InterDigital, Inc. Q1 2010 Earnings Call Transcript

InterDigital, Inc. Q1 2010 Earnings Call Transcript
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InterDigital, Inc. (IDCC)

Q1 2010 Earnings Call Transcript

April 29, 2010 10:00 am ET

Executives

Janet Point – EVP, Communications and IR

Scott McQuilkin – CFO

Bill Merritt – President and CEO

Analysts

Charlie Anderson – Dougherty & Company

Tom Carpenter – Hilliard Lyons

Chris Versace – Think 20/20

Kevin Ciabattoni – Boenning & Scattergood

Bill Nasgovitz – Heartland Funds

Jonathon Skeels – Davenport

Wey Simmons [ph] – The London Company

Presentation

Operator

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Good day, everyone. Welcome to today's InterDigital first quarter 2010 earnings conference call. As a reminder, today's conference is being recorded. At this time, I would like to turn the call over to Janet Point. Please go ahead.

Janet Point

All right. Thank you, Jason; and good morning everyone, and thanks for taking the time to dial in to our first quarter 2010 earnings conference call. With me this morning on the call 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 and the company, and then open up the call for questions.

This quarter, in order to provide an opportunity to all members of the investment community to ask questions of the management, we will ask that you ask one question and one follow-up and then please hop back into the queue.

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 the results and events contemplated by such forward-looking statements.

These risks and uncertainties include those set forth in our earnings release published yesterday, and those detailed 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 as 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.

So with that taken care of, I would like to turn the call over to Scott.

Scott McQuilkin

Thanks, Janet; and good morning to everyone. I am pleased to report that our first quarter results were very strong. The combination of solid revenue growth and expense reduction drove net income to $48.8 million, up from $15.4 million in the first quarter of 2009, excluding a $37.1 million pre-tax repositioning charge. The charge is associated with the cessation of further ASIC development of our SlimChip modem.

Fully diluted EPS was $1.09 in the first quarter of 2010, up from $0.34 in the first quarter of 2009, excluding the repositioning charge. Revenue was $116.2 million up from $70.6 million in the first quarter of 2009. Expenses totaled $41.5 million, down from $47.2 million in the first quarter of 2009, excluding the repositioning charge. Free cash flow was $65 million in the first quarter of 2010, up from $43 million the first quarter of 2009. Cash and short term investments totaled $482 million at the end of the first quarter 2010, up from $410 at year end 2009.

Our revenue had three components, current patent royalties, past sales royalties, and technology solutions revenue. Current patent royalties were $78.1 million in the first quarter of 2010, up $8.8 million or 13% over the first quarter of 2009. The increase was driven by a combination of higher royalties from several of our per-unit licensees, new patent licenses added since the first quarter of 2009 with Casio, Pantech, Cinterion, and Enfora, and a full quarter revenue from our license with Samsung. On a sequential basis, current patent royalties increased to $78.1 million from $72.5 million in the fourth quarter of 2009. The increase is due to solid results from a number of our existing licensees, as well as contributions from new licensees. It is worth noting that current patent royalties have increased in each quarter since the first quarter of 2009, due primarily to higher 3G unit sales volumes and the addition of new licensees.

Past sales royalties were $35.7 million in the first quarter of 2010, compared to a negligible amount in the first quarter of 2009. The significant amount of past sales royalties with due to the new license with Casio and the results of a routine audit with an existing licensee.

Technology solutions revenue was $2.4 million, up from $1.3 million in the first quarter of 2009. The increase was due to growth in per-unit royalties related to our licensing of our SlimChip modem core. I am also pleased to report that in the first quarter 2010, we added a new customer for our SlimChip modem core, Beceem Communications. Beceem Communications of Santa Clara, California, a leading supplier of WiMAX semiconductor solutions, will integrate our modem core into their 4G products. This new relationship is consistent with our plan to monetize the core modem platform, and we will begin generating revenue in the second quarter. The deal is profitable near term and provides further upside when the scene starts shipping shifts.

Consistent with past practice, we will provide guidance on our revenue expectations for second quarter 2010 after we receive the relevant royalty reports.

Turning to the expense side, first quarter 2010 operating expenses were $45.5 million, this represents a $5.7 million or 12% decrease from first quarter 2009, excluding the repositioning charge. Excluding patent litigation and arbitration costs, operating expenses were $34.9 million in the first quarter of 2010. This reflects a $9.7 million or 22% decrease from first quarter 2009, excluding the repositioning charge. The increase was driven primarily by the reduction in development and other expenses associated with the repositioning of our ASIC development activity at the end of first quarter 2009.

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