InterDigital, Inc. IDCC reported mixed third-quarter 2019 results, wherein the bottom line surpassed the Zacks Consensus Estimate but the top line lagged the same. However, meticulous control of expenses and revenues generated from new licensing avenues highlight the operating leverage of the company’s business model. Following the results, the company’s share price declined 3.79% in yesterday’s trading session to eventually close at $53.63.
Net income for the quarter was $2.2 million or 7 cents per share compared with $21.8 million or 61 cents per share in the year-ago quarter. The significant year-over-year decline was largely attributable to higher income tax benefit in the prior-year quarter. The bottom line surpassed the Zacks Consensus Estimate of loss of 20 cents.
InterDigital, Inc. Price, Consensus and EPS Surprise
InterDigital, Inc. price-consensus-eps-surprise-chart | InterDigital, Inc. Quote
The wireless R&D company’s revenues totaled $72.5 million, down 3.5% from $75.1 million year over year. The top line lagged the Zacks Consensus Estimate of $73 million. The decrease was primarily due to lower royalties from one of the Taiwanese licensees. While revenues from patent royalties came in at $68 million, the same from current technology solutions totaled $3.7 million.
Total operating expenses were $68.7 million, reflecting an increase of 10.5% year over year, mainly due to $15.8 million of costs related to the acquisition of Technicolor SA's patent licensing business and its Research and Innovation team. The company recorded a gain of $8.5 million from the sale of Hillcrest Laboratories product business to a subsidiary of CEVA, Inc., partly offset by $3.3 million loss resulting from a partial impairment of the long-term investments.
Operating income was $3.8 million compared with $12.9 million a year ago owing to lower revenues and higher operating expenses.
Cash Flow and Liquidity
During the third quarter, InterDigital generated $125.5 million of net cash in operating activities compared with cash flow of $170.4 million in the year-ago quarter. The company’s free cash flow was $117 million compared with free cash flow of $160.7 million a year ago.
As of Sep 30, 2019, InterDigital had $ 947.6 million in cash and short-term investments with $383.2 million of long-term debt and other liabilities.
InterDigital is optimizing its strength in core terminal unit licensing business and has been successful in curbing expenses coupled with the expansion of its R&D footprint. Highlighting the strength and operating leverage of the business model, the company has taken steps to drive shareholder value through the buyout of Technicolor licensing business, creating a significant licensing opportunity in the video and consumer electronics markets.
InterDigital remains poised to gain from future growth opportunities of 5G rollout. It entered into a collaboration with Finland 6G flagship program in September. InterDigital also added two new patent licensees, ZTE Corporation and Google, shortly after third-quarter 2019, which is expected to complement the bilateral approach that has dominated the mobile SAP licensing to date.
Zacks Rank & Stocks to Consider
InterDigital currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader industry are United States Cellular Corporation USM, Motorola Solutions, Inc. MSI and PC-Tel, Inc. PCTI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
United States Cellular delivered average positive earnings surprise of 13.4% in the trailing four quarters, beating estimates twice.
Motorola surpassed earnings estimates in each of the trailing four quarters, the average positive surprise being 6.7%.
PC-Tel delivered average positive earnings surprise of 146.4% in the trailing four quarters, beating estimates thrice.
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