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Section 1: 8-K (8-K 3.31.18 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): April 26, 2018
______________

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

Pennsylvania
1-33579
82-4936666

(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))
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company q
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. q





Item 2.02.
Results of Operations and Financial Condition.

On April 26, 2018, InterDigital, Inc. issued a press release announcing its results of operations and financial condition for the fiscal quarter ended March 31, 2018. 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






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
Chief Legal Officer, General
Counsel and Corporate Secretary


Date: April 26, 2018




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

Exhibit


INTERDIGITAL ANNOUNCES FINANCIAL RESULTS FOR FIRST QUARTER 2018

5% Decrease in Operating Expenses, Continued Licensing Strength and New Tax Rate Provide Platform for Growth, Profitability

WILMINGTON, DE. - April 26, 2018 - InterDigital, Inc. (NASDAQ:IDCC), a mobile technology research and development company, today announced results for the first quarter ended March 31, 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 first 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”).
First Quarter 2018 Financial Highlights

First quarter 2018 recurring revenue was $64.1 million. Under ASC 605, recurring revenue for first quarter 2018 would have been $91.6 million, compared to $94.5 million in 2017, primarily driven by the expiration of a technology solutions agreement. Recurring revenue consists of current patent royalties and current technology solutions revenue.
First quarter 2018 total revenue was $87.4 million. Under ASC 605, total revenue for first quarter 2018 would have been $104.9 million, compared to $94.5 million in first quarter 2017.
First quarter 2018 operating expenses decreased by $3.3 million to $57.3 million, compared to $60.6 million in first quarter 2017. Operating expenses were not affected by the adoption of ASC 606.
First quarter 2018 includes a tax benefit of $4.9 million, for an effective tax rate benefit of 20.6%, compared to a tax benefit of $1.6 million, for an effective tax rate benefit of 5.2%, in first quarter 2017. The current period 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 Cuts and Jobs Act, effective January 1, 2018;
timing differences between the recognition of book and tax revenue that magnify the FDII impact in the current period; and
discrete tax benefits associated with the sale of a small commercial initiative and stock-based compensation.
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 Cuts and Jobs Act.
First quarter 2018 net income1 was $29.9 million, or $0.84 per diluted share. Under ASC 605, net income for first quarter 2018 would have been $46.1 million, or $1.29 per diluted share, compared to $33.8 million, or $0.93 per diluted share, in first quarter 2017.





In first quarter 2018, the company recorded $0.6 million of cash used in operating activities, compared to $25.9 million of cash used in first quarter 2017. The company used $9.0 million of free cash flow2 in first quarter 2018, compared to $33.9 million of free cash flow used in first 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.
“This quarter was anchored in the strength of our revenue base and licensing activities and highlighted by continued operating expense discipline, which we intend to maintain even as we expand our business,” said William J. Merritt, President and Chief Executive Officer. “With continued careful expense management and the positive impact of a new tax rate on our business, InterDigital benefits from a tremendous platform for the expansion of our technology footprint, and growth and increased profitability in our licensing program.”





Conference Call Information
InterDigital will host a conference call on Thursday, April 26, 2018 at 10:00 a.m. Eastern Time to discuss its first 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 (866) 548-4713 within the United States or +1 (323) 794-2093 from outside the United States. Please call by 9:50 a.m. ET on April 26th and give the operator conference ID number 8688615.
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 April 26 through 1:00 p.m. ET May 1. To access the recorded replay, call +1 (719) 457-0820 or +1 (888) 203-1112 and use the replay code 8688615.

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; (ii) our intention to maintain our operating expense discipline as we expand our business and (iii) our belief that InterDigital benefits from a tremendous platform for the expansion of our technology footprint and growth and increased profitability in our licensing program. 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 our interpretations of, and assumptions and calculations with respect to the impact on the Company of, the Tax Cuts and Jobs Act, as well as further guidance that may be issued regarding the Tax Cuts and Jobs 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 March 31,
 
2018
 
2017
 
As Reported ASC 606
 
Adjustment
 
ASC 605*
 
As Reported (ASC 605)
REVENUES:
 
 
 
 
 
 
 
Variable patent royalty revenue
$
6,083

 
$
3,994

 
$
10,077

 
$
15,859

Fixed-fee royalty revenue
57,671

 
20,511

 
78,182

 
73,367

Current patent royalties
63,754

 
24,505

 
88,259

 
89,226

Non-current patent royalties
23,344

 
(10,000
)
 
13,344

 

Total patent royalties
87,098

 
14,505

 
101,603

 
89,226

Current technology solutions revenue
346

 
2,984

 
3,330

 
5,304

 
$
87,444

 
$
17,489

 
$
104,933

 
$
94,530

OPERATING EXPENSES:
 
 
 
 
 
 
 

Patent administration and licensing
26,916

 

 
26,916

 
26,880

Development
16,174

 

 
16,174

 
19,781

Selling, general and administrative
14,204

 

 
14,204

 
13,901

 
57,294

 

 
57,294

 
60,562

Income from operations
30,150

 
17,489

 
47,639

 
33,968

OTHER EXPENSE (NET)
(6,336
)
 
4,676

 
(1,660
)
 
(2,814
)
Income before income taxes
23,814

 
22,165

 
45,979

 
31,154

INCOME TAX BENEFIT (EXPENSE)
4,915

 
(6,023
)
 
(1,108
)
 
1,624

NET INCOME
$
28,729

 
$
16,142

 
$
44,871

 
$
32,778

Net loss attributable to noncontrolling interest
(1,196
)
 

 
(1,196
)
 
(978
)
NET INCOME ATTRIBUTABLE TO INTERDIGITAL, INC.
$
29,925

 
$
16,142

 
$
46,067

 
$
33,756

NET INCOME PER COMMON SHARE — BASIC
$
0.86

 
$
0.47

 
$
1.33

 
$
0.98

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC
34,641

 

 
34,641

 
34,370

NET INCOME PER COMMON SHARE — DILUTED
$
0.84

 
$
0.45

 
$
1.29

 
$
0.93

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED
35,606

 

 
35,606

 
36,220

CASH DIVIDENDS DECLARED PER COMMON SHARE
$
0.35

 
$

 
$
0.35

 
$
0.30


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 Statement of Income for the three months ended March 31, 2018 in accordance with both ASC 606 and previous accounting literature, ASC 605. The table above also shows 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 March 31,
 
2018
 
2017
Income before income taxes
$
23,814

 
$
31,154

Taxes paid
(8,053
)
 
(2,990
)
Non-cash expenses
18,895

 
23,046

Increase in deferred revenue
7,829

 
185,000

Deferred revenue recognized
(53,121
)
 
(78,921
)
Increase (decrease) in operating working capital, deferred charges and other
10,041

 
(183,144
)
Capital spending and capitalized patent costs
(8,434
)
 
(8,055
)
FREE CASH FLOW
(9,029
)
 
(33,910
)
 
 
 
 
Long-term investments
(4,250
)
 
(501
)
Dividends paid
(12,155
)
 
(10,292
)
Taxes withheld upon vesting of restricted stock units
(8,277
)
 
(21,955
)
Share repurchases
(6,024
)
 

Net proceeds from exercise of stock options

 
82

Unrealized (loss) on short-term investments
(1,643
)
 
(45
)
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS
$
(41,378
)
 
$
(66,621
)






CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
 
MARCH 31,
2018
 
DECEMBER 31, 2017
ASSETS
 

 
 

Cash & short-term investments
$
1,116,617

 
$
1,157,995

Accounts receivable (net)
66,789

 
216,293

Other current assets
24,992

 
21,506

Property & equipment and patents (net)
332,162

 
336,081

Other long-term assets (net)
85,598

 
122,545

TOTAL ASSETS
$
1,626,158

 
$
1,854,420

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Accounts payable, accrued liabilities, taxes payable & dividends payable
$
50,538

 
$
69,299

Current deferred revenue
75,652

 
307,142

Long-term deferred revenue
165,966

 
309,671

Long-term debt & other long-term liabilities
298,270

 
295,160

TOTAL LIABILITIES
590,426

 
981,272

TOTAL INTERDIGITAL, INC. SHAREHOLDERS' EQUITY
1,019,047

 
855,267

Noncontrolling interest
16,685

 
17,881

TOTAL EQUITY
1,035,732

 
873,148

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,626,158

 
$
1,854,420







RECONCILIATION OF FREE CASH FLOW TO NET CASH
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 used in operating activities, the most directly comparable GAAP financial measure.

 
 
For the Three Months Ended March 31,
 
 
2018
 
2017
Net cash (used in) operating activities
 
$
(595
)
 
$
(25,855
)
Purchases of property, equipment, & technology licenses
 
(399
)
 
(268
)
Capitalized patent costs
 
(8,035
)
 
(7,787
)
Free cash flow
 
$
(9,029
)
 
$
(33,910
)






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



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