InterDigital Reports Fourth Quarter and Full Year 2017 Financial Results

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WILMINGTON, Del., Feb. 22, 2018 (GLOBE NEWSWIRE) — InterDigital, Inc. (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.

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