Tuesday, August 02, 2016 8:33:23 AM
Second Quarter 2016 Financial Highlights
Second quarter 2016 total revenue was $75.9 million, compared to $118.6 million in second quarter 2015. Second quarter 2015 included $27.3 million of past patent royalties.
Second quarter 2016 recurring revenue was $74.6 million, consisting of current patent royalties and current technology solutions revenue, compared to $91.2 million in second quarter 2015. This decrease in recurring revenue was primarily attributable to seasonality in shipments by certain of our licensees.
Second quarter 2016 operating expenses were $52.8 million, compared to $60.0 million in second quarter 2015. Intellectual property enforcement expenses were $5.1 million, a 47% decrease compared to $9.7 million in second quarter 2015.
The company recognized a $23.1 million discrete net tax benefit in second quarter 2016, related to refund claims for prior year domestic production activities deductions.
Net income1 was $40.0 million, or $1.14 per diluted share, compared to $32.6 million, or $0.89 per diluted share, in second quarter 2015.
In second quarter 2016, the company had cash flow from operating activities of $191.4 million and free cash flow2 of $182.5 million, compared to $25.3 million and $17.0 million, respectively, in second quarter 2015. These increases are primarily attributable to cash collected under an arbitration award and related patent license agreement. The amounts collected have been included in deferred revenue, as all criteria for revenue recognition have not yet been met. The company will recognize the related revenue from these payments, including both a recurring and past sales component, in the period in which it believes the revenue to be fixed or determinable. The company currently expects to reach that conclusion, and recognize the related revenue, in third quarter 2016.
Ending cash and short-term investments totaled $813.9 million.
“The company delivered another very solid quarter,” commented William J. Merritt, President and CEO. “While recurring revenue declined from first quarter, that decline was driven by expected seasonality in phone sales and has no impact on our confidence in our ability to drive the annual royalty platform for our core terminal unit licensing business to between $500 and $600 million. We also continued our strong work around expenses this quarter, taking some significant steps to lower our tax burden and drive higher profitability. Lastly, our engineers and scientists continued to drive substantial new innovation at the company, including making numerous contributions into the developing 5G standard. InterDigital was among the leaders in driving 3G and 4G innovation and we are working to drive a similar position for the company in 5G, where the opportunity to innovate is substantial and the technology needs are right in our wheelhouse.”
Additional Financial Highlights for Second Quarter 2016
The decrease in operating expenses of $7.1 million was primarily attributable to a $4.5 million decrease in intellectual property enforcement and non-patent litigation. Additionally, consulting services, commercial initiatives and personnel-related costs collectively decreased $5.7 million. These decreases were partially offset by a $2.9 million increase in performance-based compensation and depreciation and amortization.
During second quarter 2016, the company repurchased 0.3 million shares of common stock for $18.6 million. From July 1, 2016 through July 29, 2016, the company repurchased an additional 0.1 million shares at a cost of $5.7 million, bringing the total number of shares repurchased under the company's current $400 million stock repurchase program to 6.7 million shares at a cost of $313.7 million.
The company's second quarter 2016 effective tax rate was a benefit of approximately 74.4% as compared to a provision of 37.1% during second quarter 2015. The change in our effective tax rate was primarily attributable to the discrete impact of the refund claims discussed above, as well as the ongoing benefit from current year domestic production activities deductions.
Conference Call Information
InterDigital will host a conference call on Tuesday, August 2, 2016 at 10:00 a.m. Eastern Time to discuss its second quarter 2016 financial performance and other company matters. For a live Internet webcast of the conference call, visit www.interdigital.com and click on the link to the live webcast on the Investors page. The company encourages participants to take advantage of the Internet option.
For telephone access to the conference, call 888-768-6569 within the U.S. or +1 785-830-7992 from outside the U.S. Please call by 9:50 a.m. ET on August 2 and give the operator Conference ID number 4484566.
An Internet replay of the conference call will be available on InterDigital's website in the Investors section. In addition, a telephone replay will be available from 1:00 p.m. ET August 2 through 1:00 p.m. ET August 7. To access the recorded replay, call 888-203-1112 or +1 719-457-0820 and use the replay code 4484566.
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