InterDigital Inc (IDCC)

[blueskywaves]

Not surprisingly, the way you use raw numbers reflect a certain divorce from reality. Let's use some common sense, shall we?

IDCC's turnaround started with the 1999 Nokia deal. In order to support the Nokia engineering contract, they had to adjust their operating cost structure.

Since IDCC had no access to the secondary market because of the substantial ERICY litigation risks, IDCC had to finance the cash burn of its operations from its limited cash reserves AND its options program.

At the same time, IDCC also had to maintain its financial reserves at a high enough level where ERICY and potential licensees would not be tempted to wait them out at the negotiating tables on the calculated gamble that IDCC would run out of money to finance its cash burn.

Within that context, you still want to whine about IDCC's dilution rate from the fiscal year before the 3-year Nokia deal???

Take a look and use common sense. If IDCC diluted its stock excessively from 1998 to 2002 then how do the duck do you explain the fact that IDCC barely covered $250M in cumulative operating expenses from 1999 to 2002 with its operating cash flow? Did you want them to eat into their cash reserves and degrade the bargaining position that led to the ERICY settlement?

Again, note that IDCC had no practical access to the supernova hot IPO markets of the late 90s or before the settlement. None. Zip. Zilch. Nada. Yet you whine about the "excessive dilution" that IDCC had to use to finance its operations while maintaining its credible bargaining position?

Are you going to complain next that IDCC shouldn't have diluted its stock to finance the growth of recurring royalty revenue from less than $1M for the entire year of 1998 to more than $20M in 4Q2002 alone??? Because of you do then you have a time-space continuum problem since going forward, the quality of that recurring royalty number is the main attraction of this stock.

If you have a time-space continuum problem then the natural question to ask if the sky in your planet is blue? LOL.

 
 INTERDIGITAL (IDCC) 
 Selected Financials 
 1998-2002 
 .... 
 ....                                       
 .... 
 YEAR        O/S     Headcount    Opex    CFFO*   Cash/Invest. 
  
 1998       48.8M      215      $ 55.1M $ 30.1M    $ 52.2M 
 1999       50.5M      126        44.3M   24.0M      83.1M 
 2000       57.3M      191        53.6M    5.3M      89.0M 
 2001       53.4M      319        73.1M    9.6M      90.4M 
 2002       56.1M      300        78.7M  ( 2.6M)     87.5M 
 .... 
 .... 
 *CFFO - Cash Flow From Operations 
 

Again, if you want to dwell in the past, please feel free to compare IDCC's dilution rate with the amount of shareholder value created from the start of the 1999 Nokia deal because it was that milestone validation of IDCC's patent portfolio that enabled IDCC to increase recurring royalties more than 80x in the last 4 years and create more than $1B in market capitalization.

Going forward, the more reasonable baseline to use to determine if IDCC's dilution rate is excessive is the 2002 diluted number of 56M since this is the last full year's number before the settlement which I reiterate marked the end of IDCC's turnaround and the start of its growth stage.

72/56 would mean a more reasonable option overhang of 29%. 77/56 would mean 38%. True, those are above average numbers but IDCC has a very good chance of outperforming at least 95% of the total stock market in the next two years on the basis of an increase in sales from the $150M-$200M level to $300M-$400M.

That metric counts more than anything else that you can conjure. Sorry.<g>