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Nice to see a new license. Congratulations to all the good investors holding IDCC, especially the ones who have followed this roller coaster for the past two decades.
From the December 31, 2019 balance sheet:
$924.7 million Cash/cash equivalents
$ 28.3 million Accounts receivable
$953.0 million Total
$490.7 million Debt long term and current portion
$ 64.7 million Accounts payable & accrued liabilities
$555.5 million Total
$397.5 million Net
Based on the fully diluted shares of 31,118,000, the net cash after collecting receivable, paying off current liabilities and repaying the principal of all debt is
$12.77 per share.
If I've made any errors please post to correct.
Hi Jim,
The terrible stock market activity has me looking at IDCC again. I saw your $30/share cash post and thought, wow, almost riskless, IDCC is being severely undervalued again. So I took a look at the 12/31/19 financials.
The $30 per share only tells half the story. IDCC now has debt, so the cash needs to be offset by the debt that has to be paid off to get to net cash. The debt is over $17 per share, so the liquidating cash per share is a bit under $13.
In addition to that, you have the $1.40 dividend and the stable earnings from fixed fee contracts that add to the value of the company.
I feel it's important that we do our best to put out all the facts so that readers here can make informed decisions for their best interests.
I hope everyone is staying safe and that your investments in IDCC and otherwise bounce back soon.
Condolences to Mickey's family and friends
Never any doubt about where he stood or how he felt. He will be missed.
Well done Olddog, as usual
I can confirm Olddog's summary of the accounting treatment of the activities he listed. Does an old accountant's heart good to see T accounts referenced.
Hi Toby,
Nice to be remembered. I've been watching the board closely over the last six months or so as the price rise made it fun to follow again. It's nice to see so many of the old timers have held long enough to get a great return on the investment. Not as far or fast as we had hoped, but anyone who sold lately or is holding is in the green. It's unfortunate are gone, by choice or father time.
Given my age, desire to retire and experience on this roller coaster since 1999, I have an exit strategy. When the stock hit it's all time high of $86, I sold 25% of my position. Two days later Apple signs. Great news, I hope. It will let me sell my remaining position at levels were I can retire with enough to keep me happy.
I don't know what the Apple contract means. The immaterial change to the 2017 revenue projection does not indicate a home run. If it leads to us getting the majority of the market signed, then we'll get to the goal of $500-$600 million of revenue. I trust management has a plan to expand earnings by signing this. I hope we get some detail from the company.
Unfortunately we have dilution from the convertible debt, still don't know the purpose when we were swimming in cash, so our earnings per share are going down about 10% because of it. Yes, we got paid for the stock, but cash is valued as cash, earnings per share get a multiple. I've loved the share buybacks which has reduced our outstanding shares, so we sold some back at a profit.
I continue to be optimistic about the future. I believe Apple will give us a firmer base for earnings and share price, but has lowered the ceiling on potential earnings. Stability and market share in exchange for the hoped for higher rate. So now market risk becomes a much bigger factor. With the market at an all time high I am a bit wary about a potential downturn for the market in general. Without getting political, I see more potential volatility with the new president. Could be good or bad, but I don't want crazy now, I want stable. So that's why I am executing an exit strategy. Next sell point will be in the triple digits.
I hope all is well with you.
Paid up license
IDCC agrees to accept a specific amount to cover all sales from the licencee for a specific time period. Part of the agreement is that the licencee pays the amount in full in advance. Therefore it is a "paid up" license because no further payments are required under the contract. IDCC recognizes the income on a straight line basis over the life of the contract. When they receive the upfront payment, the portion related to the future earnings is credited to a deferred revenue account. Each quarter IDCC debits the deferred revenue account and credits revenue.
I think your confusion is thinking that a paid up license means that there is no more revenue coming. It simply means IDCC was smart enough and had enough leverage to negotiate the prepayment. Revenue recognition does not necessarily match the timing of payments under accrual based accounting. Revenue is recognized when it is earned, not when it is received.
Hi Loop,
Getting the first win is the toughest. After the first one things can start to roll. Ask the Giants...hopefully #3 tonight after over 50 years of frustration.
Normal IDCC stockholder is an oxymoron.
In my case, simply a moron. Here's hoping for a solid win today, so maybe I'll go from moron to genius.
Read the quote,
I believe the author misunderstood the comment of the dissenting judge. That is not the way I understood the comment when I first read it or after re-reading it a number of times. As much as I wish his interpretation was correct, I find it improbable compared to the way I read it.
This doesn't sound good to me
What those strings were are blacked out in the document, but Pinkert adds in the next sentence: "it is neither fair nor non-discriminatory for the holder of the FRAND-encumbered patent to require licenses to non-FRAND-encumberd patents as a condition for licensing its patent" (emphasis his).
This sounds like bundling to me - requiring Apple to have a license that covers all of it's patents, not just the patents in the litigation. This objection could also apply to requiring a world wide license instead of just U.S. sales. If that is the case, then FRAND is being defined in a way that does not bode well for IDCC. I don't think the ITC can give IDCC the hammer it deserves. The veto sets a very disturbing precedent.
After posting I saw Loop's post http://investorshub.advfn.com/boards/read_msg.aspx?message_id=90678779 that lays out a good case for why the piecemeal approach should not be enforced. Unfortunately I've seen too many examples of judges ignoring very sound and well reasoned arguments and focusing on other issues that results in a loss for IDCC. While it gives me some hope, it does not make me optimistic.
What now? Let me tell you what now.
I lost it too.
Asked, not answered.
Insider buying
If the buying is due to some sort of management edict, then it is a way to provide a short term bump to the share price while mollifying shareholders that feel that if insiders buy shares they are more aligned with shareholder interests. It also means that these folks are going to be continuing with IDCC. IMO, in this case, long term affect is minimal.
If the buying is due to some sort of special offer (like the option to buy 4 times the amount at the same price at a future date), then it is a way to provide compensation to the officers and providing a short term bump to the share price while mollifying shareholders that feel that if insiders buy shares they are more aligned with shareholder interests. IMO, in this case, long term affect is minimal.
If the buying is truly voluntary, based on the individuals' beliefs that at these levels IDCC is significantly undervalued, then the buys are indicative that people with deep knowledge of IDCC's position see a great long term investment because they are willing to increase their over weighted concentration of investment, income and retirement in IDCC. IMO, in this case, the long term outlook for IDCC is bright.
Given the multiple simultaneous purchases, it appears to me that there was some pressure to make purchases. I sincerely hope that we don't find out that these purchases have incentives beyond the return on their investment.
Prepaid revenues
Prepaid revenue means that the payments received are not earned yet from an accounting perspective. However it does not mean that IDCC has any future obligation under the contract, other than not to sue for infringement. A portion of the amount received is deferred and recorded as revenue over time to account for the revenue in the period earned in accordance with accounting principals that recognize revenue over the life of a contract. This is what I know as a CPA.
The money was paid for a license to use IDCC's IP. IMO, that license obligation will continue regardless of whether or not IDCC is purchased. Since there are no further services or other obligations to perform on IDCC, there would be no basis for repaying any part of the prepaid revenues. IDCC or its successor will have to live up to it's contractual obligation, which is allowing the use of the IP and they will keep the money received. This is a legal issue and is defined by the contract. From my understanding, there is no contractual obligation to repay anything. That is a legal issue, so I have no expertise, but I have no reason to believe otherwise.
1,225.51
Is IDCC worth more than Nortel
Absolutely IMO. However Nortel may have gotten far more than they were worth due to the bidders getting carried away. After the Nortel auction IDCC and many others suddenly decided to put their patents up for sale. That indicates to me that the perception of IDCC and those others is that the price paid for the Nortel patents was above the value they bring. Now MMI has been bought, which I believe lessens Google's need for patents significantly. This means that supply is up, demand is down. So there may not be a bidding frenzy to try to keep patents away from others that I believe helped fuel the Nortel auction success.
I sincerely hope that there are buyers that see great value in IDCC's patents and engineers. However I don't think that we can necessarily use the Nortel auction price as a benchmark. It may have been inflated. IDCC needs a buyer that sees value to their business model - I don't think there are going to be bidders trying to stop others from getting the patents.
CAFC, Is anyone in the queue before us?
Apparently EVERYONE. I personally guarantee there will be no decision on the IDCC case this week. (If that doesn't get a decision tomorrow, nothing will.)
The new ITC filing
IMO, IDCC was becoming more aggressive in protecting their IP to help their licensing efforts. After the decision in the first ITC action, they went back and submitted some continuation patents to clarify the language to avoid having to argue about what "is" is. After the last additional patent was granted in June, they proceeded to file their action. They went after Nokia as insurance against a loss in the first action, along with two Chinese companies.
While the lawyers were finalizing the ITC filing, the Nortel auction occurred and things changed. While it is now probable that neither ITC will be finalized before their is a sale of IDCC (again, just IMO), the incremental cost of filing is a pittance compared to the dollars involved. Just in case IDCC is not sold, and the first ITC action is not reversed and ruled in IDCC's favor, then IDCC has started the ball rolling on the new action.
The only thing the new filing indicates about IDCC's feelings about the original ITC action is that there are no sure things in litigation and they are prudent business men making intelligent decisions.
If IDCC doesn't get $10B
it's because they didn't successfully execute their business model. Had they signed up 90% of the 3G market at rates similar to LG then their earnings would be $8 a share or more, and with vision into the future, the PE would likely be around QCOMs, so the share price would be $150-$200 based on fundamentals. That's why I invested in IDCC. I felt there was great value and even with mediocre execution, that $40 was a lock. It took far longer than I ever expected to reach $40. I do not have confidence in IDCC's management ability to execute their business model now. So I look forward to a sale and hope that it moves into triple digits, and I dream of it getting to the $200 level. My expectations are much lower, but I am hopeful that there are two cash rich factions that really want IDCC.
IDCC may have set a minimum bid amount
That may be where the $5 billion number that came out with the story of Samsung pulling out of the auction. It's possible that IDCC set a threshold for any bids and it was more than Samsung was willing to pay.
IDCC should have one amount in mind, and that is the minimum price they will accept. If no one is willing to pay that amount, they don't sell. Otherwise, it goes to the highest bidder. It doesn't matter what metric IDCC or anyone else can come up with for a valuation. All that matters is what someone is willing to pay right now.
Nortel got a great price for their patents because a bidding war broke out as companies were bidding not only to get the patents, but to keep them away from others. Since then, Google bought MMI. That has changed the game. How, I am not sure. If there are two companies, or even better, consortiums, that want IDCC, then we can get a great buyout and the minimum amount won't be a factor.
Values can change very fast - it's all about supply and demand. When Google had nothing, their demand was very high, and their competitors had high demand to keep Google from getting them. I sincerely hope there are multiple companies that see great value in IDCC.
How does Samsung know the price is high?
Maybe a stalking horse bid is already on the table, similar to what Google did in advance of the Nortel auction.
Bill, IMO IDCC disclosed nothing to RS
The FD requirements do not allow for the "wink and a nod" type of hints being given to anyone. My impression from a decade plus of following IDCC like deadheads following a Grateful Dead tour, is that IDCC is rigorous in keeping inside information inside. If they had slipped and inadvertantly disclosed something, then they would have an obligation to publicly release that information as soon as possible. IDCC does not violate the letter or the spirit of the securities laws. Therefore I do not believe IDCC gave any information to Mr. Shuttleworth beyond their public statements.
Mr. Shuttleworth is on IDCC like white on rice. He understands it and he has mulitple sources, including those that may be interested in bidding on IDCC. I've seen nothing from him that gives me any reason to doubt that he is reporting exactly what he believes is true. His track record has been outstanding, which gives me confidence in his reports. So I am very happy and excited to here that Mr. Shuttleworth's sources have indicated that:
There is an auction in the works, and
that the initial bids will be coming in the near future.
Call from Janet Point's office
IDCC has not made any comment since the PR. She did confirm that they are still exploring their options, which may or may not include a sale.
FD rules
(a) Whenever an issuer, or any person acting on its behalf, discloses any material nonpublic information regarding that issuer or its securities to any person described in paragraph (b)
(1) of this section, the issuer shall make public disclosure of that information as provided in §243.101(e):
(1) Simultaneously, in the case of an intentional disclosure;
The question about the statement from the M Partners report is not whether it was material and required to be disclosed. The issue is that if IDCC did disclose information about the process continuing and multiple bidders, then it is required to be made publicly to all investors. Given IDCC's track record, I'm guessing that they did not make any statement beyond the intial PR. I have left a message with Janet Point requesting a confirmation or denial of the disclosure.
Thanks Postyle for posting those comments
I desperately needed to find a ray of hope in today's events. You do a great job of bringing relevant information to this board while staying above the food fights. I appreciate your contributions.
IDCC's statement about sale progress updates
Justice delayed is
just fine for those in the legal business. It means judges can work according to their schedule, personal needs and temperment. It means more fees for the lawyers. Congress could address the issue of court delays, but Conress consists of a disproportionately large amount of lawyers. Therefore, the legal profession's prespective is understood on a much more personal level my members of Congress than those that are trying to get justice. So while justice delayed is justice denied, I don't see any hope of change.
Was IDCC analyst interviewed today?
If so, what was said.
Wash sales only affect loss sales
The purpose of the wash rules was to avoid letting people choose to generate tax losses while maintaining their position. The IRS has no problem with you generating taxable gains while maintaining your position.
While not part of your question, I will advise that you think carefully about selling stock to buy options. You gain terrific leverage, but if the sale does not happen in time or is for less than your strike price, you end up losing your entire option contract amount and you no longer own the stock, so you also miss out on any gains the stock would've had. Many people have been hurt trying to time this stock, so be prudent in your allocation of capital. IDCC is a high risk investment. IDCC options are a high reward bet.
Selling stock and buying calls
They are two separate transactions and each stands on its own*. You would have capital gains on the stock sale, and they would generate long term capital gains, taxable at 15% federal. State tax depends on where you live. The calls would generate short term gain or losses. Gains would be taxed at your marginal tax rate. Losses would offset your gains (first short term, and then long term). If the losses exceed your total short and long term gains, then you would be able to deduct $3,000 loss and any excess would carry over indefinitely to be used against future gains and each year you could deduct up to $3,000 of remaining losses.
*If you sell stock at a loss, then buy calls, the loss would likely be suspended under the wash sale rules. Given IDCCs current prices, I don't think that's relevent to most here.
Obama news bulletin bumped IDCC analyst
CNBC said they would try to set it up for tomorrow. They teased it by saying
It's a buyout candidate...is it overvalued or undervalued right now?
Options and risk
For those of you that understand options, have certainty of IDCCs buyout or hate for a pompous, self appointed investment advisor (even if well intentioned) trying to save people from themselves, don’t waste your time reading on. However if you are tempted by options and are not experienced in trading them, you may find some thoughts that help you make a better informed decision. If you don’t understand how calls and puts work, how option leverage works, the affect of time and volatility on premiums, you should do some basic research before jumping in.
I suggest you exercise caution when looking at options. I’m not saying they are a bad idea or that you shouldn’t buy options, just make sure you understand the transaction and the potential results. I personally am not going to buy any options. In my situation, it doesn’t make sense. If IDCC goes to the prices needed to make a killing on them, my stock holdings will bring me to retirement wealth, or pretty darn close. So picking up some additional profits, while always nice, wouldn’t have much effect on my lifestyle. However if the prices don’t go to those levels, then I would lose the premiums, and that would be money I need. In addition, I would have to sell some of my stock to make any significant purchase, which I feel would be converting an investment into speculation, which is not for me. For others with different financial situations buying an option “lottery ticket”, or just increasing leverage, might be a rational thing to do.
Be clear on what you need the stock price to do and over what time period. For the far out of the money calls, you are looking IDCC’s share price zooming well over 50% in a limited time period for your options to not expire worthless. This would be on the heels of a run-up of over 50% already. That would be a spectacular performance. If you own the stock, a 50% gain will be a 50% gain, whether it comes next week or next year. With the far out of the money options, a 50% gain in stock price might be a 100% loss. And a 100% gain in stock price could be a 100% loss if it doesn’t come in time. Another issue is that your gains will be short term, taxed at your marginal tax rate, not the capital gains rate, so instead of keeping 85% after federal tax, you may only keep at 65%. So look at your after tax return when considering buying options or stock.
Of course, the upside is huge, and that’s the attraction. So if you have some speculative funds that you want use to try to make a lot of money in a short period, and you feel strongly that IDCC will be bought out at a high price and it will happen soon, then options will provide a huge return and you should go for it. Trust me, I will be rooting for you to make a bundle.
When looking at options investment alternatives, look at the % gain or loss when you do your analysis, not the dollars. If you compare two options with at strike prices $5 apart, the lower strike price will not give you more gain just because you will get $5 more on each share. You have to look at your expectation for the buyout price and then compute your percentage gain or loss based on your expectations. It doesn’t matter what the dollar gain per option is, it is the percentage return. You need to compare investing a fixed amount of dollars, regardless of the number of shares or options, when looking at alternatives. If you are looking for $200 plus share price, the higher your strike price, the better percentage return you will get.
Zombywolf, your post makes me want to SHOUT!
It is off topic and I should delete it, but it is too funny.
We will all take $75
if it is the highest offer. While many of us may believe that IDCC could easily exceed that price based on fundamentals (especially with a positive CAFC decision), the majority of the stock is held by institutions. Danny Detail or anyone else with experience in this area can correct me if I'm wrong, but my impression is that they would choose to sell at $75 rather than wait for IDCC to execute on its business plan to bring the price up. They need winners, and IDCC at $75 is a big winner for everyone who held it before the announcement of the sale. Bonuses are based on current performance. So my opinion is that the institutions will agree to a sellout rather than let the stock price fall back to the $40s. If the majority of the stockholders are willing to accept the offer, it's a done deal.
Before people get crazy, I'm not predicting that's what we will be sold for. The key is having multiple bidders for IDCC. At that point what our rock bottom acceptable price is not relevant. It will be about how much the second highest bidder is willing to pay. We will be sold for a bit more than that amount. My one concern is that Apple or an Apple led group may face antitrust issues in light of their purchase of the Nortel patents. If they are buying it to prevent Google from getting cross licensing power, the DOJ may step in. Take Apple out of the equation and the bidding war doesn't look nearly as explosive.
Wall Street and the efficient market
The fact that there are stocks that soar and crash does not prove that the market is not efficient. An efficient market means that one cannot consistently beat the market averages. By and large, I believe the market is efficient. Mutual funds might outperform the market for a while, but they generally balance out over the long run. The market is not perfectly efficient. I know Value Line ratings consistently ranked stocks that would out perform and under perform the market for decades. Hedge fund strategies developed by Ed Thorpe were also successful. I also think that if one follows a small company that isn't widely followed, one could find an opportunity.
Bubbles, market crashes and brilliant individual moves do not mean the market is inefficient, it means it is volatile. If two stocks were bidding for a big contract. The one that got it would be worth $100 a share, the other worthless, and the true and known chance was 50/50. In an efficient market, both stocks would be selling for $50 the day before the decision, and the day after one would be doubled and the other worthless. That doesn't shown that the market is inefficient. Your examples show that hindsight is 20/20. If anyone can find the market inefficiencies beforehand, they don't have to work. They can make a bundle trading. Easy money.
IMO IDCC's upside potential and probability combined with the downside potential and probability indicate a value in excess of the current share price. Because of that, I am still holding IDCC stock. But I don't think that this is a sure thing. I also don't think there are so many stupid call writers willing to sell lottery tickets paying 100 to 1 and more on something that is probable. That doesn't mean 100 to 1 shots don't come in, it just doesn't happen to often. Most investors are risk adverse, so higher risk stocks have a higher expected return than conservative stocks, so it makes sense that the market would discount IDCC's expected value. IDCC, especially now that it is in play, is very risky. However if an IDCC buyout was a sure thing and the bidding was going to start at $100, there is too much money to be made and there are too many eyes on this for it to be trading around $70. Is $200 or more possible? Absolutely, but it is at the tail end of the bell curve.
Your raise some interesting points Duke
Right now I'm more hopeful than worried. Worst case is we don't get sold. In that case we have a company that is easily worth $40+ per share based on their current earnings and very strong balance sheet. They have a decision pending from the CAFC that could give us the leverage we need to license Nokia, which should help us sign LG and Ericsson. Failing that, we do have new ITC and Delaware actions. That would mean further delay, but it's not a disaster. We would still have earnings and plenty of cash. That would be very disappointing, but not the end of the world.
Yes, Joel and some others are enthusiastically optimistic. I enjoy reading his analysis but I don't think the potential buyers will be as generous in their assessment of IDCCs value. On the other hand, M Partners has estimated the sale value being worth $118-$167, using what I believe are realistic, conservative assumptions. So I am hopeful that IDCC will be bought and the price will be in triple digits. I'm not expecting it to be in weeks. Assuming that IDCC's portfolio is as strong as advertised, management will want to give everyone plenty of time to do their analysis.
Your concerns about the lack of value due to the licensing history is misplaced IMO. I believe that IDCC has been too passive, taking legal action as a last resort, and when they have it's been an incredibly slow process. I think they've allowed Nokia and others to string them along, engage in financial discussions that never end. Even if our patents are pure gold, if we can't show them the upside to signing today rather than tomorrow, they won't sign. Until QCOM got their patent validated in court, they had similar troubles. So IDCC does need to get a decisive win or the threat of a decisive win to drive licensing. So I don't see the mediocre licensing as evidence that IDCC doesn't have the goods. No licensing would do that, but IDCC has enough current and past licenses to validate that IDCC's IP has significant value in my lay opinion.
As far as why others didn't buy us, it was because potential purchasers had enough IP to cross license. There is not much additional value to adding more. It would free them from having to pay IDCC, but they can just refuse to sign to achieve the same goal. Plus some of their competitors are paying, giving the infringer a competitive advantage. Similarly, our patents would not allow QCOM to materially increase their licensing rates, so they had no interest. Other than QCOM and manufacturers, who else would want to buy? That's why no one made a run at us.
Nortel may be our watershed event, so that we will need a calculator with a lot of zeros and our price chart is going to look like a hockey stick. It's not a sure thing, but there is a real possibility that our long journey is going to come to a successful end. I got a hunch you too are hopeful that this will come to a happy conclusion otherwise you'd be taking advantage of the current high price and selling. Yes, there is risk here, but there is also upside potential. I can understand the fear that comes from being on the cusp of the big breakthrough so many times only to have things fall through. I am a 49er fan since the 60s. I came to expect them to blow it whenever they got close. After "The Catch", I was on my knees, praying they didn't miss the extra point. I was still sure that Dallas was going to get a field goal. But things had changed, there was a new reality, and I enjoyed the best times of my sportsfan life. I'm hoping to have "The Sale" become the seminal event in my financial life.
If management could block and tackle
and we could sign Nokia, LG, Ericsson, Motorola and get Apple renewed at a decent rate, then this company would be well worth triple digits, and that's why I've invested so heavily. Even with what I consider to be mediocre execution, the fundamentals supported a price that provided a good return for me and was still undervalued IMO. Since management considers the licensing department best in class based on the achievements to date, I don't see them achieving what I consider best in class licensing performance (QCOM) soon.
IF IDCC gets a favorable CAFC decision (reversed and remanded), IF the ITC then does find infringment and issues a ban and IF IDCC is able to use that leverage to get a good deal with Nokia for past infringment and future use (because whatever we get, no matter how we allocate the moneys received, other licensees will divide the total amount by total units to come up with the true rate), then IDCC would have a strong case against any other holdout and would be able to sign. That's a lot of IFs, and these same and similar IFs that have been holding this company back for over a decade. So while your story is the one I fell in love with last century, IF there is an offer above our all time high, it will be accepted (subject to other bids).
This has been going on too long and I, for one, am quite ready to close out this investment. If we do get bought out, I will be somewhere between happy to thrilled beyond belief. If IDCC gets bought out, I will not consider myself a genius. I invested in this company based on their patents in the high growth telecommunications sector. My expectation was that they would be able to license the IP, generate huge revenues with almost no variable costs, seeing profits rise with the increase in the market. If IDCC gets bought out, it won't be because of their ability to monetize patents, I will have gotten lucky because some companies with a lot of money find they need the patents and are willing to buy them. As I like to say, it's better to be lucky than good.
Longinvestor, enyaw and dndodd,
Thanks for your thoughts on the time frame. I sincerely hope you are correct that we are looking at weeks, not months. For one thing, I have some career decisions to make, and how this plays out will have a huge affect on what I do (or hopefully won't be doing). Secondly, I am having trouble sleeping as the possibilities keep running through my mind.