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InterDigital Announces Financial Results for Third Quarter 2022

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InterDigital reported its Q3 2022 results, highlighting a significant contract renewal with Apple through 2029, which enhances its contract value to $1.5 billion over 18 months. Total revenue decreased by 20% to $114.8 million, primarily due to last year's non-recurring revenues. Recurring revenue grew by 8% to $101.0 million, with a notable 60% increase in the CE, IoT, and automotive sectors. Operating expenses dropped to $82.9 million, boosting income from operations to $31.8 million. The near-term outlook anticipates Q4 recurring revenue between $98-$102 million.

Positive
  • Renewal of license agreement with Apple until 2029.
  • Total estimated contract value of over $1.5 billion from 16 agreements in 18 months.
  • Recurring revenue growth of 8% to $101.0 million.
  • Cost reduction leading to lower operating expenses of $82.9 million.
Negative
  • Total revenue decreased by 20% from $143.5 million in Q3 2021.
  • Net income dropped to $22.2 million or $0.74 per diluted share, down from $26.2 million or $0.83 per diluted share in the previous year.
  • Adjusted EBITDA fell to $56.4 million from $78.3 million.

Apple renewal contributes to InterDigital’s $1.5B in value of contracts signed over last eighteen months

WILMINGTON, Del., Nov. 03, 2022 (GLOBE NEWSWIRE) -- InterDigital, Inc. (NASDAQ:IDCC), a mobile and video technology research and development company, today announced results for the quarter ended September 30, 2022.

“We significantly strengthened our business by renewing our license with Apple through 2029,” said Liren Chen, CEO and President of InterDigital. “In addition, new agreements drove our sixth consecutive quarter of recurring revenue growth in the consumer electronics and IoT/automotive markets. All together, we have signed sixteen agreements over the last eighteen months with a total estimated contract value of more than $1.5 billion. I look forward to building on this foundation as we pursue significant growth opportunities in licensing both devices and services.”

Third Quarter 2022 Financial Highlights

  • Total revenue, which includes both recurring and non-recurring revenue, of $114.8 million decreased 20% from $143.5 million in third quarter 2021 primarily due to $50.1 million of non-recurring revenues in third quarter 2021.
  • Recurring revenue increased 8% to $101.0 million, compared to recurring revenue of $93.4 million in third quarter 2021. The company increased recurring revenue in both its smartphone (up 4%) and CE, IoT/Auto markets (up 60%).
  • Operating expenses were $82.9 million, compared to $106.7 million in third quarter 2021. The decrease was primarily driven by a $21.3 million reduction of non-recurring costs from restructuring activities, revenue share costs and a reduction in performance-based compensation.
  • Income from operations was $31.8 million compared to $36.8 million in third quarter 2021.
  • Net income1 was $22.2 million, or $0.74 per diluted share, compared to $26.2 million, or $0.83 per diluted share, in third quarter 2021.
  • Adjusted EBITDA2 was $56.4 million compared to $78.3 million in third quarter 2021, primarily driven by $50.1 million of non-recurring revenue in third quarter 2021.

Near Term Outlook

The company expects recurring revenue for fourth quarter to be between $98 and $102 million. This revenue guidance covers existing agreements, including the company’s recent renewal of its license agreement with Apple, and does not include the potential impact of any additional new agreements that may be signed during the balance of fourth quarter 2022.

The company expects fourth quarter operating expenses will be in the range of $76 to $79 million. In addition, the company expects non-operating expenses, comprised of interest expense and other income (expense), will be in the range of $4 to $6 million and the effective tax rate will be in the range of 21% to 24%.

Conference Call Information

InterDigital will host a conference call on Thursday, November 3, 2022 at 10:00 a.m. ET to discuss its third quarter 2022 financial performance and other company matters.

For a live Internet webcast of the conference call, visit www.interdigital.com and click on the “Webcast” link on the Investors page. The company encourages participants to take advantage of the Internet option.

For telephone access to the conference call, visit www.interdigital.com and click on the “Dial In Registration” link on the Investors page. Registration is necessary to obtain a dial in phone number and PIN to join.

An Internet replay of the conference call will be available on InterDigital’s website under Events in the Investor’s section. The replay will be available for one year.

About InterDigital®

InterDigital develops mobile and video 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, better video delivery, and richer multimedia experiences years ahead of market deployment. InterDigital has licenses and strategic relationships with many of the world’s leading technology companies. Founded in 1972, InterDigital is listed on Nasdaq.

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 belief that we will continue to be able to execute strongly on our business during the ongoing COVID-19 pandemic. Words such as “believe,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “forecast,” “goal,” “could,” "would," "should," "if," "may," "might," "future," "target," "trend," "seek to," "will continue," "predict," "likely," "in the event," and variations of any such words or similar expressions are intended to identify such forward-looking statements.

Forward-looking statements are made on the basis of management’s current views and assumptions and are not guarantees of future performance. Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results, and actual events that occur, to differ materially from results contemplated by the forward-looking statements. These risks and uncertainties include, but are not limited to: (i) unanticipated delays, difficulties or accelerations 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 our roadmap; (v) our ability to commercialize our technologies and enter into customer agreements; (vi) the failure of the markets for our 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 our technologies and products; (viii) changes in our interpretations of, and assumptions and calculations with respect to the impact on us of, the 2017 Tax Cuts and Jobs Act, as well as further guidance that may be issued regarding such act; (ix) risks related to the potential impact of new accounting standards on our financial position, results of operations or cash flows; (x) failure to accurately forecast the impact of our restructuring activities on our financial statements and our business; (xi) the resolution of current legal proceedings, including any awards or judgments relating to such proceedings, additional legal or regulatory proceedings, changes in the schedules or costs associated with legal proceedings or adverse rulings in such proceedings; (xii) the timing and impact of potential administrative and legislative matters; (xiii) changes or inaccuracies in market projections; (xiv) our ability to obtain liquidity though debt and equity financings; (xv) the potential effects that the ongoing COVID-19 pandemic and/or general economic or other conditions could have on our financial position, results of operations and cash flows; and (xvi) changes in our business strategy.

We undertake no duty to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law.

Footnotes

1        Throughout this press release, net income and diluted earnings per share (“EPS”) are attributable to InterDigital, Inc. (e.g., after adjustments for non-controlling interests), unless otherwise stated.

2        Adjusted EBITDA is a supplemental non-GAAP financial measure that InterDigital believes provides investors with important insight into the company's ongoing business performance. InterDigital defines Adjusted EBITDA as net income attributable to InterDigital, Inc. plus net loss attributable to non-controlling interest, income tax (provision) benefit, other income (expense) & interest expense, depreciation and amortization, share-based compensation, and other items. Other items may include restructuring costs, impairment charges and other non-recurring items. InterDigital’s computation of Adjusted EBITDA might not be comparable to Adjusted EBITDA reported by other companies. The presentation of Adjusted EBITDA, 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 reconciliation of Adjusted EBITDA to net income attributable to InterDigital, Inc., the most directly comparable GAAP financial measure, is provided below.

3        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 used in operating activities less purchases of property and equipment and capitalized patent costs. InterDigital’s computation of free cash flow might not be comparable to free cash flow reported by other companies. The presentation of free cash flow, 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 reconciliation of free cash flow to net cash used in operating activities, the most directly comparable GAAP financial measure, is provided below.

SUMMARY CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
(unaudited)

 For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2022   2021   2022   2021 
REVENUES:       
Recurring revenues:       
Smartphone$87,467  $84,143  $262,908  $223,701 
CE, IoT/Auto 13,579   8,498   36,455   21,951 
Other    747   911   4,467 
Total recurring revenues 101,046   93,388   300,274   250,119 
Non-recurring revenues 13,718   50,108   40,465   63,475 
Total revenues$114,764  $143,496  $340,739  $313,594 
        
OPERATING EXPENSES:       
Patent administration and licensing 46,720   56,150   134,232   133,694 
Development 21,789   22,546   56,487   66,999 
Selling, general and administrative 14,418   20,978   34,818   46,994 
Restructuring activities    7,045   3,280   20,290 
Total Operating expenses 82,927   106,719   228,817   267,977 
        
Income from operations 31,837   36,777   111,922   45,617 
        
INTEREST EXPENSE (7,659)  (5,773)  (19,446)  (19,429)
OTHER INCOME (EXPENSE), NET 912   (1,537)  (15,109)  2,226 
Income before income taxes 25,090   29,467   77,367   28,414 
INCOME TAX PROVISION (3,323)  (4,253)  (17,312)  (6,039)
NET INCOME$21,767  $25,214  $60,055  $22,375 
Net loss attributable to noncontrolling interest (455)  (1,014)  (1,230)  (11,042)
NET INCOME ATTRIBUTABLE TO INTERDIGITAL, INC.$22,222  $26,228  $61,285  $33,417 
NET INCOME PER COMMON SHARE — BASIC$0.75  $0.85  $2.03  $1.09 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC 29,659   30,737   30,255   30,792 
NET INCOME PER COMMON SHARE — DILUTED$0.74  $0.83  $2.00  $1.07 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED 29,940   31,431   30,638   31,272 
CASH DIVIDENDS DECLARED PER COMMON SHARE$0.35  $0.35  $1.05  $1.05 
                

SUMMARY CONSOLIDATED CASH FLOWS
(in thousands)
(unaudited)

 For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2022   2021   2022   2021 
Income before income taxes$25,090  $29,467  $77,367  $28,415 
Taxes paid (222)  (5,042)  (4,585)  (9,835)
Non-cash expenses 25,243   35,882   90,313   95,272 
Change in deferred revenue 274,034   150,703   146,334   64,044 
Change in operating working capital, deferred charges and other (342,874)  (114,746)  (379,898)  (118,733)
Purchases of property and equipment and capitalized patent costs (9,054)  (8,857)  (31,139)  (30,022)
FREE CASH FLOW 3 (27,783)  87,407   (101,608)  29,141 
        
Net proceeds from debt refinancing (796)     139,193    
Repurchase of common stock    (11,859)  (74,445)  (23,000)
Dividends paid (10,380)  (10,794)  (31,924)  (32,319)
Other (552)  708   (7,028)  (1,471)
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND SHORT-TERM INVESTMENTS$(39,511) $65,462  $(75,812) $(27,649)
                

SUMMARY CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

 SEPTEMBER 30, 2022 DECEMBER 31, 2021
ASSETS   
Cash, cash equivalents and short-term investments$        863,423         $        941,627        
Accounts receivable, net         403,043                  31,113        
Prepaid and other current assets         86,028                  77,545        
Property & equipment and patents, net         373,795                  376,962        
Other long-term assets, net         201,926                  200,909        
TOTAL ASSETS$        1,928,215         $        1,628,156        
LIABILITIES AND SHAREHOLDERS’ EQUITY   
Accounts payable, accrued liabilities, taxes payable & dividends payable$        79,480         $        79,888        
Current deferred revenue         210,981                  291,673        
Long-term deferred revenue         276,589                  19,463        
Long-term debt & other long-term liabilities         659,370                  484,215        
TOTAL LIABILITIES         1,226,420                  875,239        
TOTAL INTERDIGITAL, INC. SHAREHOLDERS' EQUITY         695,775                  745,239        
Noncontrolling interest         6,020                  7,678        
TOTAL EQUITY         701,795                  752,917        
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$        1,928,215         $        1,628,156        
      

RECONCILIATION OF NON-GAAP MEASURES

The table below presents a reconciliation of Adjusted EBITDA to net income attributable to InterDigital, Inc., the most directly comparable GAAP financial measure (in thousands):

 For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2022   2021   2022   2021 
Net income attributable to InterDigital, Inc.$22,222  $26,228  $61,285  $33,417 
Net loss attributable to non-controlling interest (455)  (1,014)  (1,230)  (11,042)
Income tax provision 3,323   4,253   17,312   6,039 
Other income (expense) & interest expense 6,747   7,310   34,555   17,203 
Depreciation and amortization 18,713   19,421   59,149   58,971 
Share-based compensation 5,846   15,082   15,209   21,010 
Other items(a)    7,045   3,280   22,290 
Adjusted EBITDA2$56,396  $78,325  $189,560  $147,888 
                

(a)  Other items in the above table includes $7.0 million of restructuring costs during the three months ended September 30, 2021 and restructuring costs of $3.3 million and $20.3 million during the nine months ended September 30, 2022 and 2021, respectively. The nine months ended September 30, 2021 also includes $2.0 million of additional non-recurring personnel-related costs expenses related to new employee agreements.

The table below presents a reconciliation of free cash flow to net cash (used in) provided by operating activities, the most directly comparable GAAP financial measure (in thousands):

 For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2022   2021   2022   2021 
Net cash (used in) provided by operating activities$(18,729) $96,264  $(70,469) $59,163 
Purchases of property and equipment (110)  (940)  (872)  (1,877)
Capitalized patent costs (8,944)  (7,917)  (30,267)  (28,145)
Free cash flow3$(27,783) $87,407  $(101,608) $29,141 
                


CONTACT:InterDigital, Inc.
 Email: investor.relations@interdigital.com
 +1 (302) 300-1857
  

FAQ

What were InterDigital's Q3 2022 financial results?

InterDigital reported total revenue of $114.8 million, down 20% from Q3 2021. Recurring revenue increased by 8% to $101.0 million.

How has the renewal with Apple impacted InterDigital's contracts?

The renewal with Apple through 2029 contributed to a total contract value of over $1.5 billion from 16 agreements signed in the past 18 months.

What is InterDigital's guidance for Q4 2022?

InterDigital expects recurring revenue for Q4 to be between $98 million and $102 million, with operating expenses projected to be between $76 million and $79 million.

What changes did InterDigital see in its operating expenses in Q3 2022?

Operating expenses decreased to $82.9 million, primarily due to a reduction in non-recurring costs and restructuring activities.

InterDigital, Inc.

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