Replies to post #430873 on InterDigital Inc (IDCC)

[Paullee]

BofA report out Underperform target 55
and this is after they start their question off with Great Qtr

Strong 4Q, yet long-term growth remains a concern
Solid 4Q results with revenues up 5% YoY to $117mn, above our $114mn, driven by
strength in recurring revenues, which reached $104mn and beat our expectations by
~$2mn. Gross and operating margins of 61%/33% came in above our 59%/31% from
lower-than-expected licensing and research and portfolio development costs. The margin
outperformance also drove EPS of $1.08c to beat our 93c estimates. Management
provided 1Q23 guidance for recurring revenues to decline -3% YoY to $96mn due to a
$15mn impact from expired agreements and an assumption of flat contribution from
Samsung, which is now in arbitration. We note that InterDigital’s stock is up ~50% YTD,
largely from the recent share buyback plan and the Dutch auction mechanism. Despite
the solid results, we reiterate our Underperform as we believe the long-term growth
outlook remains challenged. Even if smartphone recurring revenues reach management’s
$500mn target, the growth rate would then decline to low-single digits, as smartphones
account for 77% of total revenues. Higher estimates prompt a higher PO, up from $50
to $55, based on 16x 2024E EPS, vs. 16x 2023 EPS previously, as we roll our model
forward.
Weak smartphone revenues offset by non-handsets
Recurring revenues from smartphones fell -3% YoY to $89mn due to tough comps from
elevated revenue recognition in the final year of the prior Apple agreement. Ex-handsets,
IDCC is performing well, with Consumer Electronics (CE) and IoT/autos revenue up 50%
YoY in 4Q to $15mn and benefitting from new long-term agreements with Panasonic
and LG. Management also highlighted that 80% of all connected cars are currently
licensed under InterDigital’s 3G/4G portfolio, which contributed to CE and IoT/autos
reaching +$100mn in total FY22 revenues (recurring and non-recurring). However,
Smartphones account for the majority of recurring revenues, at 87% of total in FY22,
and while this segment grew 12% YoY in 2022, the growth could decline materially once
the company reaches 80-85% penetration after reaching licensing deals with Chinese
vendors Lenovo, Oppo, and Vivo. Lastly, InterDigital is in the process of reaching a new
agreement with Samsung through binding arbitration and management expects the
process to conclude around mid-2024.