InterDigital, Inc. (NASDAQ:IDCC), a mobile technology research and
development company, today announced results for the second quarter
ended June 30, 2018.
Effective January 1, 2018, the company adopted a new revenue
recognition standard ("ASC 606"), which impacted the company’s
recognition of revenue from certain of its fixed-fee and per-unit
license agreements. The company adopted ASC 606 using the
modified retrospective method, which means that the total amount of
revenue reported for second quarter 2017 has not been restated in
the current financial statements. In the interest of
comparability during the transition year to ASC 606, the company
has provided revenue, net income and earnings per share information
in accordance with both ASC 606 and revenue recognition rules in
effect prior to the adoption of ASC 606 (“ASC 605”).
Second Quarter 2018 Financial Highlights
- Second quarter 2018 recurring revenue was $67.5 million, a 5%
sequential increase compared to first quarter 2018. Under ASC
605, recurring revenue for second quarter 2018 would have been
$88.6 million, compared to $87.9 million in second quarter 2017,
primarily driven by new fixed-fee agreements signed during
2018.
- Second quarter 2018 operating expenses decreased by $1.0
million to $53.9 million, compared to $54.8 million in second
quarter 2017. Operating expenses were not affected by the
adoption of ASC 606.
- The second quarter 2018 effective tax rate was 9.8%, based on
the statutory federal tax rate net of discrete federal and state
taxes. The effective tax rate for second quarter 2018 was
favorably impacted by provisions contained within the Tax Cuts and
Jobs Act of 2017 (the "Tax Reform Act"). This is compared to
an effective tax rate of 34.4% based on the statutory federal tax
rate net of discrete federal and state taxes during second quarter
2017.
- Second quarter 2018 net income1 was $10.7 million, or $0.30 per
diluted share. Under ASC 605, net income for second quarter
2018 would have been $33.2 million, or $0.93 per diluted share,
compared to $52.5 million, or $1.46 per diluted share, in second
quarter 2017.
- In second quarter 2018, the company recorded $6.8 million of
cash provided by operating activities, compared to $19.4 million in
second quarter 2017. The company used $0.8 million of free
cash flow2 in second quarter 2018, compared to generating $10.1
million in second quarter 2017. These changes were primarily
due to the timing of cash receipts under fixed-fee
agreements. Ending cash and short-term investments totaled
$1.1 billion.
“Our continued licensing efforts, including new agreements in
the second quarter, saw growth in recurring revenue coupled with
careful expense discipline and another excellent quarter,” said
William J. Merritt, President and CEO. “With the expansion of our
patent portfolio, our continued strong participation in 5G, and the
expansion of wireless into new markets, we see new opportunities
and a platform for continued growth.”
Additional Highlights
- The current period tax benefit was driven by:
- the decrease in the U.S. corporate tax rate from 35% to 21% and
the imposition of a 13.125% tax rate on income that qualifies as
Foreign Derived Intangible Income ("FDII") under the Tax Reform
Act; and
- timing differences between the recognition of book and tax
revenue that magnify the FDII impact in the current period.
- The company expects to report a negative effective tax rate for
the full year, but expects its long-term tax rate will be in the
range of approximately 14% to 15%. The effective tax rate
reported in any given year will continue to be influenced by a
variety of factors, including timing differences between the
recognition of book and tax revenue, the level of pre-tax income or
loss, the foreign vs. domestic classification of the company’s
customers, and any discrete items that may occur. The company
further notes that its tax positions could be altered by pending
IRS regulations that could clarify certain provisions of the Tax
Reform Act.
- From January 1, 2018 through July 31, 2018, the company has
repurchased 0.2 million shares of common stock under its stock
repurchase program for a total cost of $16.0 million.
- On July 31, 2018, we announced that we had completed the
acquisition of the patent licensing business of Technicolor, a
worldwide technology leader in the media and entertainment
sector.
Conference Call Information
InterDigital will host a conference call on Thursday, August 2,
2018 at 10:00 a.m. Eastern Time to discuss its second quarter 2018
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) 224-1005
within the United States or +1 (323) 794-2551 from outside the
United States. Please call by 9:50 a.m. ET on August 2nd and
give the operator conference ID number 9287523.
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
9287523.
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 current expectations with respect to our
effective tax rate for 2018 and our long-term tax rate; and (ii)
our belief that the expansion of our patent portfolio, our
continued strong participation in 5G, and the expansion of wireless
into new markets will provide new opportunities and a platform for
continued growth. 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) 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 June
30, |
|
2018 |
|
2017 |
|
As Reported ASC 606 |
|
Adjustment |
|
ASC 605* |
|
As Reported (ASC 605) |
REVENUES: |
|
|
|
|
|
|
|
Variable patent royalty revenue |
$ |
6,594 |
|
|
$ |
782 |
|
|
$ |
7,376 |
|
|
$ |
11,398 |
|
Fixed-fee royalty revenue |
60,264 |
|
|
19,261 |
|
|
79,525 |
|
|
73,063 |
|
Current patent royalties |
66,858 |
|
|
20,043 |
|
|
86,901 |
|
|
84,461 |
|
Non-current patent royalties |
2,017 |
|
|
— |
|
|
2,017 |
|
|
47,860 |
|
Total patent royalties |
68,875 |
|
|
20,043 |
|
|
88,918 |
|
|
132,321 |
|
Current technology solutions revenue |
680 |
|
|
1,051 |
|
|
1,731 |
|
|
3,458 |
|
|
$ |
69,555 |
|
|
$ |
21,094 |
|
|
$ |
90,649 |
|
|
$ |
135,779 |
|
OPERATING
EXPENSES: |
|
|
|
|
|
|
|
Patent administration and licensing |
26,487 |
|
|
— |
|
|
26,487 |
|
|
23,232 |
|
Development |
15,829 |
|
|
— |
|
|
15,829 |
|
|
19,098 |
|
Selling, general and administrative |
11,559 |
|
|
— |
|
|
11,559 |
|
|
12,501 |
|
|
53,875 |
|
|
— |
|
|
53,875 |
|
|
54,831 |
|
Income from operations |
15,680 |
|
|
21,094 |
|
|
36,774 |
|
|
80,948 |
|
OTHER
EXPENSE (NET) |
(4,847 |
) |
|
4,335 |
|
|
(512 |
) |
|
(2,330 |
) |
Income before income taxes |
10,833 |
|
|
25,429 |
|
|
36,262 |
|
|
78,618 |
|
INCOME TAX
EXPENSE |
(1,057 |
) |
|
(2,908 |
) |
|
(3,965 |
) |
|
(27,074 |
) |
NET INCOME |
$ |
9,776 |
|
|
$ |
22,521 |
|
|
$ |
32,297 |
|
|
$ |
51,544 |
|
Net loss attributable to noncontrolling interest |
(930 |
) |
|
— |
|
|
(930 |
) |
|
(955 |
) |
NET INCOME
ATTRIBUTABLE TO INTERDIGITAL, INC. |
$ |
10,706 |
|
|
$ |
22,521 |
|
|
$ |
33,227 |
|
|
$ |
52,499 |
|
NET INCOME
PER COMMON SHARE — BASIC |
$ |
0.31 |
|
|
$ |
0.65 |
|
|
$ |
0.96 |
|
|
$ |
1.51 |
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC |
34,769 |
|
|
— |
|
|
34,769 |
|
|
34,686 |
|
NET INCOME
PER COMMON SHARE — DILUTED |
$ |
0.30 |
|
|
$ |
0.63 |
|
|
$ |
0.93 |
|
|
$ |
1.46 |
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED |
35,631 |
|
|
— |
|
|
35,631 |
|
|
35,902 |
|
CASH
DIVIDENDS DECLARED PER COMMON SHARE |
$ |
0.35 |
|
|
$ |
— |
|
|
$ |
0.35 |
|
|
$ |
0.30 |
|
|
For the Six Months Ended June
30, |
|
2018 |
|
2017 |
|
As Reported ASC 606 |
|
Adjustment |
|
ASC 605* |
|
As Reported (ASC 605) |
REVENUES: |
|
|
|
|
|
|
|
Variable patent royalty revenue |
$ |
12,677 |
|
|
$ |
4,776 |
|
|
$ |
17,453 |
|
|
$ |
27,257 |
|
Fixed-fee royalty revenue |
117,935 |
|
|
39,772 |
|
|
157,707 |
|
|
146,430 |
|
Current patent royalties |
130,612 |
|
|
44,548 |
|
|
175,160 |
|
|
173,687 |
|
Non-current patent royalties |
25,361 |
|
|
(10,000 |
) |
|
15,361 |
|
|
47,860 |
|
Total patent royalties |
155,973 |
|
|
34,548 |
|
|
190,521 |
|
|
221,547 |
|
Current technology solutions revenue |
1,026 |
|
|
4,035 |
|
|
5,061 |
|
|
8,762 |
|
|
$ |
156,999 |
|
|
$ |
38,583 |
|
|
$ |
195,582 |
|
|
$ |
230,309 |
|
OPERATING
EXPENSES: |
|
|
|
|
|
|
|
Patent administration and licensing |
53,403 |
|
|
— |
|
|
53,403 |
|
|
50,112 |
|
Development |
32,003 |
|
|
— |
|
|
32,003 |
|
|
38,879 |
|
Selling, general and administrative |
25,763 |
|
|
— |
|
|
25,763 |
|
|
26,402 |
|
|
111,169 |
|
|
— |
|
|
111,169 |
|
|
115,393 |
|
Income from operations |
45,830 |
|
|
38,583 |
|
|
84,413 |
|
|
114,916 |
|
OTHER
EXPENSE (NET) |
(11,183 |
) |
|
9,011 |
|
|
(2,172 |
) |
|
(5,144 |
) |
Income before income taxes |
34,647 |
|
|
47,594 |
|
|
82,241 |
|
|
109,772 |
|
INCOME TAX
BENEFIT (EXPENSE) |
3,858 |
|
|
(8,931 |
) |
|
(5,073 |
) |
|
(25,450 |
) |
NET INCOME |
$ |
38,505 |
|
|
$ |
38,663 |
|
|
$ |
77,168 |
|
|
$ |
84,322 |
|
Net loss attributable to noncontrolling interest |
(2,126 |
) |
|
— |
|
|
(2,126 |
) |
|
(1,933 |
) |
NET INCOME
ATTRIBUTABLE TO INTERDIGITAL, INC. |
$ |
40,631 |
|
|
$ |
38,663 |
|
|
$ |
79,294 |
|
|
$ |
86,255 |
|
NET INCOME
PER COMMON SHARE — BASIC |
$ |
1.17 |
|
|
$ |
1.11 |
|
|
$ |
2.28 |
|
|
$ |
2.50 |
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC |
34,705 |
|
|
— |
|
|
34,705 |
|
|
34,528 |
|
NET INCOME
PER COMMON SHARE — DILUTED |
$ |
1.14 |
|
|
$ |
1.09 |
|
|
$ |
2.23 |
|
|
$ |
2.39 |
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED |
35,619 |
|
|
— |
|
|
35,619 |
|
|
36,103 |
|
CASH
DIVIDENDS DECLARED PER COMMON SHARE |
$ |
0.70 |
|
|
$ |
— |
|
|
$ |
0.70 |
|
|
$ |
0.60 |
|
Note: Certain reclassifications have been made to
prior period amounts to conform to the current period
presentation.
*In the interest of comparability during the transition year to
ASC 606, the company has provided its Summary Consolidated
Statements of Income for the three and six months ended June 30,
2018 in accordance with both ASC 606 and previous accounting
literature, ASC 605. The tables above also show the adjustments
made to reconcile the ASC 605 presentation to ASC 606. The
company believes this additional information is vital during the
transition year to allow readers of its financial statements to
compare financial results from the preceding financial year given
the absence of restatement of the prior period. The ASC 605
information should be considered in addition to, not as a
substitute for, nor superior to or in isolation from, the financial
information prepared in accordance with ASC 606.
SUMMARY CONSOLIDATED CASH
FLOWS(dollars in thousands)(unaudited)
|
For the Three Months Ended June
30, |
|
For the Six Months Ended June
30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Income
before income taxes |
$ |
10,833 |
|
|
$ |
78,618 |
|
|
$ |
34,647 |
|
|
$ |
109,772 |
|
Taxes
paid |
(2,746 |
) |
|
(11,120 |
) |
|
(10,799 |
) |
|
(14,110 |
) |
Non-cash
expenses |
19,901 |
|
|
21,645 |
|
|
38,796 |
|
|
44,691 |
|
Change in
deferred revenue |
18,125 |
|
|
(74,039 |
) |
|
(27,167 |
) |
|
32,040 |
|
Increase
(decrease) in operating working capital, deferred charges and
other |
(39,286 |
) |
|
4,343 |
|
|
(29,245 |
) |
|
(178,801 |
) |
Capital
spending and capitalized patent costs |
(7,615 |
) |
|
(9,321 |
) |
|
(16,049 |
) |
|
(17,376 |
) |
FREE CASH
FLOW |
(788 |
) |
|
10,126 |
|
|
(9,817 |
) |
|
(23,784 |
) |
|
|
|
|
|
|
|
|
Long-term
investments |
(2,000 |
) |
|
(200 |
) |
|
(6,250 |
) |
|
(701 |
) |
Dividends
paid |
(12,164 |
) |
|
(10,402 |
) |
|
(24,319 |
) |
|
(20,694 |
) |
Acquisition
of patents |
(2,250 |
) |
|
— |
|
|
(2,250 |
) |
|
— |
|
Taxes
withheld upon vesting of restricted stock units |
(111 |
) |
|
(235 |
) |
|
(8,388 |
) |
|
(22,190 |
) |
Share
repurchases |
(3,148 |
) |
|
— |
|
|
(9,172 |
) |
|
— |
|
Net
proceeds from exercise of stock options |
3,930 |
|
|
— |
|
|
3,930 |
|
|
82 |
|
Unrealized
gain (loss) on short-term investments |
475 |
|
|
(42 |
) |
|
(1,168 |
) |
|
(87 |
) |
NET
DECREASE IN CASH AND SHORT-TERM INVESTMENTS |
$ |
(16,056 |
) |
|
$ |
(753 |
) |
|
$ |
(57,434 |
) |
|
$ |
(67,374 |
) |
CONDENSED CONSOLIDATED BALANCE
SHEETS(dollars in thousands)(unaudited)
|
JUNE 30, 2018 |
|
DECEMBER 31, 2017 |
ASSETS |
|
|
|
Cash & short-term investments |
$ |
1,100,561 |
|
|
$ |
1,157,995 |
|
Accounts receivable (net) |
77,988 |
|
|
216,293 |
|
Other current assets |
21,970 |
|
|
21,506 |
|
Property
& equipment and patents (net) |
327,162 |
|
|
336,081 |
|
Other
long-term assets (net) |
91,969 |
|
|
122,545 |
|
TOTAL
ASSETS |
$ |
1,619,650 |
|
|
$ |
1,854,420 |
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
Accounts payable, accrued liabilities, taxes payable &
dividends payable |
$ |
51,520 |
|
|
$ |
69,299 |
|
Current deferred revenue |
76,777 |
|
|
307,142 |
|
Long-term deferred revenue |
153,296 |
|
|
309,671 |
|
Long-term debt & other long-term liabilities |
301,833 |
|
|
295,160 |
|
TOTAL
LIABILITIES |
583,426 |
|
|
981,272 |
|
TOTAL
INTERDIGITAL, INC. SHAREHOLDERS' EQUITY |
1,020,469 |
|
|
855,267 |
|
Noncontrolling interest |
15,755 |
|
|
17,881 |
|
TOTAL
EQUITY |
1,036,224 |
|
|
873,148 |
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ |
1,619,650 |
|
|
$ |
1,854,420 |
|
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 June
30, |
|
For the Six Months Ended June
30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Net cash
provided by (used in) operating activities |
$ |
6,827 |
|
|
$ |
19,447 |
|
|
$ |
6,232 |
|
|
$ |
(6,408 |
) |
Purchases
of property, equipment, & technology licenses |
(1,143 |
) |
|
(557 |
) |
|
(1,542 |
) |
|
(825 |
) |
Capitalized
patent costs |
(6,472 |
) |
|
(8,764 |
) |
|
(14,507 |
) |
|
(16,551 |
) |
Free cash
flow |
$ |
(788 |
) |
|
$ |
10,126 |
|
|
$ |
(9,817 |
) |
|
$ |
(23,784 |
) |
CONTACT: |
InterDigital, Inc.: |
|
Patrick Van
de Wille |
|
patrick.vandewille@interdigital.com |
|
+1
(858) 210-4814 |
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