InterDigital, Inc. (NASDAQ:IDCC), a mobile and video technology
research and development company, today announced results for the
first quarter ended March 31, 2020.
First Quarter 2020 Financial Highlights
- First quarter 2020 recurring revenue was $75.5 million,
compared to recurring revenue of $74.2 million in first quarter
2019. First quarter 2020 revenue did not include any impact from
the company's recently announced second quarter license renewal
with Huawei.
- First quarter 2020 total revenue was $76.2 million, compared to
$68.6 million in first quarter 2019. As previously disclosed, first
quarter 2019 included a $5.5 million net charge recorded as a
reduction to non-recurring revenue related to a restructured
licensing arrangement with a long-term customer.
- First quarter 2020 operating expenses were $71.5 million,
compared to $68.8 million in first quarter 2019. First
quarter 2020 included one-time charges of nearly $3 million
incurred as part of the company's on-going efforts to optimize its
cost structure, including the closure of its San Diego office.
- For the second consecutive quarter the company reported that it
has brought its ongoing economic cost1 of operating the business
back in line with the 2017 levels that existed before the
Technicolor acquisitions.
- First quarter 2020 net income2 was $0.1 million, or $0.00 per
diluted share compared to net loss2 of $2.8 million, or $0.09 per
diluted share, in first quarter 2019.
“With the renewal of Huawei as a licensee, InterDigital has now
completed six licensing agreements in the past six months. This
tremendous momentum underscores the strategy that guided our
acquisitions and efforts for the past two years: expand
InterDigital’s patent and technology footprint, expand our
addressable markets, and increase the value we can offer our core
mobile handset licensees, all while preserving the phenomenal
operating leverage that is a hallmark of our company,” said William
J. Merritt, President and CEO of InterDigital. “With Huawei coming
on board, continued efforts to license additional companies, our
continuing efforts to grow our consumer electronics business, and
careful cost control, InterDigital is set on a path for increased
profitability, growth, and shareholder value.”
Additional Highlights
- In first quarter 2020, the company recorded $26.9 million of
cash used in operating activities, compared to $30.8 million of
cash used in operating activities in first quarter 2019. The
company used $34.7 million of free cash flow3 in first quarter
2020, compared to $40.8 million of free cash flow used in first
quarter 2019. Ending cash and short-term investments as of
March 31, 2020 totaled $780.9 million.
- In first quarter 2020, the company recognized a tax expense of
$1.8 million compared to a tax benefit of $1.8 million in first
quarter 2019.
- Other Income (Expense), net in first quarter 2020 included a
net $4.4 million gain, primarily resulting from the write-up of one
of our long-term investments.
- In anticipation of COVID-19, InterDigital tested its remote
operation capability in early March and then transitioned to a
fully virtual work environment in mid-March. The company
remains in that virtual work environment, with no significant
impact on research, licensing or other activities. Given how
effective the company can operate remotely and in an abundance of
caution for the health and safety of its workforce, the company
intends to take a conservative stance on reopening its offices in
relation to public authority guidance, with the company expected to
remain in a remote operation mode through at least June 2020 and
likely for the balance of the summer.
Conference Call Information
InterDigital will host a conference call on Thursday, May 7,
2020 at 10:00 a.m. Eastern Time to discuss its first quarter 2020
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 +1 (888) 254-3590
within the United States and Canada or +1 (323) 994-2093 from
outside the United States and Canada. Please call by 9:50 a.m. ET
on May 7th and give the operator conference ID number 9005099.
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 May 7th
through 1:00 p.m. ET May 12th. To access the recorded replay, call
+1 (888) 203-1112 or +1 (719) 457-0820 and use the replay code
9005099.
About InterDigital®
InterDigital develops mobile and video 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, better video delivery, and richer multimedia experiences
years ahead of market deployment. InterDigital has licenses
and strategic relationships with many of the world's leading
technology 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 belief that the acquisition of the Technicolor
patent licensing business provides the company with a significant
potential benefit. Words such as "believe," "anticipate,"
"estimate," "expect," "project," "intend," "plan," "forecast,"
"goal," "see," 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 our interpretations of, and assumptions
and calculations with respect to the impact on the company of, the
Tax Reform Act, as well as further guidance that may be issued
regarding the Tax Reform Act; (ix) difficulties or delays in
integrating the Technicolor patent licensing business; (x) failure
to accurately forecast the long-term value and costs of the
Technicolor business or of certain assets acquired in the
transaction; (xi) 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; (xii) changes or inaccuracies in market projections;
(xiii) the potential effects that the ongoing COVID-19 pandemic
could have on our financial position, results of operations and
cash flows; and (xiv) 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 Ongoing Economic Cost is a supplemental non-GAAP
financial measure that InterDigital believes is helpful in
evaluating the effectiveness of our operations and underlying
business trends related to operating expenses. A limitation
of this measure is that it does not represent the total increase or
decrease in the company's total operating expenses for the
period. This measure includes costs related to internally
generated patents that are capitalized and exclude from total
operating expenses intellectual property enforcement costs,
amortization and depreciation, revenue share to our Madison
partners, partner reimbursements which are not already not included
in total operating expenses, as well as transaction and integration
related costs.
2 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.
3 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
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 MARCH 31, |
| |
2020 |
|
2019 |
| REVENUES: |
|
|
|
|
Variable patent royalty revenue |
$ |
5,946 |
|
|
$ |
9,280 |
|
|
Fixed-fee royalty revenue |
66,347 |
|
|
62,873 |
|
|
Current patent royalties |
72,293 |
|
|
72,153 |
|
|
Non-current patent royalties |
705 |
|
|
(5,775 |
) |
|
Total patent royalties |
72,998 |
|
|
66,378 |
|
|
Patent sales |
— |
|
|
225 |
|
|
Current technology solutions revenue |
3,212 |
|
|
2,028 |
|
|
|
$ |
76,210 |
|
|
$ |
68,631 |
|
| OPERATING EXPENSES: |
|
|
|
|
Patent administration and licensing |
40,108 |
|
|
36,071 |
|
|
Development |
18,818 |
|
|
18,495 |
|
|
Selling, general and administrative |
12,603 |
|
|
14,215 |
|
| |
71,529 |
|
|
68,781 |
|
|
Income (loss) from operations |
4,681 |
|
|
(150 |
) |
| INTEREST EXPENSE |
(10,545 |
) |
|
(9,478 |
) |
| OTHER INCOME (EXPENSE),
NET |
6,023 |
|
|
3,615 |
|
|
Income (loss) before income taxes |
159 |
|
|
(6,013 |
) |
| INCOME TAX BENEFIT
(PROVISION) |
(1,820 |
) |
|
1,799 |
|
|
NET INCOME (LOSS) |
$ |
(1,661 |
) |
|
$ |
(4,214 |
) |
|
Net loss attributable to noncontrolling interest |
(1,777 |
) |
|
(1,411 |
) |
| NET INCOME (LOSS) ATTRIBUTABLE
TO INTERDIGITAL, INC. |
$ |
116 |
|
|
$ |
(2,803 |
) |
| NET INCOME (LOSS) PER COMMON
SHARE — BASIC |
$ |
— |
|
|
$ |
(0.09 |
) |
| WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING — BASIC |
30,722 |
|
|
32,611 |
|
| NET INCOME (LOSS) PER COMMON
SHARE — DILUTED |
$ |
— |
|
|
$ |
(0.09 |
) |
| WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING — DILUTED |
30,920 |
|
|
32,611 |
|
| CASH DIVIDENDS DECLARED PER
COMMON SHARE |
$ |
0.35 |
|
|
$ |
0.35 |
|
| |
|
|
|
|
|
|
|
SUMMARY CONSOLIDATED CASH
FLOWS(dollars in thousands)(unaudited)
| |
FOR THE THREE MONTHS ENDED MARCH 31, |
| |
2020 |
|
2019 |
|
Income (loss) before income taxes |
$ |
159 |
|
|
$ |
(6,013 |
) |
| Taxes paid |
(2,228 |
) |
|
(3,196 |
) |
| Non-cash expenses |
20,299 |
|
|
25,402 |
|
| Change in deferred
revenue |
(39,512 |
) |
|
(43,423 |
) |
| Increase (decrease) in
operating working capital, deferred charges and other |
(5,603 |
) |
|
(3,551 |
) |
| Capital spending and
capitalized patent costs |
(7,859 |
) |
|
(10,065 |
) |
| FREE CASH FLOW |
(34,744 |
) |
|
(40,846 |
) |
| |
|
|
|
| Proceeds from noncontrolling
interest |
— |
|
|
10,333 |
|
| Dividends paid |
(10,747 |
) |
|
(11,629 |
) |
| Taxes withheld upon vesting of
restricted stock units |
(725 |
) |
|
(4,097 |
) |
| Payments on long-term
debt |
(94,909 |
) |
|
— |
|
| Share repurchases |
(349 |
) |
|
(108,986 |
) |
| Net proceeds from exercise of
stock options |
778 |
|
|
2 |
|
| Unrealized gain (loss) on
short-term investments |
(774 |
) |
|
2,183 |
|
| NET INCREASE (DECREASE) IN
CASH, RESTRICTED CASH AND SHORT-TERM INVESTMENTS |
$ |
(141,470 |
) |
|
$ |
(153,040 |
) |
| |
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED BALANCE
SHEETS(dollars in thousands)(unaudited)
| |
MARCH 31, 2020 |
|
DECEMBER 31, 2019 |
| ASSETS |
|
|
|
|
Cash & short-term investments |
$ |
780,900 |
|
|
$ |
924,695 |
|
|
Accounts receivable (net) |
25,608 |
|
|
28,272 |
|
|
Other current assets |
69,337 |
|
|
63,365 |
|
| Property & equipment and
patents (net) |
435,928 |
|
|
446,556 |
|
| Other long-term assets
(net) |
152,957 |
|
|
149,194 |
|
| TOTAL ASSETS |
$ |
1,464,730 |
|
|
$ |
1,612,082 |
|
| |
|
|
|
| LIABILITIES AND
SHAREHOLDERS’ EQUITY |
|
|
|
|
Current portion of long-term debt |
$ |
— |
|
|
$ |
94,170 |
|
|
Accounts payable, accrued liabilities, taxes payable &
dividends payable |
59,535 |
|
|
64,734 |
|
|
Current deferred revenue |
126,298 |
|
|
146,654 |
|
|
Long-term deferred revenue |
104,497 |
|
|
123,653 |
|
|
Long-term debt & other long-term liabilities |
398,804 |
|
|
396,590 |
|
| TOTAL LIABILITIES |
689,134 |
|
|
825,801 |
|
| TOTAL INTERDIGITAL, INC.
SHAREHOLDERS' EQUITY |
752,649 |
|
|
761,557 |
|
| Noncontrolling interest |
22,947 |
|
|
24,724 |
|
| TOTAL EQUITY |
775,596 |
|
|
786,281 |
|
| TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY |
$ |
1,464,730 |
|
|
$ |
1,612,082 |
|
| |
|
|
|
|
|
|
|
RECONCILIATION OF FREE CASH FLOW TO NET
CASHPROVIDED 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 MARCH 31, |
| |
2020 |
|
2019 |
| Net cash provided by (used in)
operating activities |
$ |
(26,885 |
) |
|
$ |
(30,781 |
) |
| Purchases of property,
equipment, & technology licenses |
(1,603 |
) |
|
(1,584 |
) |
| Capitalized patent costs |
(6,256 |
) |
|
(8,481 |
) |
| Free cash flow |
$ |
(34,744 |
) |
|
$ |
(40,846 |
) |
| |
|
|
|
|
|
|
|
RECONCILIATION OF ONGOING ECONOMIC COST
METRIC TOTOTAL OPERATING EXPENSES
Throughout this release, the company refers to ongoing economic
cost. The table below presents a reconciliation of this
non-GAAP financial measure to total operating expenses, the most
directly comparable GAAP financial measure.
| |
FOR THE THREE MONTHS ENDED MARCH 31, |
| |
2020 |
|
Total operating expenses |
$ |
71,529 |
|
| Plus: Capitalized patent costs
on internal patents |
6,300 |
|
| Less: Depreciation and
amortization |
(19,158 |
) |
| Less: Intellectual property
enforcement costs |
(4,993 |
) |
| Less: Revenue share |
(441 |
) |
| Less: Partner
reimbursement |
(300 |
) |
| Economic
Cost |
$ |
52,937 |
|
| Less: Transaction and
integration related expenses |
(700 |
) |
| Ongoing Economic
Cost |
$ |
52,237 |
|
|
CONTACT: |
InterDigital, Inc.: |
| |
Patrick Van de Wille |
| |
patrick.vandewille@interdigital.com |
| |
+1 (302)
300-1857 |
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