InterDigital, Inc. (NASDAQ:IDCC), a mobile technology research and
development company, today announced results for the fourth quarter
and full year ended December 31, 2017.
Fourth Quarter 2017 Financial Highlights
- Fourth quarter 2017 recurring revenue increased 6% to $99.1
million, compared to $93.6 million in fourth quarter 2016,
primarily driven by an increase in fixed-fee revenue due to the
patent license agreement with LG Electronics, Inc. signed during
fourth quarter 2017 (the "LG PLA"). Recurring revenue
consists of current patent royalties and current technology
solutions revenue.
- Fourth quarter 2017 total revenue was $205.3 million, compared
to $273.9 million in fourth quarter 2016. Fourth quarter 2016
included $180.3 million of past patent royalties, as compared to
$106.2 million in fourth quarter 2017.
- Fourth quarter 2017 operating expenses were $59.6 million,
compared to $64.7 million in fourth quarter 2016. The
decrease in operating expenses was primarily due to a decrease in
performance-based incentive compensation driven by higher accrual
rates in 2016 associated with new agreements signed during that
year.
- Net income1 was $52.5 million, or $1.48 per diluted share,
compared to $136.5 million, or $3.85 per diluted share, in fourth
quarter 2016.
- In fourth quarter 2017, the company recorded $217.5 million of
cash provided by operating activities, compared to $233.3 million
in fourth quarter 2016. The company generated $207.7 million
of free cash flow2 in fourth quarter 2017, compared to $222.5
million in fourth quarter 2016. Ending cash and short-term
investments totaled $1.2 billion.
Full Year 2017 Financial Highlights
- Full year 2017 recurring revenue was $370.0 million, a 4%
increase from the prior year. The increase was primarily
driven by contributions from the company's technology solutions
customers as well as the LG PLA.
- Full year 2017 total revenue was $532.9 million, compared to
$665.9 million in full year 2016. Full year 2016 included
$309.7 million of past patent royalties, as compared to $162.9
million in full year 2017.
- Fixed-fee amortized royalties were $301.6 million in 2017, a
70% increase compared to 2016.
- Full year 2017 operating expenses were $231.4 million, compared
to $228.5 million in 2016.
- Net income1 was $174.3 million, or $4.87 per diluted share,
compared to $309.0 million, or $8.78 per diluted share, in full
year 2016.
- In full year 2017, the company recorded $315.8 million of cash
provided by operating activities, compared to $434.2 million in
full year 2016. The company generated $278.8 million of free
cash flow2 in full year 2017, compared to $395.6 million in full
year 2016. The decrease is primarily attributable to the
timing of cash receipts under fixed-fee arrangements.
“InterDigital’s research and development helps drive the entire
mobile industry, and the result is a business model with outsized
scale and tremendous leverage. That translated into another very
strong quarter and year from a cash flow perspective,” said William
J. Merritt, President and CEO of InterDigital. “Our focus going
forward is to maintain and grow that core business and continue to
search for opportunities to expand the range of technologies we can
bring to our customers."
Impact of 2017 Tax Cut and Jobs Act
- The company's fourth quarter 2017 effective tax rate was 64.1%
compared to 34.0% during fourth quarter 2016. The increase resulted
from a $42.6 million charge to revalue the company’s net deferred
tax assets due to the 2017 Tax Cut and Jobs Act (the “Tax Act”),
enacted in December 2017.
- The company's full year 2017 effective tax rate was 41.6%
compared to 27.7% in 2016. The increase in the effective tax
rate was primarily attributable to the revaluation of our net
deferred tax assets at the new statutory tax rate of 21.0%.
That revaluation contributed approximately 14.6% to the rate
increase.
- While the company continues to review the Tax Act and related
guidance, on a go-forward basis the company currently expects a
significant portion of its income to qualify as Foreign Derived
Intangible Income (FDII), which would be subject to a 13.1% tax
rate.
Near-Term Outlook
First quarter 2018 marks the first period in which the company
will report revenue under the new revenue recognition standard,
FASB ASC 606, which became effective for the company January 1,
2018. As the company has previously disclosed, it will no
longer recognize revenue from certain of its fixed-fee license
agreements and is now required to estimate royalties on its
per-unit licensees’ quarterly sales of royalty-bearing
products.
Under ASC 606, the company expects first quarter 2018 revenue to
be between $66 million and $71 million, comprised primarily of
recurring revenue. Applying accounting rules in effect prior
to the company’s adoption of ASC 606, the company would have
otherwise expected first quarter 2018 revenue recognized to be
between $90 million and $95 million, comprised primarily of
recurring revenue. The company also notes that in conjunction
with adopting ASC 606, it expects to record an additional $5
million non-cash interest expense in first quarter 2018. Note
that the guidance under the old accounting policies is to provide
additional transparency and comparability with prior periods and is
not a substitute for the new ASC 606 revenue recognition standard
under GAAP applicable for the first quarter of 2018.
This revenue guidance 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
2018.
Conference Call Information
InterDigital will host a conference call on Thursday, February
22, 2018 at 10:00 a.m. Eastern Time to discuss its fourth quarter
and full year 2017 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 (877) 874-1570
within the United States or +1 (719) 325-2236 from outside the
United States. Please call by 9:50 a.m. ET on February 22 and give
the operator conference ID number 7131525.
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 22
through 1:00 p.m. ET February 27. To access the recorded replay,
call +1 (719) 457-0820 or +1 (719) 785-5608 and use the replay code
7131525.
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 the
company’s first quarter 2018 revenue, (ii) our current expectation
that a significant portion of our income will qualify as FDII under
the Tax Act and (iii) our plans to maintain and grow our core
business and continue to search for opportunities to expand the
range of technologies we can bring to our customers. 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 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 the market share and sales performance
of our primary licensees, delays in product shipments of our
licensees, changes in our estimates of first quarter 2018 sales by
our per-unit 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; 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 December
31, |
|
For the Twelve Months Ended December
31, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
REVENUES: |
|
|
|
|
|
|
|
Per-unit
royalty revenue |
$ |
10,502 |
|
|
$ |
14,031 |
|
|
$ |
47,840 |
|
|
$ |
168,050 |
|
Fixed fee
amortized royalty revenue |
81,545 |
|
|
73,678 |
|
|
301,628 |
|
|
177,614 |
|
Current
patent royalties |
92,047 |
|
|
87,709 |
|
|
349,468 |
|
|
345,664 |
|
Past
patent royalties |
106,198 |
|
|
180,280 |
|
|
162,890 |
|
|
309,696 |
|
Total
patent licensing royalties |
198,245 |
|
|
267,989 |
|
|
512,358 |
|
|
655,360 |
|
Current
technology solutions revenue |
7,059 |
|
|
5,879 |
|
|
20,580 |
|
|
10,494 |
|
|
$ |
205,304 |
|
|
$ |
273,868 |
|
|
$ |
532,938 |
|
|
$ |
665,854 |
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES: |
|
|
|
|
|
|
|
Patent
administration and licensing |
27,598 |
|
|
31,943 |
|
|
111,157 |
|
|
113,544 |
|
Development |
18,480 |
|
|
18,295 |
|
|
70,708 |
|
|
68,733 |
|
Selling,
general and administrative |
13,522 |
|
|
14,481 |
|
|
49,578 |
|
|
46,271 |
|
|
59,600 |
|
|
64,719 |
|
|
231,443 |
|
|
228,548 |
|
|
|
|
|
|
|
|
|
Income
from operations |
145,704 |
|
|
209,149 |
|
|
301,495 |
|
|
437,306 |
|
|
|
|
|
|
|
|
|
OTHER EXPENSE
(NET) |
(1,774 |
) |
|
(3,394 |
) |
|
(9,105 |
) |
|
(15,035 |
) |
Income
before income taxes |
143,930 |
|
|
205,755 |
|
|
292,390 |
|
|
422,271 |
|
INCOME TAX
PROVISION |
(92,263 |
) |
|
(69,978 |
) |
|
(121,676 |
) |
|
(116,791 |
) |
NET
INCOME |
$ |
51,667 |
|
|
$ |
135,777 |
|
|
$ |
170,714 |
|
|
$ |
305,480 |
|
Net loss
attributable to noncontrolling interest |
(835 |
) |
|
(693 |
) |
|
(3,579 |
) |
|
(3,521 |
) |
NET INCOME ATTRIBUTABLE
TO INTERDIGITAL, INC. |
$ |
52,502 |
|
|
$ |
136,470 |
|
|
$ |
174,293 |
|
|
$ |
309,001 |
|
NET INCOME PER COMMON
SHARE — BASIC |
$ |
1.52 |
|
|
$ |
3.98 |
|
|
$ |
5.04 |
|
|
$ |
8.95 |
|
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING — BASIC |
34,653 |
|
|
34,286 |
|
|
34,605 |
|
|
34,526 |
|
NET INCOME PER COMMON
SHARE — DILUTED |
$ |
1.48 |
|
|
$ |
3.85 |
|
|
$ |
4.87 |
|
|
$ |
8.78 |
|
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING — DILUTED |
35,520 |
|
|
35,487 |
|
|
35,779 |
|
|
35,189 |
|
CASH DIVIDENDS DECLARED
PER COMMON SHARE |
$ |
0.35 |
|
|
$ |
0.30 |
|
|
$ |
1.30 |
|
|
$ |
1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUMMARY CONSOLIDATED CASH FLOWS |
(dollars in thousands) |
(unaudited) |
|
|
|
|
|
For the Three Months Ended December
31, |
|
For the Twelve Months Ended December
31, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Income before income
taxes |
$ |
143,930 |
|
|
$ |
205,755 |
|
|
$ |
292,390 |
|
|
$ |
422,271 |
|
Taxes paid |
(37,620 |
) |
|
(50,009 |
) |
|
(66,793 |
) |
|
(108,635 |
) |
Non-cash expenses |
21,757 |
|
|
23,316 |
|
|
88,220 |
|
|
89,845 |
|
Increase in deferred
revenue |
27,468 |
|
|
202,912 |
|
|
357,855 |
|
|
527,034 |
|
Deferred revenue
recognized |
(154,416 |
) |
|
(79,209 |
) |
|
(394,747 |
) |
|
(321,313 |
) |
Increase (decrease) in
operating working capital, deferred charges and other |
216,340 |
|
|
(69,470 |
) |
|
38,875 |
|
|
(175,043 |
) |
Capital spending and
capitalized patent costs |
(9,756 |
) |
|
(10,789 |
) |
|
(37,004 |
) |
|
(38,540 |
) |
FREE CASH FLOW |
207,703 |
|
|
222,506 |
|
|
278,796 |
|
|
395,619 |
|
|
|
|
|
|
|
|
|
Tax benefit from
share-based compensation |
— |
|
|
625 |
|
|
— |
|
|
625 |
|
Payments on long-term
debt |
— |
|
|
— |
|
|
— |
|
|
(230,000 |
) |
Long-term
investments |
(1,384 |
) |
|
— |
|
|
(4,585 |
) |
|
(2,000 |
) |
Proceeds from
non-controlling interests |
6,801 |
|
|
6,804 |
|
|
6,801 |
|
|
6,804 |
|
Acquisition of
patents |
— |
|
|
(100 |
) |
|
— |
|
|
(4,900 |
) |
Acquisition of
business, net of cash acquired |
— |
|
|
(48,000 |
) |
|
— |
|
|
(48,000 |
) |
Dividends paid |
(12,148 |
) |
|
(10,286 |
) |
|
(43,255 |
) |
|
(31,135 |
) |
Taxes withheld upon
vesting of restricted stock units |
(562 |
) |
|
(13 |
) |
|
(22,798 |
) |
|
(3,381 |
) |
Share repurchases |
(7,693 |
) |
|
— |
|
|
(7,693 |
) |
|
(64,685 |
) |
Net proceeds from
exercise of stock options |
300 |
|
|
183 |
|
|
382 |
|
|
485 |
|
Unrealized (loss) on
short-term investments |
(2,234 |
) |
|
(507 |
) |
|
(2,414 |
) |
|
(379 |
) |
NET INCREASE (DECREASE)
IN CASH AND SHORT-TERM INVESTMENTS |
$ |
190,783 |
|
|
$ |
171,212 |
|
|
$ |
205,234 |
|
|
$ |
19,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED BALANCE
SHEETS |
(dollars in thousands) |
(unaudited) |
|
|
|
|
|
DECEMBER 31, 2017 |
|
DECEMBER 31, 2016 |
ASSETS |
|
|
|
Cash
& short-term investments |
$ |
1,157,995 |
|
|
$ |
952,761 |
|
Accounts
receivable (net) |
216,293 |
|
|
228,464 |
|
Other
current assets |
21,506 |
|
|
39,894 |
|
Property &
equipment and patents (net) |
336,081 |
|
|
323,394 |
|
Other long-term assets
(net) |
122,545 |
|
|
183,340 |
|
TOTAL ASSETS |
$ |
1,854,420 |
|
|
$ |
1,727,853 |
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS’ EQUITY |
|
|
|
Accounts
payable, accrued liabilities, taxes payable & dividends
payable |
$ |
69,299 |
|
|
$ |
65,288 |
|
Current
deferred revenue |
307,142 |
|
|
360,192 |
|
Long-term
deferred revenue |
309,671 |
|
|
261,013 |
|
Long-term
debt & other long-term liabilities |
295,160 |
|
|
286,992 |
|
TOTAL LIABILITIES |
981,272 |
|
|
973,485 |
|
TOTAL INTERDIGITAL,
INC. SHAREHOLDERS' EQUITY |
855,267 |
|
|
739,709 |
|
Noncontrolling
interest |
17,881 |
|
|
14,659 |
|
TOTAL EQUITY |
873,148 |
|
|
754,368 |
|
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY |
$ |
1,854,420 |
|
|
$ |
1,727,853 |
|
|
|
|
|
|
|
|
|
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 operating activities, the most directly
comparable GAAP financial measure.
|
|
|
|
|
|
|
For the Three Months Ended December
31 |
|
For the Twelve Months Ended December
31 |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Net cash provided by
operating activities |
|
$ |
217,459 |
|
|
$ |
233,295 |
|
|
$ |
315,800 |
|
|
$ |
434,159 |
|
Purchases of property,
equipment, & technology licenses |
|
(1,129 |
) |
|
(2,405 |
) |
|
(2,071 |
) |
|
(5,882 |
) |
Capitalized patent
costs |
|
(8,627 |
) |
|
(8,384 |
) |
|
(34,933 |
) |
|
(32,658 |
) |
Free cash flow |
|
$ |
207,703 |
|
|
$ |
222,506 |
|
|
$ |
278,796 |
|
|
$ |
395,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONTACT: InterDigital, Inc.:Patrick Van de
Willepatrick.vandewille@interdigital.com +1 (858) 210-4814
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