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Section 1: 8-K (8-K 9.30.16 EARNINGS)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT (Date of earliest event reported): October 27, 2016
______________

InterDigital, Inc.
(Exact name of registrant as specified in charter)


Pennsylvania
1-33579
23-1882087
(State or other jurisdiction of incorporation)
(Commission File Number)
(IRS Employer Identification No.)


200 Bellevue Parkway, Suite 300, Wilmington, DE
19809
(Address of Principal Executive Offices)
(Zip Code)

Registrant's telephone number, including area code: 302-281-3600

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

q    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
q    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
q    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
q    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))






Item 2.02.
Results of Operations and Financial Condition.

On October 27, 2016, InterDigital, Inc. issued a press release announcing its results of operations and financial condition for the fiscal quarter ended September 30, 2016. A copy of the press release is attached hereto as Exhibit 99.1.

InterDigital, Inc. does not intend for this Item 2.02 or Exhibit 99.1 to be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or to be incorporated by reference into filings under the Securities Act of 1933, as amended.

Item 9.01.    Financial Statements and Exhibits.

(d)    Exhibits.

99.1

InterDigital, Inc. press release dated October 27, 2016.





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



    
INTERDIGITAL, INC.
 
 
By: /s/ Jannie K. Lau
Jannie K. Lau
Executive Vice President,
General Counsel and Secretary


Date: October 27, 2016






EXHIBIT INDEX



Exhibit No.                Description

99.1    InterDigital, Inc. press release dated October 27, 2016.



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Section 2: EX-99.1 (EXHIBIT 99.1 10.27.16 PRESS RELEASE)

Exhibit


INTERDIGITAL ANNOUNCES FINANCIAL RESULTS FOR THIRD QUARTER 2016

New licensing activity drives total revenue over $200 million mark; recurring revenue up 7%, operating expenses down 6% year over year

WILMINGTON, DEL. - October 27, 2016 - InterDigital, Inc. (NASDAQ:IDCC), a mobile technology research and development company, today announced results for the third quarter ended September 30, 2016.
Third Quarter 2016 Financial Highlights

Third quarter 2016 total revenue was $208.3 million, compared to $100.4 million in third quarter 2015. The $107.9 million increase in total revenue was primarily attributable to a new patent license agreement signed during the quarter. Primarily as a result of that agreement, past patent royalties totaled $124.0 million, an increase of $102.2 million compared to the same quarter last year.
Third quarter 2016 recurring revenue was $84.3 million, consisting of current patent royalties and current technology solutions revenue, a 7% increase compared to $78.6 million in third quarter 2015. This increase in recurring revenue was primarily due to an increase in fixed-fee amortized royalty revenue, partially offset by a decrease in per-unit royalty revenue resulting from decreased shipments by the company's Taiwan-based licensees.
Third quarter 2016 operating expenses were $51.6 million, a 6% decrease compared to $55.0 million in third quarter 2015. Intellectual property enforcement expenses were $3.6 million, a 45% decrease compared to $6.4 million in third quarter 2015.
Net income1 was $104.5 million, or $2.99 per diluted share, compared to $24.5 million, or $0.68 per diluted share, in third quarter 2015.
Ending cash and short-term investments totaled $781.5 million.
“This is the fifth year in a row that the continued expansion and careful management of our licensing and technology solutions programs has generated significant past sales revenue, and in three of the last four years those revenues exceeded $100 million,” said William J. Merritt, President and CEO of InterDigital. “We are continually working to expand our base of licensees, resulting in additional opportunities to build on that going forward. Moreover, this quarter and in four of the last five quarters, we reported reduced operating expenses year-over-year, highlighting our continued careful expense management and the operating leverage in our business.”
Additional Financial Highlights for Third Quarter 2016
In second quarter 2017, the company expects to recognize additional past patent royalties associated with a patent transfer in connection with the new patent license agreement signed in third quarter 2016.
In third quarter 2016, the company recorded $10.2 million of cash used in operating activities, compared to $0.7 million of cash provided by operating activities in third quarter 2015. The company used $19.3 million and $7.7 million of free cash flow in third quarter 2016 and third quarter 2015, respectively. The changes between periods are attributable to the timing of cash receipts.
During third quarter 2016, the company repurchased 0.1 million shares of common stock for $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 third quarter 2016 effective tax rate was approximately 32.3% compared to 36.2% during third quarter 2015. The change in the company's effective tax rate was primarily attributable to the inclusion of an estimated deduction for domestic production activities and an estimated U.S. federal research and development tax credit in the company's third quarter 2016 effective tax rate, neither of which were included in the prior year period.
Conference Call Information





InterDigital will host a conference call on Thursday, October 27, 2016 at 10:00 a.m. Eastern Time to discuss its third 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 (800) 524-8850 within the United States or +1 416 204-9702 from outside the United States. Please call by 9:50 a.m. ET on October 27 and give the operator conference ID number 5675537.
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 October 27 through 1:00 p.m. ET November 1. To access the recorded replay, call (888) 203-1112 or +1 719 457-0820 and use the replay code 5675537.
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, our plans to expand our base of licensees. 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 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; (viii) changes in the market share and sales performance of our primary licensees, delays in product shipments of our licensees, delays in the timely receipt and final reviews of quarterly royalty reports from our 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 September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
REVENUES:
 
 
 
 
 
 
 
Per-unit royalty revenue
$
35,804

 
$
43,698

 
$
154,018

 
$
175,270

Fixed fee amortized royalty revenue
45,740

 
33,373

 
103,936

 
100,119

Current patent royalties
81,544

 
77,071

 
257,954

 
275,389

Past patent royalties
123,973

 
21,817

 
129,417

 
49,094

Total patent licensing royalties
205,517

 
98,888

 
387,371

 
324,483

Current technology solutions revenue
2,790

 
1,520

 
4,615

 
4,770

Past technology solutions revenue

 

 

 
84

 
$
208,307

 
$
100,408

 
$
391,986

 
$
329,337

 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 
 
 

 
 
 
 

Patent administration and licensing
26,149

 
28,363

 
81,601

 
91,200

Development
15,560

 
16,618

 
50,438

 
52,935

Selling, general and administrative
9,880

 
10,040

 
31,790

 
29,993

 
51,589

 
55,021

 
163,829

 
174,128

 
 
 
 
 
 
 
 
Income from operations
156,718

 
45,387

 
228,157

 
155,209

 
 
 
 
 
 
 
 
OTHER EXPENSE (NET)
(3,798
)
 
(8,108
)
 
(11,641
)
 
(21,090
)
Income before income taxes
152,920

 
37,279

 
216,516

 
134,119

INCOME TAX PROVISION
(49,397
)
 
(13,491
)
 
(46,813
)
 
(50,044
)
NET INCOME
$
103,523

 
$
23,788

 
$
169,703

 
$
84,075

Net loss attributable to noncontrolling interest
(943
)
 
(732
)
 
(2,828
)
 
(2,112
)
NET INCOME ATTRIBUTABLE TO INTERDIGITAL, INC.
$
104,466

 
$
24,520

 
$
172,531

 
$
86,187

NET INCOME PER COMMON SHARE — BASIC
$
3.05

 
$
0.68

 
$
4.99

 
$
2.38

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC
34,280

 
35,798

 
34,607

 
36,257

NET INCOME PER COMMON SHARE — DILUTED
$
2.99

 
$
0.68

 
$
4.92

 
$
2.35

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED
34,953

 
36,205

 
35,091

 
36,658

CASH DIVIDENDS DECLARED PER COMMON SHARE
$
0.30

 
$
0.20

 
$
0.70

 
$
0.60







SUMMARY CONSOLIDATED CASH FLOWS
(dollars in thousands)
(unaudited)
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Income before income taxes
$
152,920

 
$
37,279

 
$
216,516

 
$
134,119

Taxes paid
(6,341
)
 
(7,069
)
 
(58,626
)
 
(43,833
)
Non-cash expenses
21,048

 
20,991

 
66,529

 
60,013

Increase in deferred revenue
41,952

 
276

 
324,122

 
91,052

Deferred revenue recognized
(172,681
)
 
(39,936
)
 
(242,104
)
 
(125,958
)
Increase (decrease) in operating working capital, deferred charges and other
(47,069
)
 
(10,885
)
 
(108,941
)
 
(87,671
)
Capital spending and capitalized patent costs
(9,117
)
 
(8,321
)
 
(27,751
)
 
(25,841
)
FREE CASH FLOW
(19,288
)
 
(7,665
)
 
169,745

 
1,881

 
 
 
 
 
 
 
 
Tax benefit from share-based compensation

 
(38
)
 

 
2,126

Payments on long-term debt

 

 
(230,000
)
 

Acquisition of patents
(300
)
 

 
(4,800
)
 
(20,000
)
Long term investments

 
(6,594
)
 
(2,000
)
 
(6,594
)
Proceeds from noncontrolling interests

 

 

 
2,550

Dividends paid
(6,858
)
 
(7,179
)
 
(20,849
)
 
(21,844
)
Share repurchases
(5,690
)
 
(18,480
)
 
(64,685
)
 
(89,052
)
Proceeds from other financing activities

 

 

 
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
74

 
3

 
302

 
29

Unrealized gain (loss) on short-term investments
(287
)
 
(198
)
 
128

 
(182
)
NET (DECREASE) INCREASE IN CASH AND SHORT-TERM INVESTMENTS
$
(32,349
)
 
$
(40,151
)
 
$
(152,159
)
 
$
163,516







CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
 
SEPTEMBER 30, 2016
 
DECEMBER 31, 2015
ASSETS
 

 
 

Cash & short-term investments
$
781,549

 
$
933,708

Accounts receivable
146,883

 
53,868

Other current assets
46,306

 
23,391

Property & equipment and patents (net)
290,461

 
289,727

Other long-term assets (net)
177,651

 
173,791

TOTAL ASSETS
$
1,442,850

 
$
1,474,485

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current portion of long-term debt
$

 
$
227,174

Accounts payable, accrued liabilities, taxes payable & dividends payable
62,570

 
66,570

Current deferred revenue, including customer advances
175,673

 
106,229

Long-term deferred revenue
309,513

 
289,039

Long-term debt & other long-term liabilities
279,822

 
263,578

TOTAL LIABILITIES
827,578

 
952,590

TOTAL INTERDIGITAL, INC. SHAREHOLDERS' EQUITY
606,724

 
510,519

Noncontrolling interest
8,548

 
11,376

TOTAL EQUITY
615,272

 
521,895

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,442,850

 
$
1,474,485







RECONCILIATION OF FREE CASH FLOW TO NET CASH
PROVIDED BY 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 September 30,
 
For the Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Net cash (used in) provided by operating activities
 
$
(10,171
)
 
$
656

 
$
197,496

 
$
27,722

Purchases of property, equipment, & technology licenses
 
(1,211
)
 
(506
)
 
(3,477
)
 
(1,835
)
Capitalized patent costs
 
(7,906
)
 
(7,815
)
 
(24,274
)
 
(24,006
)
Free cash flow
 
$
(19,288
)
 
$
(7,665
)
 
$
169,745

 
$
1,881







CONTACT:
InterDigital, Inc.:
 
Patrick Van de Wille
 
patrick.vandewille@interdigital.com
 
 +1 (858) 210-4814



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