InterDigital, Inc. (
Q4 2010 Earnings Call
February 24, 2011 10:00 am ET
Janet M. Point – Executive Vice President, Communications and Investor Relations
Scott A. McQuilkin – Chief Financial Officer
William J. Merritt – President and Chief Executive Officer
Robert Labick – CJS Securities
Ron Shuttleworth – M Partners
Charlie Anderson – Dougherty & Company
Michael Cohen – MDC Financial Research
Rahul Gorawara – Rivanna Capital
Brett Simpson – Arete
Eugene Fox – Cardinal Capital Management
Bill Nasgovitz – Heartland Funds
Previous Statements by IDCC
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Please stand by, we’re about to begin. Good day and welcome to the InterDigital Fourth Quarter 2010 Conference Call. As a reminder, today’s call is being recorded.
At this time, I’d like to turn the conference over to Ms. Janet Point. Please go ahead, ma’am.
Janet M. Point
All right. Thank you, Albert, and good morning everyone, and welcome to InterDigital’s fourth quarter 2010 and year-end 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’ll offer some highlights about the quarter and the company 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 be making 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 pro forma net income and free cash flow, both non-GAAP financial measures. Schedule setting out reconciliations of pro forma net income to net income and a free cash flow to net cash provided by operating activity and most directly comparable GAAP financial measures are included at the back of our earnings release issued yesterday, which is also posted in the Investor Relations section of our website at www.interdigital.com.
So with that taken care of, I will turn the call over to Scott.
Scott A. McQuilkin
Thanks, Janet, and good morning to everyone. I’m pleased to report that our fourth quarter 2010 results were very strong. Net income was $34.3 million, a 46% increase over the pro forma net income in the fourth quarter 2009.
Diluted EPS was $0.76 in the fourth quarter 2010, up 43% from pro forma diluted EPS in the fourth quarter 2009. The fourth quarter 2009 results exclude a $1.6 million repositioning charge and a $16.4 million tax benefit related to foreign tax credits.
Top line, we reported $95.3 million in revenues, a 25% increase year-over-year. Our revenue consists of three components, current patent royalties, past sales royalties and technology solutions revenue.
Current patent royalties were $85.1 million in the fourth quarter 2010, up $12.7 million or 17% over the fourth quarter 2009. Our per unit patent royalties accounted for $35.6 million or 42% of current patent royalties in the fourth quarter 2010 and increased by $11.1 million or 46% from fourth quarter 2009. This increase was driven by growth in customer smartphone product sales.
Our fixed fee patent royalty revenue was $49.6 million or 58% of current patent royalties in fourth quarter 2010, an increase by 3% year-over-year. There were no patent sales royalties in the fourth quarter 2010 and only $0.1 million in fourth quarter 2009, so the impact of this revenue component on our fourth quarter results is de minimis.
Technology solutions revenue more than doubled to $10.1 million in fourth quarter 2010, up from $3.8 million in fourth quarter 2009. The significant increase is driven by the recognition of $8.2 million associated with the final deliveries of technology under existing engineering service agreements. In the future, revenues associated with these customers would be driven by their success in the marketplace or any additional engineering services provided.
Our technology solutions revenue has also been affected by discussions with one of our customers regarding the royalties owed on specific product classes. While this customer continues to pay us the entire amount owed under the agreement, we are deferring revenue recognition on royalties for these product classes until we resolve the discussion. Through December 31, 2010, we have deferred approximately $9 million in related revenue.
With respect to our expectations for first quarter 2011, we expect revenue contributions from existing agreements to be in the range of $76 million to $77 million. This range includes an increase in current patent licensing royalties from the same set of patent customers of 5% over fourth quarter 2010 and15% year-over-year.
We are also continuing to negotiate new agreements, extensions and renewals, including LG, as well as to pursue resolution of audit-related findings. Any of these agreements if completed prior to March 31, 2011, would likely contribute to first quarter 2011 revenue.
Turning to the expense side, fourth quarter 2010 operating expenses were $41.6 million. As we noted in our press release, the increase in operating expense included some expenses that are essentially non-recurring in nature.