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InterDigital (IDCC) Down 8% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
Steelcase (SCS) delivered earnings and revenue surprises of -21.05% and -1.55%, respectively, for the quarter ended May 2019. Do the numbers hold clues to what lies ahead for the stock?

It has been about a month since the last earnings report for InterDigital (IDCC). Shares have lost about 8% 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 catalysts.

InterDigital Tops Q4 Earnings and Revenue Estimates

InterDigital reported healthy fourth-quarter 2018 financial results, wherein both the bottom line and the top line surpassed the respective Zacks Consensus Estimate.

Net Income

Net income for the reported quarter was $1.8 million or 5 cents per share (under the revenue recognition standard "ASC 606"), which beat the consensus estimate by 1 cent. The bottom-line figure for the year-ago quarter was $52.5 million or $1.48 per share (under the revenue recognition standard, "ASC 605"). For full-year 2018, net income was $63.9 million or $1.81 per share (per ASC 606) compared with $174.3 million or $4.87 per share (per ASC 605) in 2017.

Revenues

The wireless R&D company’s quarterly revenues totaled $75.3 million, down 63.3% year over year. The reported figure, however, surpassed the Zacks Consensus Estimate of $72 million. The year-over-year decrease in the top line was due to the adoption of new revenue recognition standard (ASC 606) that impacted the company’s revenue recognition from certain of its fixed-fee and per-unit license agreements. While revenues from patent royalties came in at $72 million, the same from current technology solutions were $2.5 million. For full-year 2018, the top line decreased 42.3% to $307.4 million.

Other Quarterly Details

Total operating expenses were $71.5 million, reflecting an increase of 19.9% year over year, mainly due to $18.7 million of costs related to the acquisition of Technicolor SA’s patent licensing business in July 2018. Notably, adoption of ASC 606 did not have any impact on expenses in the reported quarter. Selling, general and administrative (as percentage of total operating expenses) was 17.4% compared with 23.5% in the year-ago quarter. Operating income was $3.8 million compared with $145.7 million a year ago.

Cash Flow and Liquidity

For full-year 2018, InterDigital generated $146.8 million of net cash from operating activities compared with $315.8 million in 2017. For 2018, free cash flow was $112.1 million compared with $278.8 million a year ago.

As of Dec 31, 2018, the company had $945.8 million of cash and short-term investments with $351.5 million of long-term debt and liabilities compared with the respective tallies of $1,158 million and $295.2 million a year ago.

Share Repurchase

During the fourth quarter, the company repurchased 0.9 million shares for nearly $67 million. Moreover, from Jan 1, 2019 through Feb 20, 2019 it repurchased an additional 0.9 million shares for $63.2 million. Notably, $105 million is remaining for repurchase subsequent to the increase in buyback authorization in December 2018.

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. The company expects total revenues in first-quarter 2019 to be between $70 million and $75 million, which includes less than $1 million of non-recurring revenues.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -77.78% due to these changes.

VGM Scores

Currently, InterDigital has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile 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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