InterDigital, Inc (



Investor Update Conference Call

January 23, 2012 05:30 pm ET


Janet Point - Senior Communications & IR Officer

Bill Merritt - President & CEO

Scott McQuilkin - CFO


Charlie Anderson - Dougherty & Company

Jonathon Skeels - Davenport



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Good day ladies and gentlemen and welcome to the InterDigital update conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Janet Point. Please go ahead.

Janet Point

Thank you very much and good evening everyone and welcome to InterDigital's investor update conference call. With me, this evening, are Bill Merritt, our President and CEO, and Scott McQuilkin, our Chief Financial Officer. During this call Bill will provide some insight about the process and the board’s decision to move forward with the company's business plans. He will also provide some insights into that plan and our views on the wireless environment generally. In addition, Scott will briefly cover our preliminary financial results for fourth quarter 2011. We will then open up the call for questions.

Before we begin our remarks, I need to remind you that during 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 the press release as published earlier today and those detailed from time to time in our 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.

With that I will turn the call over to Bill.

Bill Merritt

Thanks, Janet and good evening to everyone. As you saw on our release, the board has decided to conclude its previously announced exploration of strategic alternatives and focus on the execution of the company's business plans. This evening I will provide a summary of the process including some of what we learned and how we will incorporate that information into the business going forward. I will also provide a summary of our go forward plan and our financial objectives.

Along the way I will provide a summary of certain events in the wireless industry over the last six months and how those events affect our go forward strategy. So let me start with the process. As you may recall in July 2011, the company announced the board’s decision to explore strategic alternatives. The rationale is simple. While the board was optimistic about the prospects of company under its business plan, we also had seen numerous developments in the market that has caused the value of patents to increase substantially. Given these factors, the Board believes it was the appropriate time to explore potential strategic alternatives and to determine if such alternatives would enhance shareholder value.

During the last six months, the board with the assistance of independent financial advisors undertook a comprehensive review of our business and potential strategic alternatives. Together we conducted a very thorough analysis, meeting and talking with many parties about the company and its assets. Interested parties conducted their due diligence, accessing a fulsome data room established by the company.

The feedback we received from the interested parties was positive. We are told that the patent portfolio was viewed as deep and of high quality. We were told that the licensing team was considered very strong and the R&D teams were viewed as having a strong track record of identifying future needs of the wireless industry and inventing solution that build those needs. All of this confirmed our view in the value of InterDigital.

While we saw a significant interest in portions of our assets, no bid for the entire company was made by either a single company or a consortium of companies. The interest in smaller patent portfolios is consistent with what we observed outside the process where many recent transactions were smaller, patent portfolios were many, but larger deals were fewer and farther between.

For example HTC acquired 82 issue patents of ADC communications for approximately $75 million. Acacia technologies acquired approximately 250 LTE related patents and patent applications of ADAPTIX for a $160 million. And Google on top of its Motorola purchase continued to acquire smaller patent portfolio from, IBM, Golden Bridge Technology and others.

While not necessarily indicative of all situations, these examples suggest that while patents are certainly carrying high values and for good reason, more pure patent-related transactions are occurring in the hundreds of millions of dollars instead of the billion. Given all this, the board determined that it is in the best interest of the company and its shareholders to conclude its review of strategic alternatives and to execute on a strategic plan with two key components.

The first is a continuation of our strong licensing program. Here we plan to drive to our goal of licensing a substantial portion of the terminal unit market by yearend 2014 with an average 3G royalty rate consistent with current agreement and incrementally higher LTE rate.

Importantly, the board intends to tie long-term compensation to the achievement of these targets and to achieving sustainable annual revenues of at least $800 million which if realized will drive substantial growth and free cash flow. Second we plan to add targeted patent sales and licensing partnerships to our strategy as this is the demand we had seen during the strategic options process.

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