IDCC

InterDigital, Inc. (IDCC)

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InterDigital, Inc.(IDCC)

Q1 2014 Earnings Conference Call

May 1, 2014 10:00 AM ET

Executives

Patrick Van de Wille – Vice President, Communications & Investor Relations

William J. Merritt – President and Chief Executive Officer

Richard J. Brezski – Chief Financial Officer

Analysts

Timothy J. Quillin – Stephens Investments

Charlie Anderson – Dougherty & Co

Eugene Fox – Cardinal Capital Management LLC.

Presentation

Operator

Good day, and welcome to the InterDigital First Quarter 2014 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Patrick Van de Wille. You may begin, sir.

Patrick Van de Wille

Thank you, Steve. Good morning, everyone, and welcome to InterDigital’s first quarter 2014 earnings conference call. With me this morning are Bill Merritt, our President and CEO and Rich Brezski, our CFO. Consistent with last quarter’s call, we’ll offer some highlights about the quarter and our outlook, and then we will open 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 this morning, and those detailed in our Annual Report on Form 10-K for the year ended December 31, 2013, 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.

And with that, let me turn the call over to Bill.

William J. Merritt

Thanks, Patrick, and good morning everyone. It was a busy quarter from many perspectives with a good number of very positive developments. Let me highlight a few of the more important ones. First, as to the overall financial performance, we had a very, very solid revenue growth year-over-year, driven by our relationship with Pegatron, which we’ll get into the details on that, but it does bode very well for the business between that and our existing licensees, we entered the year with a very solid licensee base with good upward growth potential.

The bottom line was obviously affected by the continued high litigation spend at more traditional levels would have been comfortably profitable and delivered positive cash flow. By taking to account and opportunities, how do we leverage our history of innovation, our long history of licensing and our well-established lead structure into a more certain long-term revenue stream delivered at a much lower cost. We’ll take a few things, some of which we control, some of which we can influence that are all which are achievable. Let me go through them.

The first one, of course, is to demonstrate the value of our technology. I think our invented history speaks for itself, but recent court decisions to validate that as well. Specifically on the power ramp-up patent, which cover a critical invention in WCDMA systems. We are now seeing a consistent pattern of successful litigation despite an adverse decision in the 800 investigation in December, which we appealed.

We’ve had success in the Federal Circuit. Then earlier this year, we saw a success with the ITC in the remand case against Nokia. There the ITC confirmed it would follow the Federal Circuit decision on two of the power ramp-up patents, positioning us well against Nokia in that case.

We also saw Judge Andrews in the Delaware District Court confirmed our claim’s instructions on those same patents in the infringement case we had against the ZTE in Delaware. These developments are also pertinent to the 868 investigation where those patents are asserted against both Samsung and ZTE, and which is slated for an initial determination in mid June.

So on infringement and validity, we believe we have built a very strong case. Of course, litigation is never certain; particularly in a politically charged environment, but I think we’ve done all we can do. And if the ITC can just call balls and strikes, we think we should prevail.

The second factor is easy. We need to be objectively reasonable and we are. It’s always been our approach to negotiate in good faith and at fair value. We offer flexible licensing terms, partnering arrangements, and even arbitration. In fact the vast majority of our licenses come without litigation is testimony to our reasonable ones.

So, all being reasonable and flexible is not the problem. Instead, historically and to some extent even more recently, we have not seen the same reasonable and flexible behavior uniformly from potential license fees. In fact, the legal systems team cannot even require it, that maybe changing.

Over the past few months, arbitration has begun to pop up more frequently as a means of resolving these disputes. It did so between us and Huawei, and between Samsung and Nokia. In a recent European investigation, Samsung has agreed to arbitrate disputes involving in standard-essential patents prior to seeking an injunction.

Nokia also made a similar commitment in China with the sale – in connection with the sale of its handset business. We have also agreed to offer arbitration in China. Those commitments certainly apply only to the patent holder. There is no requirement that the other party agreed or arbitrate. However, these commitments start to create a set of standard practices or code of conduct. If a party is willing to arbitrate a license under its standard essential patents, shouldn’t agree to do the same when it needs your license.

Read the rest of this transcript for free on seekingalpha.com