Q1 2022 InterDigital Inc Earnings Call

Ongoing development of this exciting technology.

In fact in the first quarter, our <unk> related invention disclosures was the highest they have been in several years.

In total our cellular standard essential patent footprint for <unk> multiple device has reached nearly 10000 patents and applications.

This reflects not only the considerable investment we make to each generational cellular technology, but also our extensive work to create one of the largest and most valuable patent portfolios in the industry.

This is exciting time for those of us contributing to the development.

Not only are we seeing the commercial success of the initial releases of <unk>, but we are also about reached a notable milestone next months.

In fact, the evolution with our standards latest technology specification known us <unk> 17.

I will not go into all the details here, but it is worth noting that we leased 17 has been designed to broaden the reach of commercial adoption of <unk> features such as low latency communication for industrial Iot and improved backhaul to better support the new <unk> using <unk>.

<unk>.

These and other innovations so further <unk> expansion of cellular communication beyond commercial smartphones, taking enhanced connectivity into new sectors and industries.

In the digital engineers made a wide range of key.

Contributions to reach 17, social features that improve communications in higher frequency range using advanced in mimo and beam forming.

We also continued to add key technologies in multiple areas, including increased support for new verticals like automotive with <unk> technologies.

We expect to continue to be at the forefront of the technology evolution and I'm delighted to announce that in the first quarter two of our engineers were upon into leadership role for the next release of <unk>.

<unk> 18, which is coming in 2023.

<unk> will be the first release known as <unk> advanced.

Staying on the topic of industry industry leadership in March two of Interdigital engineers was likely to have one off into diesel engineers would be like to our senior leadership position.

Advisory group within the international Telecommunication Union.

The ICU is a highly influential body that helps develop technology standards across the company's industry to ensure that consumers can connect seamlessly.

So that's one of our engineers to their leadership through like this not only reflects the high regard in which our union leaders our house, but also the central role into digital play within the industry.

So as much as I appreciate the external recognition our engineers receive we feel it is important that we as a company.

After recognizing innovation from our own outstanding inventors.

In February we announced our inventor of the year rewarding apparel for innovators for their critical blend of research contributions.

Standard leadership and innovation impact in <unk> and <unk>.

Between them they have developed more than 250, <unk> mentioned in areas like dynamic bandwidth and beam switching for <unk> and in the <unk> standard in video.

Okay.

It is because of the countless hours of work from engineers liked them.

The deep investment we make to cultivate our foundational research that we are determined to ensure we receive a fair and reasonable return on our significant R&D investments.

Our strength is increasingly being recognized.

Evidence by our new agreement with sharp to cover our <unk> patents.

The agreement expands our previous agreement with sharp that covers our <unk> and 40 assets.

And is the latest example of our increasing momentum to translate our comparing <unk> innovation into new license agreements.

First I have sat in many times before the cellular Wi Fi and BDO innovations that we have have they invest in us.

One of the most important horizontal technologies.

The great thing about our business model is a resulting patented innovations are integral to products and services across a number of verticals beyond smartphones.

Rich will detail this past quarter, we had one of our strongest quarter, yet in consumer electronics licensing and we expect additional success in automobile and out in.

In the second quarter through both our direct and platform licensing efforts.

Both have noted in the past calls.

Companies using our technology onward into signed license offer terms.

After lengthy negotiations and in systems continue to infringe our IP, we are fully prepared to enforce our right as a patent holders.

Let me provide an update on two incidences in which we have done so.

In February our southwest average rent term for global license with Lenovo concluded in London.

We are very happy with the case, we presented and are currently reaching a decision.

We remain confident in the strength of our technology.

40 of our IP portfolio and the merits of our case.

Moving onto the second instance on the last call I mentioned, we filed a series of two against <unk>, which together with a real me and one plus brand, it's a top five smartphone manufacturers.

It is worth remembering that.

Where we have had really good in the past we have always concluded a license agreement on friendly terms.

Before I hand, it over to rich I'd like to thank all our employees for their hard work.

I'm consistently impressed by their dedication and expertise of all of the interdigital team and feel extremely confident that together, we can continue to execute our strategy.

Thanks Lynn.

And good morning, everyone.

As Linda noted we continued the momentum we established in 2021 with another quarter of strong financial performance.

Including our third consecutive quarter with revenue exceeding $100 million.

Another sequential reduction in expenses in.

And overall strong profitability.

We closed our license renewal with sharp late in the quarter, pushing our total revenue above our guided range, which topped out at $100 million.

Recurring revenue alone was just shy of $100 million.

And benefited not only from our sharp renewal, but also for more than $8 million of recurring CE revenue.

Importantly, our <unk> recurring revenue has more than doubled from the first quarter of last year as a result of signing seven agreements covering the CE space over the last 12 months and strong underlying per unit sales.

Moving on to expenses.

We reported a $15 million sequential decrease in operating expenses.

Of this 7 million was related to lower restructuring charges.

With an $8 million sequential decrease across the balance of our expenses.

On a year over year basis, our total operating expenses were relatively flat, but when you adjust for litigation and share based compensation. Our operating expenses in Q1 of this year were down by $7 million from the prior year.

On the whole we are pleased to see our efforts to reduce our expense base manifest in our latest results.

Strong revenue and cost management leads to strong profit and we're pleased to report 58 of GAAP EPS in the quarter, an increase of 40 from the prior year.

We talk a lot about our strong business and financial performance in 2021.

And looking at our year over year results for the first quarter of 2022 really shows how far we've come in this last year.

Looking forward to Q2, we currently expect total revenue to come in between 114 and $120 million.

Including recurring revenue of $97 million to $101 million.

This expectation is based on license agreements in place at the end of Q1 and license agreements that we currently expect to be executed in Q2.

We will provide additional details on these new agreements which cover automotive.

And other products at a later date.

For now I will note that we don't expect any incremental expenses from the new agreements.

We do however, expect a slight unrelated to increase and recurring expenses going into Q2, plus an additional $3 million to $4 million of restructuring charges.

For the most part the restructuring charges are driven by facility realignment and represent the final step of our previously disclosed restructuring plan.

As a final note you will see in our press release and financial metrics that we have reported an adjusted EBITDA figure, which is a non-GAAP measure that adds back stock based compensation and eliminates certain nonrecurring expenses.

We believe this metric is a useful measure of the progress and health of our business and plan to continue to report on it in future periods.

As this is the first quarter, we have reported on this metric.

We have presented it for each of the eight quarters reported in our financial metrics, including in each case, a reconciliation GAAP figures.

With that I'll turn it back to Richard.

Thank you rich and Laura and operator, we will just take a pause for questions.

Thank you if you would like to signal with questions. Please press star one on your Touchtone telephone if you're joining us today.

Your phone please make sure your mute function is turned off to allow your signal to reach our equipment.

And that will be star one if you would like to signal with questions.

Our first question will come from Scott <unk> with Roth capital.

Hey, good morning, Thanks for taking my questions nice job on the quarter guys.

Hey, maybe just start to dive right in on auto and Iot It sounds like Youre getting more excited on that front as well as will lump C. In there I was wondering if there was some revenue figures that you can attach to that in terms of.

The size of CE contribution right now what video is kind of looking better.

Should we be thinking about that and then specifically I think you've called out this quarter, we will start to see an acceleration in auto and Iot and it sounds like it's going to be both direct as well as through the advanced units I was wondering if you could flush that out a little bit maybe the magnitude of the impact.

Yes, Scott this is rich.

So.

I did mentioned in the script that we have about $8 million of recurring revenue in Q1.

So thats one of the stronger quarters, we've had in CE.

Double from a year ago.

Now of course, <unk> does have a lot of per unit a lot of the overall, we're 90% fixed fee.

Almost the inverse with close to 90% per unit in the <unk> space, So that is dependent on quarter to quarter shipments.

But we're really pleased that we've been able to sign agreements in 'twenty, one and you see some of those results in Q1.

On auto and Iot, we alluded to new.

New agreements already signed in Q2 were expected to close so we'll have more details there.

The platform license, we participate GM was.

<unk> is a recent addition, there so we expect that to contribute in Q2.

Great and rich just quickly on the Oh sorry.

Yes, Scott the only thing I would add as I mentioned in my portion of the script.

<unk> 17 is expected to come on in June of this year. We leased 17 has very specific features that we believe will enable.

All key use cases as well.

Automobile use case from the standard development perspective.

Okay very helpful.

And rich one other cost question Opex.

Being down in the March quarter, particularly R&D and development was down is that a sustainable level that we should think about going forward or is there some onetime element going on in there.

Yes, there is I mean, you have a little bit of seasonality, where sometimes some fringe and so forth is higher in Q1, but then there's also some we benefited for some things that maybe aren't going to recur in Q2. So.

I did note in the guidance reflects a little bit of an increase in recurring expense going into Q2.

So we think we are.

At a pretty good level overall.

It always is going to move around just a little bit.

Gotcha and wondering if I could there are a couple of big customers that have expired relationships. This year I was wondering if you have any updated thoughts on that progress.

Is there opportunity, where those could actually be larger contracts than they've been in the past I mean, how should we be thinking about that.

Yeah, Hi, it's Scott.

You are mentioning here. So we do have the Apple agreement expiring by the end of Q3, and Samsung <unk> and <unk>.

This year here.

We're already in active negotiation and so we believe strongly that our technology has been more important than ever and both of those vendors. They tend to compete in the higher end of the product offering that sankey benefit even more from <unk> on the high level features so we are feeling comparable.

About where we are and we are in active negotiation tied to get them done obviously.

By the time they are excellent.

Okay helpful and lastly, if I could and then I'll hop back in the queue.

Some of the relationships with the unlicensed China based Oems more and more it seems like they're relying on exports I think for <unk>.

50% to 55% of their units.

In the first quarter continued to be from exports given the current global geopolitical landscape.

What are your current thoughts on that front is theyre, creating more of a sense of urgency given what we're seeing in terms of <unk> adoption, particularly in markets like Europe , where they're trying to gain share that it's driving them closer is the active discussions are they better.

How does it all kind of playing out in terms of the macro landscape. Thanks, so much and congrats on the quarter again.

Yeah. Thanks, Scott, So, yes, you're absolutely right that large vendors, including <unk> and also Lenovo are.

<unk> a lot.

More than half of their sales outside of China, and they are targeting Europe , as well as India as well as their major market. So we are definitely seeing.

That trend to continue and our discussions.

As we disclosed in litigation with <unk>, and Lenovo, Saudi to Houston strategy Daphne factored those in and we are also currently in active discussions with label. So I see those as household trend.

Our negotiation dynamic, but the most important thing is we really drive value through our R&D, our patent portfolio global base.

And we have a variety of established licensing program with more than 80.

Current licensees that we can point to US why are you already favorable comps. So so I think all of those bankruptcies helpful.

Great. Thanks, so much.

And our next question will come from Andrew <unk> with Sidoti.

Hi, Thank you for taking my questions and congratulations on good performance in the first quarter a lot of good questions asked already I'm, just curious with them.

Consumer electronics, it said that that had some pretty good growth in the first quarter and should we add.

Expect that trajectory to continue.

Especially what happened in the first quarter.

Yes.

Thanks for your question.

When we talked about CE kind of closing out the end of 'twenty one.

We noted that we added a number of significant agreements that year, a number of agreements, including a top 10 TV manufacturer.

When we kind of do to that call it $25 million run rate.

Obviously at $8 million for the Q1, that's running above that.

So I don't want to say, it's going to be 8 million every quarter without additional deals, which we're working on it is going to depend in this business on that end of the business on per unit sales and what those reports look like.

But in the last couple of quarters they've been strong.

Okay.

The unit sales must have been affected by the supply chain issues right now.

Yes so.

Obviously.

No.

Yes, so I think particularly strong given supply chain issues, but they're also can be a little bit more seasonality in that business than we sometimes see in the cellphone business. So youre looking at.

So that plays into it as well.

You look at the last couple of quarters.

Okay got it and then I'm just curious the 60 day royalty declined in the first quarter is there anything to call out there.

Yeah.

The only thing I would point to is we have disclosures.

In our.

10-K for 'twenty, one leading.

Sure.

A year ago, leading into the 'twenty, one calendar year about what was going to expire and then updated that in our most recent 10-K.

So you'll note that there were a couple of 60 explorations in that.

In that disclosure.

Okay, Great that was all for me. Thank you.

Great. Thanks, Ed.

Once again, if you would like to signal with questions. Please press star one on your Touchtone telephone again that is star one we'll pause for just a moment.

There are no further questions at this time I will now turn the conference back over to you.

Thank you operator, I'd like to turn it back to learn for some final remarks.

Thank you everyone for joining the call I don't want to say, thank you to our employees for our customers as well as to our shareholders for the past quarter. We appreciate your support and also still hope everyone to stay safe as we continue to navigate the COVID-19 pandemic.

Thank you.

And that does conclude today's conference. We do thank you for your participation have an excellent day.

Yeah.

Yeah.