Q3 2020 InterDigital Inc Earnings Call
Put forward very rational arguments.
That really takes that complication Adams future litigations and they're at the point of all this at the end of the day is.
The reason people Lydia.
Is that there's enough uncertainty that it it supports the cost of litigation.
Once you start to strip the uncertainty out of litigations, you say, it's not going to be antitrust case, it's a contract that it's all about the rates and Interdigitals got judicially determines benchmark the uncertainty narrows dramatically and therefore, the incentive to litigate.
Dropped dropped dramatically and that lab into that and so I think we're at a point, where you could have actually as you know as we do today, we have little bit of a flurry of activity on the litigation side, but it's I think.
Our intent is to clear out the uncertainty and if we need to do that through litigation that's fine because when we come out the other end, we think between the change in the regulatory environment and whatever we prove up in these cases, we will create a much more certain environment and watch less incentive to litigate.
That's helpful. Thank you and then you are using some focus on the LG license come up for expiration slash over renewal at the end of this year can you.
Looking for your comments on your discussions with them per se around renewal, but can.
Can you, maybe just give a broader sense of how.
You know.
Derrick.
Relation has evolved since the 2000 due to timing in terms of relevance.
Your so your IP and protect your IP video IP to their product set.
Sure.
So couple of things on LG have actually been licensee since 2005.
Thats right and so you know were pending licensee and so we would expect them.
Dick Twoq continued to be let's say doesn't mean, it can't be a gap and.
In the license that happens from time to time, we will.
We try to work to see if that doesn't happen, but if it doesn't happen, it's a big deal it into that.
In terms of the way we.
Yes, the opportunities for approaching LG.
You know their business their mobile business is a bit smaller than it was last time.
There's still they still have a lot of commitment to that business.
And they have a new product line has come out and so I think there's a lot there's still.
It's a business they want to stay in that they are operating at lower levels.
Looking at the board.
We have a different set of assets to bring to the table with the same assets as last time in terms of Threeg and Fourg portfolio and of course now we have five years portfolio talking about and the HSBC portfolio to talk about so that's.
That brings more value to the table as we've mentioned before there is also the separately associations with them around.
Televisions.
So.
Theres either the opportunity to work those deals several were there could be an opportunity to bring them together.
And I'd say it bring it back in the queue.
She asked before and LG understand its operating any different.
Litigation environment than what existed three or four years ago, where.
There is a very efficient path to a license.
And so.
I think that we can you know.
Our job with them is to demonstrate that there's very little uncertainty here that the range of rates that we have are pretty well established by our license agreement and that there is little or no incentive to litigate.
And that yes, theres always as well opportunity to work.
With.
Our licensees on R&D and other things and I'd say the other thing thats different from where we were last time is we have a much bigger R&D profile than we did before and therefore more things that we can do with them. So.
I think it's I think it's a better position that we're in this time last time as I said, we've been very successful at maintaining them as a licensee so thats certainly our intent.
Okay last question.
Zero essentially zero shares repurchased year to date is that more a function of the.
Uncertainty around cold goodness inventories are going to balance sheet with that uncertainty or is it more around.
Preserving a balance sheet around litigation efforts.
Yes, I'll take that Eric it's it's a little bit the former.
Like a lot of other companies.
Uncertain environment value cash.
Let's let the secondary impact than anticipated 111 cents over the summer.
Would be.
Some dry powder for any opportunities that may come up in this kind of unusual set of circumstances.
Uh huh.
Thanks for your model.
Thank you well move onto the next question and that is from Charlie Anderson with Colliers Securities. Please go ahead with your question.
Yeah, Good morning, and thanks for taking my questions I just wanted to.
A follow up on rich I think in your prepared remarks, you talked about an incremental 7 million on there was reference to.
October 21, but I wouldnt want to be just elaborate.
On that all the puts and takes involved and what's happening there and then I've got a follow up.
Yeah.
I'll try to elaborate I you know as you know Charlie with our agreements there is a strong confidentiality provisions on unlimited and to the extent I can do so but on the.
The first thing I'd do is refer you to our 2000 1910.
10-K, we have descriptions of our larger agreements in there and yes.
Yes, certainly we have a situation before with Samsung, where there wasn't a right to terminate early and and that wasn't exercised.
So we have you know, sometimes similar provisions and other agreements.
Now that that.
Has lapsed and was on exercise for this particular agreement we have.
Better insight to the full turn to the agreement and our original accounting model. In this particular case could not sure that it would lapse theres a pretty high standards for that now that it has lapsed.
The impact of that will be.
From October 21 on for that 12 month period.
We'll have another $7 million a quarter.
Okay didn't effectively changed the term of the agreement Roche.
So it didn't change the terms from our perspective.
Even though this wasn't necessarily how we accounted for it again because of the.
The threshold to a probability you need to meet.
What we what we had signed was an agreement that runs a certain term and there was an option to terminate.
Your early in this case for.
So that that option no longer exists.
Okay, perfect and then I noticed.
Your variable royalties were up significantly year over year after being down in the first half of the year.
What I was sort of the reverse on Tech solutions, you were down after being up.
Can you just curious if that was reflective of what's happening in the market or is that sort of true up activity related or whatever the first half.
Yeah, So it's a little bit we mentioned the agreements that we signed year over year.
No none of them are smaller variable agreements so thats a factor.
There is always a little bit of a true up factor so no I'd.
I'd say, it's combination to do but certainly the new agreements was a part of that.
Okay, Great and then last one for me Bill.
Clearly what we're seeing in China is a bid to.
Take market share from walkaway, given all their export.
Issues or export restrictions.
Feels like there is a a land grab going on out there and I imagine that extend that to not just China, but outside of China from some of the no party, but you don't have under license, but I'm sort of curious if youd be this is an interesting sort of strategic window in time to engage with them relative to other periods like.
Sure Yeah. So I think you're exactly right you are I think the ER there.
There is certainly while we had lost a lot of share outside of China and companies like Sean they have seized that opportunity.
And so.
Places like Europe, and or have become really significant growth opportunities to win them.
And that's it would.
The interesting thing there is that.
When the growth is coming in a place where the IP systems are really strong and obviously, that's a communication that we make to that which is your.
They had some some growth in China, but mostly their growth is going to be outside your.
And.
They're going to need to secure a license to maintain that growth because otherwise.
As as we have a right to do we will seek to enjoy into sales.
In in jurisdictions, where it's appropriate so so I think it's Sean is certainly picking up share.
Opposite picking up share outside of China, It's a little what's going on inside China is a little less clear, but I think that will.
Also shake out over time, so I mean, the other opportunity with these companies is it.
Speculative to some degree what share they will actually pick up and so sometimes when you have some forecast uncertainty it's actually a convenient time to do licenses because you can kind of you know.
Both sides can kind of look at forecast different ways and you can arrive at a number that makes sense for each side right. So.
I'd say that there is there is that opportunity now or you know once the forecast become more solidified then there's less flexibility you have in terms of that forecast uncertainty.
Perfect. Thank you guys so much.
Extra.
Thank you as a reminder, that is star one for any questions well move on to our next question and that is from Scott Ceryl with Roth cap I'm, sorry, with Roth capital. Please go ahead with your question.
Hey, good morning, Thanks for taking my questions, Hey, Rich just a quick clarification on the tax benefit I think you said 18 million a combination over the third quarter in the current quarter can you give us an idea about how much of that on a normalized basis. We would we saw in the third quarter.
Yes, So let me let me clarify the 18 million is all in Q3.
We expect that there could be a little bit of care, we're calling it a onetime item.
But the way that you kind of.
Recognize your provision.
For the year, you have to look at the street and over overtime elements we.
We expect a small or a much much smaller benefit in in Q4 and at the end of the day, it's really an estimate so there could be a little bit of a true up one way or the other related to that estimate so on the whole when we look forward to Q4, yeah, we kind of expect to be.
In the range of what we always talk about is our long term rate, which is 15% to 17%.
Gotcha. Thank you.
And yes, and maybe to follow up on Charlie's question related to variable per unit royalties being higher in the quarter.
I think you referenced earlier in the call that now you've gotten up to 40 million in total CE revenue since acquiring technical or can you give us an idea.
What see looks like in.
In the third quarter, and maybe remind us what the timeframe is of getting back to that $150 million in annualized revenue on the C front and maybe as part of that give us a quick update in terms of Aiotv avanci.
Yes, so see for the quarter was a little more than $3 million. So I've talked about if you look at an annualized I'm talking about roughly being.
Tempur set towards that $150 million goal I think on an annualized basis, where maybe a little bit shy of that.
The reason, we get to 40 million over the slightly more than two years. Since we signed is you get some pass.
Sales in that $40 million number. So overall, you know I'm looking at it more as the positive signs or we're getting deals done were validating the rate in the market. The new deals really didn't start until I think December 4th quarter of last year. So it took us a period of time for us just to kind of.
Get established with the new portfolio.
Yes, the timeline.
We don't as you know put put specific timelines out there obviously, we'd like to be as quickly as possible.
But at the end today as we always say and this is true in mobile and shouldn't see the most important thing when we look at value is getting the right deal.
And if it takes a little bit longer than.
And then trying to get the maximum benefit of those past sales when we get the deal done. So we hope to make additional progress there and you know it's it's gonna required just to see if we move the needle.
Well it will require some of the larger manufacturers, particularly in TD in kind and we want to continue to do the smaller deals, but but certainly at the larger ones as well.
If there was a second part to your question I think were where we are with Aiotv and.
Correct, you're seeing Avanci Yep Yep.
Yeah.
Those numbers at my fingertips, but.
They are contributing but but still it's smaller levels. That's another area, where the larger opportunity lies in front of the gosh.
Gotcha and lastly, just two quick ones to follow up the <unk>.
Could you give us a timeframe now with Indian show me what is the current timeline.
To to have some sort of conclusion or moving towards a resolution and lastly.
Given the current presidential implications on the existing administration has been very supportive and aggressive from enforcing intellectual property in China and any thoughts in terms of if theres a change within the White House does it change any way in terms of how we're engaging with China as it relates to intellectual property and otherwise thanks.
Sure. So I'll take the second question first so.
We don't really there was China has and is not a partisan issue.
It has become a.
Bipartisan issue I think.
That.
Got it to the Trump administration, they really did.
Make it clear to everyone that.
In China, It really had no intent of embracing the world in a cooperative way and.
And.
Opening up a completely free market and everything else and so I think everyone is aware of that now and so I would expect the by the administration or is it wouldn't be that to continue those kind of approach of course, the Trump administration would do the same.
They may do it different ways. They may use different tools, but I think at least.
Here's what we're seeing is everyone pretty well lined up in terms of needing to come back to that China.
Yes, what broadly on on patents on I think.
The patent narrative that negative narrative that carried for a while has.
So it's like like China. The cover was blown off that to this whole mom and pop coffee shop thing that Google another use for a while.
Does it play anymore and in fact, even as you've all seen Google Facebook and others, who are big anti patent companies are now.
They don't they don't carry the favor of either side of the aisle. So I don't see that changing.
Much either.
So and I say last.
If it were to be a Biden administration, yeah, we have Chris can do the good friend of the company.
As such we are dollar based company.
We would certainly and a very very big supporter of passes could be could have influence on the on the overall administration for that time.
On the.
In terms of you know timelines for litigation.
Yeah there is.
Both with respect to.
This is Sean made there is of course the cases in India. There is cases in China.
And they'll they'll move along at their respective paces.
The China case.
When it gets going.
Likely will move quickly and even though it shouldn't but thats just the way the operator over there, but I'm not really sure the impact that at the end of the day you know that the case.
Cases in India, and I think the rough estimate is a couple of years or so.
Yeah, and the end result, there can be.
Either an injunction or license so.
I think but.
As is always the litigation.
Not really there so much to get to the end you're there too.
Create.
Okay.
Clarity around information to create pressure points and a variety of other things with the ultimate goal, but actually negotiating something and so and you know as an example, one of the tools that we have today. We didn't have before is to the extent that chowmi does not operate in good faith and negotiate.
It was licensed it had a lot of risk in Germany, because Germany has come out that if you don't negotiate in good faith, you lose your right to a license and.
Hey, Eric brought it up before.
Nobody has a lot of growth opportunity in Germany.
And so.
The litigation is just a tool we have more tools now than ever and we just our job is to use those tools are the most effective way to get to us on license agreement with the customer.
Yes, I'd just add on to Bill's comments again, if you look at while we in Ziggy. They were both in litigation that we started last year and we were able to sign them. The EMEA last year and then earlier this year so.
It's not like these things always run their full course.
There are not only a means to an end.
Great. Thanks, so much guys stay healthy and safe.
Hey.
Thank you we'll take our next question and that is from I'm, just soderstrom with Sidoti and company. Please go ahead with your question.
Hi, everyone. Good morning, and thank you for taking my question. So just a follow up on on the litigation cases. This well it seems like there's been a lot of good development. They feel like that then attitude I guess ammonia counterparties have changed Jeff.
During this time frame.
Right.
<unk>.
I think as I said before I think.
I think.
Litigation is going to do over the next couple of years is actually bring clarity.
Two things and I am.
Well I'd say with some of the licensees prospective licensees, they actually don't want to be a litigation and they want to see if they can find and answering the right terms there is other part.
Parties that may want to see if they can get a free look at the litigation before they do anything and Weve got to make sure that they understand that there is no opportunity for if we look.
Yes, the parties that are in litigation I think where they.
While they may.
One point think that.
It was strategically advantageous for them to do something our job is over time to convince them that it wasn't so and it. It's one of these things were at.
To.
Sort of like a as independent observer looking it at the litigation environment, you can look at it as a bit chaotic I actually look at it as this is this is this is the time when things are really going to get sorted out so.
Well see I would say theres been some shift in attitude.
The place is not.
But I think you'll see more shift in attitude as to cases move forward and more clarity as brought to bear.
Okay. Thank you and then just one last housekeeping question on the Capex, what what drove that up for the quarter.
Uh huh.
I don't think there was any I'm not thinking of anything too specific.
Other than just.
So the timing of things.
So I Uh huh.
I don't think I think you have at the moment.
Okay. Thank you.
That's all for me.
Thank you.
Thank you at this time there are no further questions I will now turn the call back over to our speakers for any closing comments.
Thank you Ryan and thank you all for joining US today. It concludes our call I look forward to continuing in ethane export export.
[laughter].
Thank you ladies and gentlemen. This concludes today's conference all participants may now disconnect.
[music].