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InterDigital (IDCC) Tops Q4 Earnings and Revenue Estimates

Zacks Equity Research

InterDigital, Inc. IDCC 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.

InterDigital, Inc. Price, Consensus and EPS Surprise

InterDigital, Inc. Price, Consensus and EPS Surprise | InterDigital, Inc. Quote

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.

Zacks Rank and Stocks to Consider

InterDigital currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Comtech Telecommunications Corp. CMTL, Harris Corporation HRS and Motorola Solutions, Inc. MSI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Comtech has a long-term earnings growth expectation of 5%.

Harris has a long-term earnings growth expectation of 8%.

Motorola has a long-term earnings growth expectation of 8%.

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