2016 effective tax rate was a
benefit of approximately 74.4% as compared to a provision of 37.1%
during second quarter 2015. The change in our effective tax
rate was primarily attributable to the discrete impact of the
refund claims discussed above, as well as the ongoing benefit from
current year domestic production activities deductions.
Conference Call Information
InterDigital will host a conference call on Tuesday, August 2,
2016 at 10:00 a.m. Eastern Time to discuss its second quarter 2016
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 888-768-6569 within
the U.S. or +1 785-830-7992 from outside the U.S. Please call by
9:50 a.m. ET on August 2 and give the operator Conference ID number
4484566.
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 August 2
through 1:00 p.m. ET August 7. To access the recorded replay, call
888-203-1112 or +1 719-457-0820 and use the replay code
4484566.
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, (i) our expectation that we will reach a conclusion in
third quarter 2016 with respect to the revenue recognition
treatment of the payments collected under an arbitration award and
related patent license agreement in second quarter 2016 and (ii)
our goal to drive the annual royalty platform for our core terminal
unit licensing business to between $500 and $600 million.
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 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 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; (xi) the timing and outcome of
the accounting conclusions with respect to the payments collected
under an arbitration award and related patent license agreement in
second quarter 2016; 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 (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 June 30, |
|
For the Six Months Ended June 30, |
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
REVENUES: |
|
|
|
|
|
|
|
|
Per-unit royalty revenue |
|
$ |
44,525 |
|
|
$ |
55,989 |
|
|
$ |
118,214 |
|
|
$ |
131,572 |
|
Fixed fee amortized royalty
revenue |
|
29,098 |
|
|
33,373 |
|
|
58,196 |
|
|
66,746 |
|
Current patent royalties |
|
73,623 |
|
|
89,362 |
|
|
176,410 |
|
|
198,318 |
|
Past patent royalties |
|
1,277 |
|
|
27,260 |
|
|
5,444 |
|
|
27,277 |
|
Total patent licensing
royalties |
|
74,900 |
|
|
116,622 |
|
|
181,854 |
|
|
225,595 |
|
Current technology solutions
revenue |
|
1,015 |
|
|
1,845 |
|
|
1,825 |
|
|
3,250 |
|
Past technology solutions
revenue |
|
— |
|
|
84 |
|
|
— |
|
|
84 |
|
|
|
$ |
75,915 |
|
|
$ |
118,551 |
|
|
$ |
183,679 |
|
|
$ |
228,929 |
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES: |
|
|
|
|
|
|
|
|
Patent administration and
licensing |
|
28,285 |
|
|
31,212 |
|
|
55,452 |
|
|
62,837 |
|
Development |
|
14,609 |
|
|
18,326 |
|
|
34,878 |
|
|
36,317 |
|
Selling, general and
administrative |
|
9,938 |
|
|
10,435 |
|
|
21,910 |
|
|
19,953 |
|
|
|
52,832 |
|
|
59,973 |
|
|
112,240 |
|
|
119,107 |
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
23,083 |
|
|
58,578 |
|
|
71,439 |
|
|
109,822 |
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSE
(NET) |
|
(706 |
) |
|
(7,746 |
) |
|
(7,843 |
) |
|
(12,982 |
) |
Income before income taxes |
|
22,377 |
|
|
50,832 |
|
|
63,596 |
|
|
96,840 |
|
INCOME TAX BENEFIT
(PROVISION) |
|
16,652 |
|
|
(18,877 |
) |
|
2,584 |
|
|
(36,553 |
) |
NET INCOME |
|
$ |
39,029 |
|
|
$ |
31,955 |
|
|
$ |
66,180 |
|
|
$ |
60,287 |
|
Net loss attributable to
noncontrolling interest |
|
(965 |
) |
|
(647 |
) |
|
(1,885 |
) |
|
(1,380 |
) |
NET INCOME ATTRIBUTABLE
TO INTERDIGITAL, INC. |
|
$ |
39,994 |
|
|
$ |
32,602 |
|
|
$ |
68,065 |
|
|
$ |
61,667 |
|
NET INCOME PER COMMON
SHARE — BASIC |
|
$ |
1.16 |
|
|
$ |
0.91 |
|
|
$ |
1.96 |
|
|
$ |
1.69 |
|
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING — BASIC |
|
34,499 |
|
|
36,022 |
|
|
34,772 |
|
|
36,486 |
|
NET INCOME PER COMMON
SHARE — DILUTED |
|
$ |
1.14 |
|
|
$ |
0.89 |
|
|
$ |
1.94 |
|
|
$ |
1.67 |
|
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING — DILUTED |
|
34,945 |
|
|
36,442 |
|
|
35,161 |
|
|
36,883 |
|
CASH DIVIDENDS DECLARED
PER COMMON SHARE |
|
$ |
0.20 |
|
|
$ |
0.20 |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUMMARY CONSOLIDATED CASH FLOWS |
(dollars in thousands) |
(unaudited) |
|
|
|
For the Three Months Ended June
30, |
|
For the Six Months Ended June 30, |
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Income before income
taxes |
|
$ |
22,377 |
|
|
$ |
50,832 |
|
|
$ |
63,596 |
|
|
$ |
96,840 |
|
Taxes paid |
|
(37,862 |
) |
|
(24,050 |
) |
|
(52,285 |
) |
|
(36,764 |
) |
Non-cash expenses |
|
20,096 |
|
|
20,763 |
|
|
45,481 |
|
|
39,022 |
|
Increase in deferred
revenue |
|
201,730 |
|
|
18,273 |
|
|
282,170 |
|
|
90,776 |
|
Deferred revenue
recognized |
|
(34,829 |
) |
|
(41,865 |
) |
|
(69,423 |
) |
|
(86,022 |
) |
Increase (decrease) in
operating working capital, deferred charges and other |
|
19,922 |
|
|
1,342 |
|
|
(61,872 |
) |
|
(76,786 |
) |
Capital spending and
capitalized patent costs |
|
(8,978 |
) |
|
(8,255 |
) |
|
(18,634 |
) |
|
(17,520 |
) |
FREE CASH FLOW |
|
182,456 |
|
|
17,040 |
|
|
189,033 |
|
|
9,546 |
|
|
|
|
|
|
|
|
|
|
Tax benefit from
share-based compensation |
|
— |
|
|
624 |
|
|
— |
|
|
2,163 |
|
Payments on long-term
debt |
|
— |
|
|
— |
|
|
(230,000 |
) |
|
— |
|
Acquisition of
patents |
|
— |
|
|
— |
|
|
(4,500 |
) |
|
(20,000 |
) |
Long term
investments |
|
(2,000 |
) |
|
|
— |
|
|
(2,000 |
) |
|
— |
|
Proceeds from
noncontrolling interests |
|
— |
|
|
1,276 |
|
|
— |
|
|
2,551 |
|
Dividends paid |
|
(6,923 |
) |
|
(7,232 |
) |
|
(13,991 |
) |
|
(14,665 |
) |
Share repurchases |
|
(18,596 |
) |
|
(19,841 |
) |
|
(58,995 |
) |
|
(70,572 |
) |
Proceeds from other
financing activities |
|
|
— |
|
|
4,500 |
|
|
— |
|
|
4,500 |
|
Proceeds from issuance
of senior convertible notes |
|
— |
|
|
— |
|
|
— |
|
|
316,000 |
|
Purchase of convertible
bond hedge |
|
— |
|
|
— |
|
|
— |
|
|
(59,376 |
) |
Proceeds from issuance
of warrants |
|
— |
|
|
— |
|
|
— |
|
|
42,881 |
|
Payment of debt
issuance costs |
|
— |
|
|
— |
|
|
— |
|
|
(9,403 |
) |
Net proceeds from
exercise of stock options |
|
228 |
|
|
26 |
|
|
228 |
|
|
26 |
|
Unrealized gain on
short-term investments |
|
39 |
|
|
21 |
|
|
415 |
|
|
16 |
|
NET (DECREASE) INCREASE
IN CASH AND SHORT-TERM INVESTMENTS |
|
$ |
155,204 |
|
|
$ |
(3,586 |
) |
|
$ |
(119,810 |
) |
|
$ |
203,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED BALANCE
SHEETS |
(dollars in thousands) |
(unaudited) |
|
|
JUNE 30, 2016 |
|
DECEMBER 31, 2015 |
ASSETS |
|
|
|
Cash & short-term
investments |
$ |
813,898 |
|
|
$ |
933,708 |
|
Accounts receivable |
104,181 |
|
|
53,868 |
|
Other current assets |
48,402 |
|
|
23,391 |
|
Property &
equipment and patents (net) |
286,434 |
|
|
289,727 |
|
Other long-term assets
(net) |
216,796 |
|
|
173,791 |
|
TOTAL ASSETS |
$ |
1,469,711 |
|
|
$ |
1,474,485 |
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS’ EQUITY |
|
|
|
Current portion of long-term
debt |
$ |
— |
|
|
$ |
227,174 |
|
Accounts payable, accrued
liabilities, taxes payable & dividends payable |
62,035 |
|
|
66,570 |
|
Current deferred revenue, including
customer advances |
309,340 |
|
|
106,229 |
|
Long-term deferred revenue |
298,675 |
|
|
289,039 |
|
Long-term debt & other
long-term liabilities |
276,503 |
|
|
263,578 |
|
TOTAL LIABILITIES |
946,553 |
|
|
952,590 |
|
TOTAL INTERDIGITAL,
INC. SHAREHOLDERS' EQUITY |
513,667 |
|
|
510,519 |
|
Noncontrolling
interest |
9,491 |
|
|
11,376 |
|
TOTAL EQUITY |
523,158 |
|
|
521,895 |
|
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY |
$ |
1,469,711 |
|
|
$ |
1,474,485 |
|
|
|
|
|
|
|
|
|
RECONCILIATION OF FREE CASH FLOW TO NET
CASHPROVIDED BY 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 June 30, |
|
For the Six Months Ended June 30, |
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Net cash provided by
operating activities |
|
$ |
191,434 |
|
|
$ |
25,295 |
|
|
$ |
207,667 |
|
|
$ |
27,066 |
|
Purchases of property,
equipment, & technology licenses |
|
(672 |
) |
|
(491 |
) |
|
(2,266 |
) |
|
(1,329 |
) |
Capitalized patent
costs |
|
(8,306 |
) |
|
(7,764 |
) |
|
(16,368 |
) |
|
(16,191 |
) |
Free cash flow |
|
$ |
182,456 |
|
|
$ |
17,040 |
|
|
$ |
189,033 |
|
|
$ |
9,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONTACT: InterDigital, Inc.:
Patrick Van de Wille
patrick.vandewille@interdigital.com
+1 (858) 210-4814
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