8-K
InterDigital, Inc. (IDCC)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): February 20, 2020
______________
INTERDIGITAL, INC.
(Exact name of Registrant as Specified in Charter)
| Pennsylvania | 1-33579 | 82-4936666 |
|---|---|---|
| (State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
200 Bellevue Parkway, Suite 300
Wilmington, DE 19809-3727
(Address of principal executive offices, Zip code)
302-281-3600
Registrant's telephone number, including area code
Not Applicable
Former Name or Former Address, if Changed Since Last Report
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br><br>Symbol(s) | Name of each exchange<br><br>on which registered |
|---|---|---|
| Common Stock, par value $0.01 per share | IDCC | NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02. | Results of Operations and Financial Condition. |
|---|
On February 20, 2020, InterDigital, Inc. issued a press release announcing its results of operations and financial condition for the fiscal quarter and year ended December 31, 2019. A copy of the press release is attached hereto as Exhibit 99.1.
The information in this report, including Exhibit 99.1, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
| 99.1 | InterDigital, Inc. press release dated February 20, 2020. |
|---|---|
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| INTERDIGITAL, INC. |
|---|
| By: /s/ Richard L. Gulino |
| Richard L. Gulino |
| Chief Legal Officer, General |
| Counsel and Corporate Secretary |
Date: February 20, 2020
Exhibit
INTERDIGITAL REPORTS FOURTH QUARTER AND FULL YEAR 2019 FINANCIAL RESULTS
New Wireless, Consumer Electronics Deals in Fourth Quarter Drive 6%
Year-over-year Growth in Recurring Revenue
WILMINGTON, DE. - February 20, 2020 - InterDigital, Inc. (NASDAQ:IDCC), a mobile and video technology research and development company, today announced results for the fourth quarter and full year ended December 31, 2019.
Fourth Quarter 2019 Financial Highlights
| • | Fourth quarter 2019 total revenue was $102.2 million, compared to $75.3 million in fourth quarter 2018. Fourth quarter 2019 recurring revenue was $77.5 million, compared to $73.7 million in fourth quarter 2018. This increase was driven by new agreements signed in fourth quarter 2019. Additionally, fourth quarter 2019 included $24.7 million of past sales, which was primarily attributable to new deals signed in the quarter. |
|---|---|
| • | Fourth quarter 2019 operating expenses were $76.9 million, compared to $71.5 million in fourth quarter 2018. The increase was primarily driven by $7.0 million in intellectual property enforcement and non-patent litigation costs. The additional costs associated with our May 2019 acquisition of Technicolor's R&I division were mostly offset in fourth quarter 2019 by cost savings initiatives. |
| --- | --- |
| • | Fourth quarter 2019 net income^1^ was $13.8 million, or $0.44 per diluted share compared to net income^1^ of $2.1 million, or $0.06 per diluted share, in fourth quarter 2018. |
| --- | --- |
| • | In fourth quarter 2019, the company recorded $17.5 million of cash provided by operating activities, compared to $29.8 million of cash used in operating activities in fourth quarter 2018. The company generated $8.7 million of free cash flow^2^in fourth quarter 2019, compared to free cash flow used of $38.7 million in fourth quarter 2018. The increase was primarily driven by timing of collections under fixed-fee agreements. Ending cash and short-term investments totaled $924.7 million. |
| --- | --- |
| • | From October 1, 2019 through December 31, 2019, the company repurchased 0.4 million shares of common stock under its stock repurchase program for a total cost of approximately $25.0 million. $71.8 million remains available for repurchase subsequent to the increase to the buyback authorization in May 2019. |
| --- | --- |
“In fourth quarter we signed new agreements with key players like Google and ZTE for wireless licenses and also signed our first license on the consumer electronics side, and, while modest, those agreements provided strong validation of our transparent rate structure and highlighted the potential of our consumer electronics business,” said William J. Merritt, President and CEO of InterDigital. “Our focus as we enter 2020 is firmly on growth in revenue, while maintaining the operating leverage of the business by meeting our expense targets.”
Full Year 2019 Financial Highlights
| • | Full year 2019 recurring revenue was $298.2 million, compared to $280.3 million for full year 2018. This increase was attributable to new licensing agreements and engineering services agreements signed during the year. |
|---|---|
| • | Full year 2019 operating expenses were $281.1 million, compared to $244.8 million in 2018, an increase of $36.3 million. Of this increase, $29.1 million resulted from the company's Technicolor acquisitions, including a $9.8 million increase in patent amortization and a $6.3 million increase in revenue sharing costs. The remaining $7.2 million increase in operating expenses was almost entirely driven by increased intellectual property enforcement and non-patent litigation costs. |
| --- | --- |
| • | Net income^1^ was $20.9 million, or $0.66 per diluted share, compared to $65.0 million, or $1.84 per diluted share, in full year 2018. |
| --- | --- |
| • | In full year 2019, the company recorded $89.4 million of cash provided by operating activities, compared to $146.8 million provided by operating activities for full year 2018. The company generated $51.4 million of free cash flow^2^in full year 2019, compared to $112.1 million for full year 2018. The decrease in cash provided by operating activities was primarily driven by the timing of cash collections under fixed fee agreements, as well as higher cash operating expenses driven by the Technicolor acquisitions. |
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Near-Term Outlook
The company expects total first quarter 2020 revenue to be between $73 million and $75 million, comprised almost entirely of recurring revenue.
This revenue guidance does not include the potential impact of any new patent license, technology solutions or patent sale agreements that may be signed, or any arbitration or dispute resolutions that may occur, during the balance of first quarter 2020.
Conference Call Information
InterDigital will host a conference call on Thursday, February 20, 2020 at 10:00 a.m. Eastern Time to discuss its fourth quarter and full year 2019 financial performance and other company matters. For a live Internet webcast of the conference call, visit www.interdigital.com and click on the link to the live webcast on the Investors page. The company encourages participants to take advantage of the Internet option.
For telephone access to the conference, call +1 (800) 353-6461 within the United States or +1 (334) 323-0501 from outside the United States. Please call by 9:50 a.m. ET on February 20^th^ and give the operator conference ID number 6761771.
An Internet replay of the conference call will be available on InterDigital's website in the Investors section. In addition, a telephone replay will be available from 1:00 p.m. ET February 20^th^ through 1:00 p.m. ET February 25^th^. To access the recorded replay, call +1 (888) 203-1112 or +1 (719) 457-0820 and use the replay code 6761771.
About InterDigital^®^
InterDigital develops mobile and video technologies that are at the core of devices, networks, and services worldwide. We solve many of the industry's most critical and complex technical challenges, inventing solutions for more efficient broadband networks, better video delivery, and richer multimedia experiences years ahead of market deployment. InterDigital has licenses and strategic relationships with many of the world's leading technology companies. Founded in 1972, InterDigital is listed on NASDAQ and is included in the S&P MidCap 400® index.
InterDigital is a registered trademark of InterDigital, Inc.
For more information, visit the InterDigital website: www.interdigital.com.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include information regarding our current beliefs, plans and expectations, including, without limitation, our current expectations with respect to the company’s first quarter 2020 revenue. Words such as "believe," "anticipate," "estimate," "expect," "project," "intend," "plan," "forecast," "goal," and variations of any such words or similar expressions are intended to identify such forward-looking statements.
Forward-looking statements are subject to risks and uncertainties. Actual outcomes could differ materially from those expressed in or anticipated by such forward-looking statements due to a variety of factors, including, without limitation, those identified in this press release, as well as the following: (i) unanticipated delays, difficulties or acceleration in the execution of patent license agreements; (ii) our ability to leverage our strategic relationships and secure new patent license agreements on acceptable terms; (iii) our ability to enter into sales and/or licensing partnering arrangements for certain of our patent assets; (iv) our ability to enter into partnerships with leading inventors and research organizations and identify and acquire technology and patent portfolios that align with InterDigital's roadmap; (v) our ability to commercialize the company's technologies and enter into customer agreements; (vi) the failure of the markets for the company's current or new technologies and products to materialize to the extent or at the rate that we expect; (vii) unexpected delays or difficulties related to the development of the company's technologies and products; (viii) changes in our interpretations of, and assumptions and calculations with respect to the impact on the company of, the Tax Reform Act, as well as further guidance that may be issued regarding the Tax Reform Act; (ix) failure to accurately forecast the long-term value and costs of the Technicolor patent licensing business or of certain assets acquired in the transactions; (x) the resolution of current legal or regulatory proceedings, including any awards or judgments relating to such proceedings, additional legal or regulatory proceedings, changes in the schedules or costs associated with legal or regulatory proceedings or adverse rulings in such legal or regulatory proceedings; (xi) changes or inaccuracies in market projections; and (xii) changes in the company's business strategy.
We undertake no duty to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by applicable law, regulation or other competent legal authority.
Footnotes
^1^Throughout this press release, net income (loss) and diluted earnings per share ("EPS") are attributable to InterDigital, Inc. (e.g., after adjustments for noncontrolling interests), unless otherwise stated.
^2^Free cash flow is a supplemental non-GAAP financial measure that InterDigital believes is helpful in evaluating the company's ability to invest in its business, make strategic acquisitions and fund share repurchases, among other things. A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in the company's cash balance for the period. InterDigital defines “free cash flow” as net cash provided by operating activities less purchases of property and equipment, technology licenses and investments in patents. InterDigital's computation of free cash flow might not be comparable to free cash flow reported by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. A detailed reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable GAAP financial measure, is provided at the end of this press release.
SUMMARY CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands except per share data)
(unaudited)
| For the Three Months Ended December 31, | For the Twelve Months Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |||||||||
| REVENUES: | ||||||||||||
| Variable patent royalty revenue | $ | 7,871 | $ | 10,062 | $ | 30,428 | $ | 36,384 | ||||
| Fixed-fee royalty revenue | 66,876 | 61,140 | 257,221 | 239,347 | ||||||||
| Current patent royalties | 74,747 | 71,202 | 287,649 | 275,731 | ||||||||
| Non-current patent royalties | 24,690 | 840 | 19,782 | 26,329 | ||||||||
| Total patent royalties | 99,437 | 72,042 | 307,431 | 302,060 | ||||||||
| Patent sales | — | 750 | 975 | 750 | ||||||||
| Current technology solutions revenue | 2,724 | 2,534 | 10,518 | 4,594 | ||||||||
| $ | 102,161 | $ | 75,326 | $ | 318,924 | $ | 307,404 | |||||
| OPERATING EXPENSES: | ||||||||||||
| Patent administration and licensing | 46,744 | 38,601 | 154,940 | 124,081 | ||||||||
| Development | 18,832 | 20,419 | 74,860 | 69,698 | ||||||||
| Selling, general and administrative | 11,289 | 12,461 | 51,289 | 51,030 | ||||||||
| 76,865 | 71,481 | 281,089 | 244,809 | |||||||||
| Income from operations | 25,296 | 3,845 | 37,835 | 62,595 | ||||||||
| INTEREST EXPENSE | (10,650 | ) | (8,714 | ) | (40,955 | ) | (35,956 | ) | ||||
| OTHER INCOME (EXPENSE), NET | 5,290 | 3,313 | 29,062 | 5,419 | ||||||||
| Income (loss) before income taxes | 19,936 | (1,556 | ) | 25,942 | 32,058 | |||||||
| INCOME TAX BENEFIT (PROVISION) | (7,984 | ) | 2,416 | (10,991 | ) | 27,417 | ||||||
| NET INCOME | $ | 11,952 | $ | 860 | $ | 14,951 | $ | 59,475 | ||||
| Net loss attributable to noncontrolling interest | (1,802 | ) | (1,223 | ) | (5,977 | ) | (5,556 | ) | ||||
| NET INCOME ATTRIBUTABLE TO INTERDIGITAL, INC. | $ | 13,754 | $ | 2,083 | $ | 20,928 | $ | 65,031 | ||||
| NET INCOME PER COMMON SHARE — BASIC | $ | 0.44 | $ | 0.06 | $ | 0.66 | $ | 1.89 | ||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC | 30,919 | 33,909 | 31,546 | 34,491 | ||||||||
| NET INCOME PER COMMON SHARE — DILUTED | $ | 0.44 | $ | 0.06 | $ | 0.66 | $ | 1.84 | ||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED | 31,118 | 34,390 | 31,785 | 35,307 | ||||||||
| CASH DIVIDENDS DECLARED PER COMMON SHARE | $ | 0.35 | $ | 0.35 | $ | 1.40 | $ | 1.40 |
Note: Certain reclassifications have been made to prior period amounts to conform to the current period presentation.
SUMMARY CONSOLIDATED CASH FLOWS
(dollars in thousands)
(unaudited)
| For the Three Months Ended December 31, | For the Twelve Months Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |||||||||
| Income (loss) before income taxes | $ | 19,936 | $ | (1,556 | ) | $ | 25,942 | $ | 32,058 | |||
| Taxes paid | (7,746 | ) | (9,445 | ) | (24,229 | ) | (33,904 | ) | ||||
| Non-cash expenses | 26,896 | 28,007 | 113,035 | 90,590 | ||||||||
| Change in deferred revenue | (8,624 | ) | (2,856 | ) | (7,749 | ) | 6,966 | |||||
| Increase (decrease) in operating working capital, deferred charges and other | (13,005 | ) | (43,975 | ) | (17,566 | ) | 51,082 | |||||
| Capital spending and capitalized patent costs | (8,805 | ) | (8,918 | ) | (37,990 | ) | (34,645 | ) | ||||
| FREE CASH FLOW | 8,652 | (38,743 | ) | 51,443 | 112,147 | |||||||
| Long-term investments | (350 | ) | — | (350 | ) | (6,686 | ) | |||||
| Proceeds from non-controlling interests | 5,333 | — | 15,666 | — | ||||||||
| Acquisition of patents | — | — | — | (2,250 | ) | |||||||
| Acquisition of business, net of cash acquired | — | — | — | (142,985 | ) | |||||||
| Proceeds from sale of business | — | — | 10,000 | — | ||||||||
| Dividends paid | (10,897 | ) | (11,996 | ) | (44,580 | ) | (48,468 | ) | ||||
| Taxes withheld upon vesting of restricted stock units | (52 | ) | (328 | ) | (4,368 | ) | (8,807 | ) | ||||
| Share repurchases | (25,000 | ) | (66,997 | ) | (196,269 | ) | (110,505 | ) | ||||
| Net proceeds from exercise of stock options | — | 361 | 2 | 6,723 | ||||||||
| Payments on long-term debt | — | — | (221,091 | ) | — | |||||||
| Proceeds from issuance of convertible senior notes | — | — | 400,000 | — | ||||||||
| Purchase of convertible bond hedge | — | — | (72,000 | ) | — | |||||||
| Payment for warrant unwind | — | — | (4,184 | ) | — | |||||||
| Prepayment penalty on long-term debt | — | — | (10,763 | ) | — | |||||||
| Proceeds from hedge unwind | — | — | 9,038 | — | ||||||||
| Proceeds from issuance of warrants | — | — | 47,600 | — | ||||||||
| Payments of debt issuance costs | — | — | (8,375 | ) | — | |||||||
| Unrealized gain (loss) on short-term investments | 684 | 2,868 | 5,076 | 2,293 | ||||||||
| NET INCREASE (DECREASE) IN CASH, RESTRICTED CASH AND SHORT-TERM INVESTMENTS | $ | (21,630 | ) | $ | (114,835 | ) | $ | (23,155 | ) | $ | (198,538 | ) |
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
| DECEMBER 31, <br>2019 | DECEMBER 31, <br>2018 | |||
|---|---|---|---|---|
| ASSETS | ||||
| Cash & short-term investments | $ | 924,695 | $ | 945,780 |
| Accounts receivable (net) | 28,272 | 35,032 | ||
| Other current assets | 63,365 | 43,438 | ||
| Property & equipment and patents (net) | 446,556 | 464,618 | ||
| Other long-term assets (net) | 149,194 | 137,690 | ||
| TOTAL ASSETS | $ | 1,612,082 | $ | 1,626,558 |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||
| Current portion of long-term debt | $ | 94,170 | $ | — |
| Accounts payable, accrued liabilities, taxes payable & dividends payable | 64,734 | 67,723 | ||
| Current deferred revenue | 146,654 | 111,672 | ||
| Long-term deferred revenue | 123,653 | 157,634 | ||
| Long-term debt & other long-term liabilities | 396,590 | 351,516 | ||
| TOTAL LIABILITIES | 825,801 | 688,545 | ||
| TOTAL INTERDIGITAL, INC. SHAREHOLDERS' EQUITY | 761,557 | 936,729 | ||
| Noncontrolling interest | 24,724 | 1,284 | ||
| TOTAL EQUITY | 786,281 | 938,013 | ||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 1,612,082 | $ | 1,626,558 |
RECONCILIATION OF FREE CASH FLOW TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
In the summary consolidated cash flows and throughout this release, the company refers to free cash flow. The table below presents a reconciliation of this non-GAAP financial measure to net cash provided by (used in) operating activities, the most directly comparable GAAP financial measure.
| For the Three Months Ended December 31, | For the Twelve Months Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |||||||||
| Net cash provided by (used in) operating activities | $ | 17,457 | $ | (29,825 | ) | $ | 89,433 | $ | 146,792 | |||
| Purchases of property, equipment, & technology licenses | (1,447 | ) | (694 | ) | (4,509 | ) | (2,576 | ) | ||||
| Capitalized patent costs | (7,358 | ) | (8,224 | ) | (33,481 | ) | (32,069 | ) | ||||
| Free cash flow | $ | 8,652 | $ | (38,743 | ) | $ | 51,443 | $ | 112,147 |
| CONTACT: | InterDigital, Inc.: |
|---|---|
| Patrick Van de Wille | |
| patrick.vandewille@interdigital.com | |
| +1 (858) 210-4814 |