Q2 2021 InterDigital Inc Earnings Call

We appreciate your patience then put you right on the line.

[music].

Good day and welcome to the Interdigital, Inc. Second quarter 2021 earnings call Today's conference is being recorded.

At this time I would like to turn the conference over to the cause.

Filled all the Oh go ahead ma'am.

Thank you Ana good morning to everyone and welcome to introduce yourself second quarter 2021earnings conference call. After the Genesee video Vice President of Finance and Investor Relations and with me in today's call are Liam and Chen, our president and CEO and rich basket, our CFO consistent with last quarter's call.

We will offer some highlights about the quarter and the company and then open up the call for questions.

Before we begin our remarks I need to remind you of that in this call. We will make forward looking statements regarding our current beliefs plans and expectations, which are not guarantees of future performance and are made only as of the debate here on forward looking statements are subject to risks and uncertainties that could cause actual results and events.

The differ materially from results and events contemplated by such forward looking statements.

These risks and uncertainties include those described in the risk factors sections of our 2020 annual report on form 10-K, and there are of second quarter 2021 quarterly report on form 10-Q, and other SEC filings. In addition, today's presentation may contain references to non-GAAP financial measure.

Reconciliations of these non-GAAP financial measures the most directly comparable GAAP financial measures are included in our financial metrics tracker, which is available on the Investor Relations section of our website with that taken care of I will turn the call over to layer on.

Thank you Celia on them good morning, everyone and thank you for joining our call today, I hope everyone's safe and healthy.

In terms of financial performance, our second quarter revenue and expenses right in line with our expectations.

I'll, let rich speak to the financials in more detail later.

On today's call I would like to focus on key areas, where interdigital continues to show strength and momentum names.

Namely our licensing our technology leadership, our patent portfolio and our overall execution.

These are all exemplified by our new long term agreement with Xiaomi, which we announced earlier this week.

Xiaomi is a public traded China based vendor with almost a hungry 50 million smartphone shipped in 2020.

The are consistently 1 of the leading handset vendors worldwide, including China, India and other emerging market.

Also of holding double digit on growing market share in Europe.

The agreement of Xiaomi, recognizing the depth and breadth of interdigital patent portfolio.

Across several key technologies related to cellular wireless, including <unk> <unk> I'm, sorry of G. Wi Fi and H E B C redo of technology.

I'd also add 1 of the worlds, leading smartphone manufacturers, who are of current lease of approximately 80 companies, including Apple Bobby Samsung and Sony.

That have taken the licensee to introduce the extensive patent portfolio.

I'm, particularly delighted that by adding xiaomi working consistently with our interest rate either.

We know of license our patented technology to more of that 800 media handsets around the world This year alone.

About approximately 55 person of the worldwide smartphone market.

Well, it's part of the agreement.

I'm sure you all Mi has agreed to terminate all pending litigations and other legal proceedings.

And we look forward to enhancing the collaborations between the 2 companies.

On the litigation from in the past several months as we have seen some excellent outcomes that demonstrate both our ability to kind of marquee jurisdictional cases.

I'm constraints of our portfolio.

Last week the <unk>.

UK High Court has decided that 1 of our 4 <unk> LTE patent is valid.

Essential and infringed by Lenovo.

This decision is the first from 5 technical trials that are scheduled to proceed before the UK High court.

And serves as a further proof of strength of the innovation developed by Interdigital, the R&D team as.

As well as our ability to use force our related right.

Worldwide patent portfolio.

We look forward to a related Ryan the trial scheduled for January 2022.

We expect the U K Court Tuesday, right terms that would be applicable to a worldwide license missile of note.

I want to reiterate that our long held desire to reach amicable agreement sort of bilateral negotiations.

However, as we have demonstrated.

The balance the desire with our willingness to pursue actions against the Implementers that are on waiting to accept spirit on reasonable terms for a license to our technology.

In terms of research and development. Our teams continued to produce great work and demonstrated leadership across all of the technology that beat you up.

The <unk> cellular wireless a recurrent contributions to 3 G suite. The P. P. Besides the standards in 2021 have increased by more than 50 per cent linked compared to the same period in 2020.

Yeah on Houston are engineers continues to be named to leadership positions within importing does the organization like <unk> E. P. P.

2.5 G and future of 60 standards.

On the video side in the diesel in the winter has also been named into several of the leadership polices 2 of.

P M pad standard group and to the ICU group responsible for standardization in the areas of where you do and prove on production.

Focusing on energy consumption and sustainability considerations.

So overall quality of our innovation continues to be very high. These was most recently evidenced by where of 5 key enabled end to end robotics tally presence parted ways.

At least we executed in cooperation with Telenor and BT and was named to the short list of the C. S Award in the best 5 T mobile all we do of Technology service category.

This project highlights the work around Juniors continue to do at the core of sides of innovation of network become more efficient and flexible for different use cases.

This followed the award we received in May when our advantage edge and the relation platform was recognized.

The emerging technology at the small cell form of awards.

Now look at our patent portfolio, we continue to further strength, our IP position with our increased pace of new you mentioned related to 5 G wireless standard.

For example.

So far in 2021, we are on track to exceed last year's number of Reinventions by nearly 30%.

Significantly the inventions relate to the important features and functionalities, such as increasing data rate, reducing latency, improving reliability and enabling a faster and more accurate of cellular positioning technology.

And the impact to continue the b at a portfolio of valuable IP, because we have a robust inventor community.

But as we communicated previously more of that 50% of interdigital employee of engineers and more than 90% of those engineers argue inventors.

So to put it another way more than half of all interdigital employees of inventors.

Each represents a remarkable culture of innovation.

Consistent with the continuing execution of our strategy, we recently announced a restructuring effort with the intent to better allow research resources with our business model.

We expect this effort to lead to us some level of reinvestment that will help drive further growth and revenue in the future.

In summary, I believe the combination of our technology leadership, the breadth and quality of our patent portfolio.

And our reasonable and fair approach for licensing.

Combined with the execution of our litigation strategy will drive continued success in the future.

With that let me turn it over to rich.

Thanks Lauren.

As Lynn mentioned, our Q2 results were more or less in line with our expectations specifically the $88 million of revenue, we reported which did not include our Q3 Xiaomi agreement.

Came in at the high end of our expectations.

Meanwhile, Q2 operating expenses at 91 million were at the lower end of our expectations.

Our total revenue and expense were each driven to the favorable end of the respective ranges by recurring revenue of $78 million and restructuring and 1 time charges of $15 million.

The contributing factor to the lower than expected restructuring and onetime charges was timing.

As we first indicated in our June expense guidance, we expect additional charges related to our restructuring in the second half of the year.

With the specific timing dependent on meeting the criteria for when we can account for such change of charges.

Meanwhile, our estimated annualized expense savings from the restructuring remains roughly $15 million.

We expect to begin to realize a portion of that savings sometime in the fourth quarter of this year.

Looking forward to Q3, we expect our financial results to benefit from our long term fixed price agreement with Xiaomi.

Including the expected recognition of 2 quarters worth of nonrecurring revenue in Q3.

In addition, we expect to recognize a level of recurring revenue that would put our revenue platform at roughly $360 million.

I'll remind everyone that when I referred to our revenue platform I'm annualizing the recurring revenue for a given period.

In this case the Q3 revenue platform is the preliminary estimate that accounts for the Xiaomi license and for the loss of a relatively small amount of recurring technology solutions revenue in connection with our ongoing restructuring.

We will provide additional details around our expectations for Q3 revenue and expense.

Including any adjustment to compensation accruals and any expected restructuring charges in 1 or more releases later this quarter.

Yeah.

Finally, moving on to capitalize on.

Between January 1st of this year and August 3rd we have reduced our outstanding share count by another 300000 shares through the repurchase of $20 million of our common stock.

With that I'll turn it back over to Suzanne.

Thank you rich. Thank you Lee ran and we will now open the call for questions.

And that's the only way to ask a question. Please signal by pressing star 1 on your telephone keypad.

I think a speaker phone please make sure you're on mute function of turned off to allow your signal to reach our equipment.

Once again that is the star 1 if you would like to ask a question.

Well pause for just a moment.

Okay.

The once again that is the star 1 if you would like to ask a question.

And we'll now take a question from Derek Soderberg with Colliers the securities.

Hey, guys congrats on getting Xiaomi side.

Rich I actually wanted to start with on up on the Opex. So I know you don't guide Opex, specifically, but I guess I'm curious sort of if we take out the the onetime impacts.

That we saw and then sort of exclude some of those restructuring charges sort of how should how should we be.

You know modeling Opex, just from a sort of.

The directional standpoint from here.

Yeah, well certainly I would start with what you said taking out the the onetime impacts if you look at our financial metrics, which we published flow on our website today, there's a total of roughly $15 million driven by the $13 million of of restructuring charges.

So that would obviously be the first thing.

The second thing that I always talk about is when you are comparing period to period is looking at it with and without litigation because litigation is always going to move around depending on what's going on and how the cases are evolving.

So as far as more specific guidance from that that's kind of the baseline as far as more specific guidance, we will provide that.

Later to the extent that we think there's a important things to consider from a trend perspective.

And certainly in the second half of this year, we expect additional restructuring.

How much if any is in Q3 versus Q4 as I said is a bit dependent on timing. So that'll definitely be something we want to be clear as it becomes.

The more clear to us with new information.

Got it got it that's helpful.

And then just back to the the Xiaomi deal I guess I'm just curious.

You know I wonder to what degree is that deal maybe an example of how some.

Some of the other deals you've done looked like in the past or.

Was there anything that you felt that was unique about this deal that you.

You know I guess it was different than the ones that you've done on the past.

Hey, Dara is learn so if you look at the Xiaomi deal. We just completed already of this week is very much consistent with the past deal. We have done is longer Kirk with long term deal 8 covers worldwide device sales and if I had to you know outhouse, who the other things here is.

It covers our cellular technology, our Wi Fi technology, as well as our AC D C standard essential patents.

Yeah, and I'll, just add Derek debt as Linda said, its a long term deal I mentioned in my script that.

We expect in Q3 to recognize 2 quarters of <unk>.

Of of <unk>.

Non recurring revenue in Q3 associated for it and in total expect it to run 5 years.

Perfect. Thanks, guys.

So you plan on reminder of that is star 1 of you would like to ask a question.

I'll pause 1 tomorrow.

And it appears there are no further telephone questions I'd like to turn the conference back over to our presenters for any additional or closing remarks.

Thank you Anna on there.

And do you have any final remarks, yeah. This is 1 of the C. O. Thank you to all of the employees for their dedication and keeping executing on a very challenging time I look forward to reading of the company to further success in the future I also want hope everyone stay healthy, but we continue to navigate sort of the pandemic. Thank you.

Thanks, Lee and thanks to everybody for joining US today, we look forward to giving you an update next quarter.

Yes.

And once again that does conclude today's conference. We thank you all from your participation you may now disconnect.

[music].