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InterDigital (IDCC) Down 22.7% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for InterDigital (IDCC). Shares have lost about 22.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is InterDigital due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

InterDigital Beats Q2 Earnings & Revenue Estimates

InterDigital reported relatively healthy second-quarter 2019 results, wherein both the bottom line and the top line beat the respective Zacks Consensus Estimate.

Net Income

Net income for the quarter was $7.7 million or 24 cents per share compared with $11 million or 31 cents per share in the year-ago quarter. The bottom line surpassed the Zacks Consensus Estimate by 12 cents.

Revenues

The wireless R&D company’s revenues totaled $75.6 million, up 8.6% year over year. The top line exceeded the Zacks Consensus Estimate of $75 million. The increase was primarily due to incremental contribution from a new consumer electronic licensing program and agreements signed in the prior year within the mobile device licensing program. While revenues from patent royalties came in at $73.6 million, the same from current technology solutions were $2 million.

Other Details

Total operating expenses were $66.7 million, reflecting an increase of 23.7% year over year, mainly due to $13.2 million of costs related to the acquisition of Technicolor SA's patent licensing business and its Research and Innovation (R&I) team.

Operating income was $8.9 million compared with $15.7 million a year ago.

Cash Flow and Liquidity

During the second quarter, InterDigital utilized $22.7 million of net cash in operating activities compared with cash flow of $6.8 million in the year-ago period. During the same period, the company’s free cash flow utilization was $33.4 million compared with free cash flow of $0.8 million in the prior-year period.

As of Jun 30, 2019, InterDigital had $831.2 million in cash and short-term investments with $380.5 million of long-term debt and liabilities.

Share Repurchase

During the first six months of 2019, the company repurchased 2.5 million shares for $171.3 million. Notably, about $96.8 million worth of shares is available for repurchase subsequent to the increase in buyback authorization in May 2019.

Outlook

InterDigital is optimizing its strength in core wireless licensing business and has taken steps to drive shareholder value through the buyout of Technicolor licensing business. This has created significant new licensing opportunity in the video and consumer electronics markets. It remains poised to gain from future growth opportunities, fueled by the 5G rollout.

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months. The consensus estimate has shifted -64.29% due to these changes.

VGM Scores

Currently, InterDigital has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

InterDigital has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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