InterDigital, Inc. (IDCC)

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InterDigital, Inc. (IDCC)

Q2 2014 Earnings Conference Call

August 7, 2014 10:00 a.m. ET


William Merritt – President and Chief Executive Officer

Richard Brezski – Chief Financial Officer

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


Charlie Anderson – Dougherty & Co

Tim Quillin – Stephens Inc.

James Berkley – Barclays Capital



Good day, and welcome to the InterDigital Second 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. Please go ahead, sir.

Patrick Van de Wille

Thanks very much. Good morning, everyone, and welcome to InterDigital’s second 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 open 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 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.

With that, let me turn the call over to Bill.

William Merritt

Good morning everyone. Thanks for joining us. As you saw in the release this morning, we delivered a spectacular quarter, with strong growth in revenue year-over-year. We also established a great baseline of revenue for coming quarters, with significant market opportunity remaining to drive to even higher revenue levels. In short, an increase in topline, combined with the stable expense line delivering great profitability in cash flow and a significant part of the market remaining to be addressed.

Our success drives off the continued strength of our core licensing business. Obviously we’re thrilled to renew the Samsung license during the second quarter. That renewal draws both our quarterly recurring revenue as well as the past sales revenue for the quarter. Licensing Samsung should come as no surprise. Despite all the negative rhetoric in the market about patents and patent licensing, the fact is that good companies continue to sign licenses for valuable patent portfolios like ours. Indeed, Samsung, the leading supplier of handsets in the mobile market, now has been a licensee of ours for nearly 20 years, which is great one and we have designed the new agreement to possibly take us nearly another 10 years.

But the Samsung agreement was not the only big driver for us in the quarter. We continued to see strong royalties from Pegatron as it continues to perform well as Apple’s number two supplier of iPhone products. Our agreement with Apple expired at the end of June, and we have continued to work to renew that agreement. We do not see that expiration as having any negative impact on our business. Indeed, with reports of Apple further diversifying its supply chain to include Wistron, another licensee of ours, we can potentially see our revenue from Apple products increase before the end of this year even without a renewal with Apple itself. That said, we continue to discuss the renewal of Apple and we’ll be open to a comprehensive, long-term relationship with them as well.

The quarter also saw a continued revenue support from the rest of our terminal unit licensee base. In the quarter, we recognized royalties from over 25 licensees. As always, we have some customers that are seeing challenges in their business, but others that continue to perform well. The diversity in our customer base provides us with substantial revenue stability, and of course the opportunity to license the remainder of the market provides the potential for significant revenue growth.

This quarter also marked the first quarter where we begin to see meaningful revenues from our infrastructure licensing initiatives. As you’ll recall, back in October of 2013, we formally launched an effort to license a significant portfolio of cellular infrastructure related patents. That initiative had two prongs. The first prong was the launch of the Signal Trust for Wireless Innovation, a separate and independent licensing and monetization entity that would be dedicated to pursuing these meaningful initiatives. This innovative structure allows us to maintain all the revenue upside from the focused and independent licensing and monetization efforts of the Signal Trust. As we mentioned before, the Trust structure is one we would consider for additional licensing opportunities.

The second prong was our retention of licensing rights for a limited period. This structure allowed us to encourage parties negotiating with us on infrastructure deals to move those deals to completion prior to us no longer having licensing rights under the patents transferred over to the Trust. That structure worked very well as we completed two license agreements encompassing rights under the patents transfer to the Trust. Those deals covered just under 40% of the infrastructure market and contributed over $37 million in revenue in this quarter, inclusive of past sales and current patent royalties. We would also expect to see solid incremental revenues from those deals in the coming quarters as well.

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