OREANDA-NEWS. 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.

 

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.

 

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