BoA keeps 105 target
Impressive 3Q results strengthened by Lenovo agreement
Strong 3Q results with revenue growth of 20% YoY to $140mn outperforming Street's expectations of $100mn, driven by catch-up revenues from two new licensing agreements signed in the quarter, namely Lenovo and Humax. Gross and operating margins came in better than expected at 64%/38%, vs. Street's 61%/20%, respectively, supported by the revenue beat and solid cost efficiencies. This also drove EPS to impress at $1.72 and beat consensus estimates by $1.05. We reiterate our Buy rating and $105 PO, as we remain confident in the company's medium-term outlook and potential topline benefits from licensing agreements with Lenovo, Oppo and Vivo.
Robust handset growth supported by non-recurring revs
Recurring revenues from smartphones grew 19% YoY to $104mn and accounted for 74% of total revenues, down from 86% last quarter due to the larger catch-up payment from the Lenovo licensing agreement. Consumer Electronics (CE), Internet of Things (IoT), and Automotive revenues were also strong, up 30% YoY to $35mn, benefitting from solid growth of non-device royalties. Management also remains confident that the growth opportunity in CE, IoT/autos still has a long runway and is still only in the early stages. We also note InterDigital targets ~85% wireless penetration with Chinese vendors Lenovo, Oppo and Vivo, vs. only ~60% currently and 55% last quarter. Profitability and cash flow leverage were also strong with adjusted EBITDA margin of 60% and FCF margin of 215%, which benefitted from the timing of customer payments.
Solid 4Q guidance suggests NT outlook remains favorable
Management expects 4Q revenues to decline -10% YoY to $105mn, roughly in-line with Street expectations. While we have no way to accurately predict the timing of agreements and settlements, we note that catch-up payments on new deals have been a common part of revenues and profits in the past years and guidance may ultimately prove conservative. Operating margins and EPS guidance for the fourth quarter came out better-than-expected at 25%/75c, vs. consensus' 3%/70c. Management also believes adjusted EBITDA margin levels could remain above the 60% mark over the medium-term from solid topline growth coupled with limited expense growth. Lastly, we flag that InterDigital's agreement with Huawei is set to expire at the end of 2023, with on-going negotiations taking place and renewal likely sometime during 2024.
