InterDigital Announces Fourth Quarter and Full Year 2007 Financial Results
{I do not think this has been posted - mo revlis)
Company Projects First Quarter 2008 Recurring Revenue of $53 million to $55 million
KING OF PRUSSIA, Pa., Feb 28, 2008 (BUSINESS WIRE) -- InterDigital, Inc. (NASDAQ: IDCC) today announced results for the fourth quarter and twelve months ended December 31, 2007.
Fourth Quarter 2007 Highlights:
-- Revenue of $54.9 million, including $51.4 million of recurring revenue
-- Pro forma net income of $3.1 million, or $0.06 per diluted share, excluding a non-recurring litigation contingency accrual
-- Net loss of $2.0 million, or $0.04 per share
-- Repurchase of 1.0 million shares of the company's common stock for $18.5 million
Full Year 2007 Highlights:
-- Revenue of $234.2 million, including $219.6 million of recurring revenue
-- Pro forma net income of $35.9 million, or $0.72 per diluted share, excluding non-recurring arbitration and litigation contingencies accruals
-- Net income of $20.0 million, or $0.40 per diluted share
-- Free cash flow(1) of $91.3 million
-- Repurchase of 5.7 million shares of common stock for $176.2 million
-- Ending cash and short-term investments totaling $177.5 million, or $3.59 per diluted share
William J. Merritt, President and Chief Executive Officer, stated, "During 2007, we delivered solid financial results and made progress toward achieving our aggressive goals for the year. We signed license agreements with several of the world's leading brands. In addition, we significantly strengthened our patent licensing business, both in terms of building the patent portfolio and establishing the validity and defensibility of our intellectual property rights (IPR) as evidenced by the English High Court decision in December 2007 confirming the essentiality to the 3GPP standard of our European Patent (UK) 0,515,610. We also made significant and value-generating investments in our business, including the appointment of Lawrence Shay as President of our patent licensing business. Our goal for 2008 is to finalize license agreements with top handset vendors, creating significant added cash flow and revenue. We believe the strength of our portfolio and our bolstered licensing capability will be the basis for driving the business forward in 2008."
Mr. Merritt added, "In 2007, we also successfully brought our SlimChip(TM) family of mobile broadband modem solutions to market. These solutions entered customer trials successfully at the end of 2007 and in early 2008 we signed a strategic agreement with a leading Asian fabless semiconductor company for the use of our 3G technology in their rapidly expanding chipset product offerings. Our SlimChip products also generated a great deal of interest at the recent Mobile World Congress 2008 in Barcelona, where we demonstrated our SlimChip Platform on both an ExpressCard34(TM) and USB form factor. Based on the successful product development and early customer indications, we believe we are well positioned for a product design win in the first half of 2008."
"Given our strong prospects for growth, we continue to have a high level of confidence in our ability to build significant shareholder value over time through strategic investments in our product offering and our efforts to license top mobile handset manufacturers," concluded Mr. Merritt. "For that reason, we are also making significant investment in our own stock."
Fourth Quarter Summary
Recurring patent license royalties in fourth quarter 2007 increased to $50.3 million from $48.1 million in fourth quarter 2006, despite the elimination of $4.9 million of recurring patent license royalties from the roll-off of 2G licenses with Ericsson and Sony Ericsson. Excluding Ericsson and Sony Ericsson in fourth quarter 2006, fourth quarter 2007 recurring patent license royalties increased $7.1 million, or 16%, over fourth quarter 2006. Total revenue in fourth quarter 2007 decreased to $54.9 million from $65.1 million in fourth quarter 2006, due primarily to a reduction in non-recurring revenue related to 2006 settlement with Nokia and lower technology solutions revenue. Fourth quarter 2007 revenue included $50.3 million of recurring patent license royalties, $1.0 million of technology solution sales and $3.5 million associated with past sales for both a new and existing licensee. Licensees that accounted for 10 percent or more of the $51.3 million of recurring patent license royalties and technology solution sales were LG (28%), Sharp Corporation of Japan (17%) and NEC Corporation of Japan (11%).
Excluding an accrual for estimated potential reimbursement for legal costs, pro forma net income totaled $3.1 million, or $0.06 per diluted share, in fourth quarter 2007. This accrual relates to the final judgment expected to be rendered in or about April 2008 in the UKII proceeding with Nokia as to whether either party must reimburse the other for legal costs in the proceeding. Notwithstanding this accrual, given that Nokia failed in its attempt to have all of the company's UK patents declared non-essential to the 3GPP standard and, instead, the judge ruled one InterDigital patent essential and Nokia declined to challenge the essentiality of another patent, the company currently intends to take the position that, having effectively won the case, it should not owe legal costs to Nokia even if some issues may have been decided in Nokia's favor. Including this accrual of approximately $5.1 million after tax, the company's net loss in fourth quarter 2007 was $2.0 million, or $0.04 per share. Fourth quarter 2006 net income was $20.3 million, or $0.36 per diluted share, and included $12.5 million of non-recurring royalty revenue related to the resolution of matters with Nokia.
Fourth quarter 2007 operating expenses of $57.6 million increased from $38.4 million in fourth quarter 2006. Excluding the accrual for estimated potential reimbursement to Nokia for legal costs relating to the UKII proceeding, fourth quarter operating expenses were $49.8 million, an increase of $11.4 million over fourth quarter 2006. This increase primarily resulted from $6.6 million increase in costs related to product development initiatives and a $3.3 million increase in patent administration and licensing costs, principally related to arbitration and litigation matters. Excluding the accrual relating to the UKII proceeding, patent litigation and arbitration costs increased to $10.8 million in fourth quarter 2007 from $8.5 million in fourth quarter 2006 due to an increase in activity levels.
Net interest and investment income was $1.9 million in fourth quarter 2007, a decrease of $1.7 million from fourth quarter 2006 due to both lower investment balances and lower investment yields.
The company's fourth quarter 2007 tax expense consisted of the statutory federal tax rate plus an adjustment to reduce the estimated value of our 2007 research and development credit. The company's fourth quarter 2006 tax expense consisted of the statutory federal tax rate plus an adjustment to increase the estimated value of our 2006 research and development tax credits. The adjustments to the company's 2007 and 2006 research and development credits are based on the preliminary results of related tax studies and update prior estimates for these credits.
Twelve Months Summary
For full year 2007 recurring patent licensing revenues were $216.1 million, an increase of $10.0 million over 2006. Total revenues were $234.2 million compared to $480.5 million in 2006. This decrease was driven primarily by the absence of $253.0 million and $12.0 million related to the resolution of matters with Nokia and Panasonic, respectively, in 2006.
Net income for the full year 2007 was $20.0 million, or $0.40 per diluted share. Excluding an accrual for estimated legal fees, pro forma net income was $35.9 million, or $0.72 per diluted share. For the full year 2006, net income was $225.2 million, or $4.04 per diluted share. Approximately $170.3 million or $3.05 per diluted share of the 2006 net income is related to the resolution of patent licensing matters with Nokia and Panasonic.
Operating expenses were $211.2 million in 2007, an increase of $67.1 million over 2006. Excluding a $16.6 million accrual for the Federal arbitration and the $7.8 million accrual relating to the UKII proceeding, operating expenses were $186.8 million in 2007, an increase of $42.7 million over 2006. This increase is primarily related to $21.7 million higher costs associated with product development initiatives, and $16.5 million higher costs associated with higher patent administration and licensing costs. The increase in patent administration and licensing costs was primarily due to a $15.4 million increase in litigation and arbitration costs.
Net interest and investment income was $8.9 million in 2007, a decrease of $4.2 million from 2006, due to both lower investment balances and lower investment yields.
The company's full year 2007 tax expense consisted of the statutory federal tax rate plus book-tax permanent differences related to the company's research and development credits. The company's 2006 income tax expense consisted of the statutory federal tax rate plus book-tax permanent differences and $2.1 million of non-U.S. withholding taxes.
In 2007, the company generated $91.3 million of free cash flow. This free cash flow was driven by $152.7 million cash flows from operations, which includes patent license payments from LG, net of source withholding taxes, totaling $79.3 million, partially offset by estimated federal tax payments and investments in product and patent related initiatives. During 2007, the company utilized free cash flow and existing cash balances to repurchase 5.7 million common shares at a cost of $176.2 million in 2007.
First Quarter 2008 Outlook
Scott McQuilkin, Chief Financial Officer, commented, "In first quarter 2008, we expect to report recurring revenues from existing agreements in the range of $53 million to $55 million, a solid increase over fourth quarter 2007 levels reflecting improved sales from our licensees and the contribution from our new Asian semiconductor customer. This range does not include any potential impact from additional new agreements that may be signed during first quarter 2008 or additional royalties identified in audits regularly conducted by the company. With respect to our first quarter 2008 expenses, we anticipate maintaining our staffing at a level that is relatively flat with fourth quarter 2007. However, we do expect sequential growth in first quarter 2008 expenses, excluding patent arbitration and litigation costs and contingencies, to be in the 5% to 10% range due to normal wage inflation and seasonality related to vacation accruals and other personnel costs. We also currently expect that our patent arbitration and litigation costs in first quarter 2008 will increase over fourth quarter 2007 based on the expected level of activity. Lastly, we expect that our book tax rate for the first quarter of 2008 will be approximately 34 to 36 percent."
