InterDigital, Inc (
Q3 2010 Earnings Call
October 28, 2010; 10:00 am ET
Bill Merritt - President & Chief Executive Officer
Scott McQuilkin - Chief Financial Officer
Janet Point - Executive Vice President - Communications & Investor Relations
Ron Shuttleworth – M Partners
Charlie Anderson – Dougherty & Company
Michael Cohen - MDC Financial Research
Chris Versace - Think 20/20
Bill Nasgovitz - Heartland
Andy Schopick - Nutmeg Securities
Previous Statements by IDCC
» InterDigital, Inc. Q2 2010 Earnings Call Transcript
» InterDigital, Inc. Q1 2010 Earnings Call Transcript
» InterDigital, Inc. Q4 2009 Earnings Call Transcript
» InterDigital Inc. Q3 2009 Earnings Call Transcript
Please standby, we’re ready to begin. Good day, and welcome to the InterDigital Third Quarter 2010 Conference Call. As a reminder, today’s call is being recorded.
At this time, I’d like to turn the call over to Janet Point. Please go ahead.
Alright. Thank you, Ruth and Good morning to everyone and welcome to InterDigital’s third quarter 2010 earnings conference call. With me this morning are Bill Merritt, our President and CEO, and Scott McQuilkin, our Chief Financial Officer. Consistent with last quarter’s call, we will offer some highlights about the quarter, our outlook and then open up the call up for questions.
Before we begin our remarks, I need to remind you that in this call, we will make forward-looking statements regarding our current beliefs, plans and expectations, which are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results and events to differ materially from results and events contemplated by such forward-looking statements.
These risks and uncertainties include those set forth in our earnings release published yesterday, as well as those detailed in our Annual Report on Form 10-K for the year ended December 31, 2009 and from time-to-time in our other filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof and except as required by law, we undertake no obligation to update or revise any of them, whether as a result of new information, future events or otherwise.
In addition, today’s presentation contains references to free cash flow, which is a non-GAAP financial measure. It scheduled turning out a reconciliation of free cash flow to net cash provided by operating activity and most comparable GAAP financial measures is included at the back of our earnings release issued yesterday, which also has been posted in the press center of our website at www.interdigital.com.
So with that, taken care of let me turn the call over to Scott.
Thanks, Janet, and good morning to everyone. I’m pleased to report that our third quarter 2010 results were very strong. Year-over-year revenue increased 22% to $91.9 million, and drove net income up 16% to $35.5 million. Diluted EPS was $0.79 in third quarter 2010, up from $0.69 in third quarter 2009.
Free cash flow was a positive $75 million in third quarter 2010; and as a result, cash and short-term investments increased to $564 million at September 30, 2010, up from $410 million at year-end 2009.
Our revenue for the third quarter 2010 consists of three components: current patent royalties, add sales royalties and technology solutions revenue. Current patent royalties were $85.4 million in third quarter 2010, up $12.9 million or 18% over third quarter 2009. The increase was driven by a combination of higher sales by nearly all of our per unit customers and new patent licenses added since third quarter 2009.
Add sales royalties were $0.7 million in third quarter 2010, due to the addition of a licensee and the resolution of the routine audit. Add sales royalties were up slightly from $0.5 million in third quarter 2009. So the effect of this component on our strong year-over-year growth was negligible. Technology solutions revenue was $5.8 million, up $3.3 million or more than doubled the level in third quarter 2009. The significant increase is due to the addition of new customers for our SlimChip modem core.
On a sequential basis, revenue increased to $91.9 million from $91.2 million in the second quarter 2010 driven by current patent royalties, which increased $5.2 million or 6% from second quarter. It’s worth noting that current patent royalties have increased sequentially in each quarter since the first quarter 2009, due primary to higher 3G unit sales volumes and the addition of new or renewed license agreements.
The $5.2 million increase in current patent royalties was partially offset by a $4.2 million decline in add sales royalties, which vary from quarter-to-quarter based on the results of orders and the addition of new license agreements. Consistent with the past practice, we will provide guidance on our revenue expectations for fourth quarter 2010 after we received the applicable patent license and product royalty reports.
Turning to the expense side, third quarter 2010 operating expenses were $37.5 million, up $8.6 million from third quarter 2009. Significant portion of the increase is due to a reduction of an accrual for a long-term compensation program in third quarter 2009. Our long-term compensation program consists of a multi-year performance-based plans and covers a substantial number of our employees. From an accounting perspective, we assess our expecting performance relative to plan goals on a quarterly basis.
In effect of any changes in expected performance and cumulative plan-to-date accrual, which recorded as a current period expense. In addition to this factor, expenses increased $6.1 million due to a combination of expenses related to revenue-producing technology solution agreements, R&D initiatives and due diligence expenses related to potential patent acquisition opportunities. These increases were offset by $1.9 million decrease in intellectual property enforcement costs. It’s worth noting that the increase in expenses related to tech solutions it was more than offset by the revenue contribution from these solutions.