InterDigital, Inc. (IDCC) Earnings & Analysis

Latest quarter

InterDigital reported third-quarter revenue of $193.4 million, above the $156.9 million consensus and up from $164.7 million a year earlier. Its non-GAAP earnings of $3.11 per share also exceeded the $1.96 consensus. GAAP diluted earnings per share rose to $2.34 from $1.93.

The company said higher catch-up revenue from previously unlicensed sales and recurring revenue from newer patent agreements drove the revenue increase. Catch-up revenue was $36.2 million, compared with $17.7 million a year earlier. CFO Rich Brezski said smartphone licensing contributed $122.6 million, while consumer electronics, IoT and automotive revenue nearly doubled to $55.7 million; streaming and cloud services added $15.0 million.

InterDigital’s operating margin rose to 51.4% from 46.0%. The company said operating expenses increased to $94.1 million from $88.9 million, primarily because of higher intellectual property enforcement and share-based compensation costs. Free cash flow was $136.2 million, down from $380.9 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Liren Chen focused on licensing beyond smartphones, saying InterDigital had agreed to a patent license with a PC manufacturer and completed a license with EV charger company KEBA. Chen said the PC agreement brought 70% of the market under InterDigital licenses, with its final terms to be determined through arbitration.

CFO Rich Brezski said the PC agreement drove results above the company’s quarterly guidance. He said InterDigital had begun recognizing revenue from the license using an estimate of the consideration it expects to receive. In response to a question, Brezski clarified that the estimate included both catch-up and recurring revenue and was reflected in the fourth-quarter outlook.

Chen said InterDigital had completed its arbitration hearing with Lenovo and expected a result in the first half of the following year, while noting that the timing was difficult to predict. Brezski also addressed litigation spending, saying the company had several cases underway and did not expect the investment to necessarily decline in the immediate future.

On video licensing, Chen said a Brazilian court had awarded a preliminary injunction in InterDigital’s enforcement campaign against TCL. He also said Europe’s Unified Patent Court had awarded two new injunctions against Disney, covering video encoding and sharing content between devices. Chen said InterDigital’s enforcement efforts sought a long-term license with Disney.

Asked about adoption of the VVC video standard, Chen pointed to hardware decoding in smartphone chips and support in Android. He said wider adoption would involve “an iterative process” over multiple years as devices and content developed. Chen said VVC could add to multimedia licensing on devices and services.

Brezski said the company’s fourth-quarter and full-year outlooks were based on existing licenses and excluded potential contributions from new agreements or enforcement outcomes.

Guidance

InterDigital expects full-year revenue of $813.0 million to $819.0 million, compared with its previous range of $775.0 million–$845.0 million. It expects full-year adjusted EBITDA of $507.0 million to $515.0 million, previously $469.0 million–$529.0 million, and non-GAAP EPS of $11.99 to $12.25, previously $10.85–$12.81. CFO Rich Brezski said the outlook is based on existing licenses and excludes potential contributions from new agreements or enforcement outcomes.