Q3 2024 InterDigital Inc Earnings Call
Good day and thank you for standing by. Welcome to the Interdigital Inc. 3rd quarter 2020 for earnings call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.
Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today. Raiford Garrabrant, Head of Investor Relations, please go ahead.
Thank you Grace and good morning everyone. Welcome to InterDitio 3rd Quarter 2024 Ernest Conference Call. I am Raiford Garrabrant, head of Investor Relations Board InterDitio.
with me on today's call, Ariliran Chen, our president and CEO, and Rich Brezski, or CFPH.
Consistent with prior calls, we will offer some highlights about the quarter and the company, and then open the call of full questions.
For additional details you can access our earnings release and slide presentation at a company this call on our investor relations website.
Before we begin our remarks, I need to remind you 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 day, here up.
Ford-looking statements are subject to risks and uncertainties.
that could cause actual results and advance to different materialy from results and it ends contemplated by such forward-looking statements. These risks and uncertainties include those described in the risk factor section of our 2023 annual report on Form 10K.
and then our other SCC violence.
In addition to today's presentation, make-and-tank references to non-gap financial measures.
Reconciliation of these non-gap financial measures to the most directly comparable gap financial measures are included in the supplement on the materials posted to the investor relations section of our website.
What that's taking care of, I will turn the call over to there.
Speaker Change: Thanks for your support. Good morning, everyone. Thanks for joining us today.
Speaker Change: I'm very pleased to share that we have delivered a strong third quarter with Raiford New, a Joss Reibida and EPS all exceeding the high end of our guidance range.
Trillin by a seroton momentum of our business and major deals completed at the beginning of Q4. We have also raised our 20, 24 annual guidance by $145 million at midpoint.
2-800 and 60 million dollars.
To start, some of you may have already seen a couple days ago, we announced that we signed a new license with Opo Group, covering the world-wide sales of Opo, Realme and WMFB mobile devices.
But the part of our agreement, both party agree to dismiss all pending allegations between us.
Based in China, Opung Group is one of the largest smartphone manufacturers in the world.
With these agreements, combining our existing licenses with Samsung, Apple and Xiaomi, we now have the top four smartphone OEMs and our license and have license about 70% of the smartphone devices below body.
These are agreement provide more validation of the importance of our foundational innovations in Wardis, Baydew and AI and the strengths are patterned portfolio to to have our future growth.
It also has a very thermometer, we continue to build across our licensing programs.
As we work to license a remaining major smartphone windows, so I've more groups from consumer electronics out here in Auto and address our green field opportunity in video services.
Speaker Change: Turning now to our performance in third quarter, I'm pleased to share that we delivered revenue of about $129 million.
and a seeding that hop and of guidance.
will go over the numbers in more detail in his section.
Speaker Change: We delivered a strong performance in Kusri, mainly from the groups from our consumer iconic and our utilisation.
Our new licensing agreement with TPP, a top 10 television window that sells devices and a separate different brands, an excellent example of our recent success, including deals with leading CE manufacturers.
The agreements include both our joint slide things in program is Sony and in her digital variable HEVC video assets.
In third quarter, we also set a new agreement with Panasonic, which cover up 40 and 5G cellular patterns, but as well as our Y5 and HVC patterns.
Speaker Change: Stay on the licensing from, but I mentioned earlier we are off to a great start at the beginning of two fours.
In addition to the OVO agreement, we have found a binding global arbitration agreement to set the terms of a new life's agreement with Lenovo.
and the part of our profusional agreement, both party has also agreed to these are pending litigations.
As we have said before, finding our situation can be an excellent mechanism for staffing global licensing disputes, providing a more efficient way of reaching an agreement.
We expect the process to take roughly 18 months to complete.
But you may recall we are in binding our vision to set out the vinyl terms of our licensing with Samsung for mobile devices.
Speaker Change: The party just finished last long of yearning and we expect to have a final decision soon after the end of the year.
Speaker Change: But the reminder, Samsung already agreed to take a license to our poor food, starting from January 1, 2023.
Speaker Change: and the Spinding Artribution will determine the final terms of the license.
Speaker Change: Our lives in success further strengths and our ability to re-invest in cutting edge earned and foster innovation for next generation technology that benefits the whole industry and billions of consumers in the future.
Our engineering and patent team continue to follow on all cylinders.
We keep on adding to our leadership in advanced radio technology, such as HVC and VVC, and our radio engineers, armed flag for record year in new invention bodies.
Speaker Change: Our position at the cutting edge of video innovation was recognized at a recent award ceremony, hosted at this year's International Broadcasting Convention.
Speaker Change: We are going to receive a award for the best immersive video technology and for best video processing technology.
Both awards demonstrate why we believe our innovation will remain central to the video space, including consumer electronics, in streaming and in new, more immersive video experiences.
The amount of video data consumed globally continued to increase every day.
Speaker Change: Making our innovation even more critical in ensuring that end-to-end content distribution system works efficiently and reliable.
In Wardis, our innovation pipeline are also green at a impressive rate.
including a record number of 5G in mention, declared this year.
Bring our total patent and application declared as potential essential to 5G, 4G and 3G to just over 13,000.
Speaker Change: for a company focused on driving foundational research, this constant creation of new image, is the engine that lives our business growth for years to come.
Recently, we're ranked among top five patent owners in Wi-Fi, with analyzing terms of quantity and quality of new report from Lexus Nexus.
Across three separate platforms that access the next six, we are one of just three companies in the world.
to rank in top 5 in 5G Y5 at the end of the event's week of compression. We will judge on both sides and quality of our portfolio.
But the word become more connected, we believe these posts us, you know, very powerful position to continue to drive malgurs of our business.
Speaker Change: during our email certainly in September, we announced a target of a billion dollars in annual recurring revenue by 2030.
including a target of $500 in annual recurring revenue for our smartphone program by 2027.
Our new light is a grim with opop and artificial grim with lanovo, where it produces excellent progress towards those targets.
In summary, we are a recognized leader in technology like 5G, Wative, Y5 and AI, which are only becoming more critical to devices and services in multiple industry.
We have a word-cloth team and a track record of superb execution.
with a large address for markets including smartphone, CE and our tea and our green field opportunity in cloud-based video services.
We believe we have a clear path to drive a significant growth going forward.
Rich Brezski: and we that hand you a word to Rich.
Thanks, Larry. I'm pleased to share that in two three we again delivered excellent results with Revenue, adjusted Eda and non-GAPEPS, exceeding the high end of our guidance range.
These excellent, two-three results were driven by new licensed agreements signed in two-three, as well as the resolution of outstanding litigation.
Rich Brezski: are two three agreements together with our Q4 OPPO License Agreement and Q4 Lenovo Arbitration Agreement have also resulted in us increasing our full year revenue guidance to $860 million.
This is a 20% or $145 million increase from our prior guide.
I'll cover our Ford looking guidance in a moment but getting back to Q3, total revenue of $129 million was well above our outlook of $94 to $98 million.
Our Q3-24 revenue included recurring revenue of 99 million and catch up revenue of 30 million.
As Lea are mentioned, our new license agreements with TPD, a top 10 TV manufacturer, were leading contributors to our better than expected results.
and through the end of Tuzary, CE and IOT continued to be our fastest growing program with revenue up 15% year over year.
Speaker Change: Warner-Urv, your basis, Q3 Total revenue, decreased primarily due to lower catchup revenue in Q3 24 and the expiration of the Huawei agreement at the end of 2023.
are adjusted even for the quarter of $65 million, meaningfully exceeded our outlook range of $36 to $39 million.
Nondat BPS came in at $1.63 per share, a computer tour outlook of 70 to 80 cents per share.
Speaker Change: Cash Generation was very strong in the quarter with cash from operations of 78 million and free cash flow of $65 million.
Speaker Change: As a result, we ended the quarter with over $800 million in cash.
Stepping back for a moment, I'd like to reiterate some of the key points from our recent investor day that illustrate why we believe we are well positioned to drive value growing for going forward.
Rich Brezski: First.
Rich Brezski: Our innovation engine is running strong and powers three pillars of growth.
As Leera mentioned, we are one of just three companies in the world to be ranked by Lexus Nexus among the top five patent holders in each of 5G, Wi-Fi, and advanced video compression.
This portfolio innovation drives our growth toward our long-term annual recurring revenue target of $1 billion across smartphone, consumer electronics, and IoT as well as video streaming.
Rich Brezski: Second, the operational leverage inherent in our business enables the growth to translate into margin expansion and strong cash flow.
Our long-term target includes an adjusted EBITDA margin of 60% equating to $600 million of adjusted EBITDA.
Third, our financial strength and capital allocation philosophy allow us to reinvest for growth while also returning significant amount of cash to shareholders.
In 2024, we have paid roughly $225 million to reduce our debt and return capital to shareholders.
including, repurchasing 2.5% of our outstanding share count since the beginning of the year, and a 13% increase to our dividend, which we announced last month.
We discuss all these points at our investor day this September.
In the short time since, we have delivered meaningful progress against these targets.
Rich Brezski: Specifically, as a result of recent agreements with Obo and Lenovo, we have raised the midpoint of our 2024 revenue guidance by 145 million to $860 million.
Rich Brezski: This includes our expectation for a record level of recurring revenue for Q4 of approximately $118 million from existing agreements.
Rich Brezski: Equating to an ARR of roughly $470 million dollars.
and increase of more than $80 million in ARR.
It's important to highlight that despite the significant increase in expected revenue.
Our expected expense level has not changed that much, and in fact, remains within the prior range.
As a result, we expect the increase in revenue will mostly flow through to adjust the EBITDA, driving our expectations for 4 year, 2,024 adjusted EBITDA, to $538 million with a 63% margin at the midpoint.
As a final point of clarification, this updated, full-year guidance is based only on contracts we have signed today.
Rich Brezski: with two months remaining in the year any new agreements would be added to this guidance.
Speaker Change: with that I'll turn it back to Raiford.
Thanks, Rich. Before we move to DON-A, I'd like to mention that we'll be attending a number of investors events in Q4, including the RBC Tech Conference and the Roth Tech Conference both in New York.
Please reach out to your representatives at those farms if you'd like to schedule meeting. Now we are ready to take questions.
Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.
Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Scott Serrell with Ross Capital Partners. Your line is now open.
Hey, good morning. Congrats on the quarter thanks for taking the question and congratulations on getting an opo done. I know this one has been a long time coming.
Speaker Change: spe
Speaker Change: Zengar.
Speaker Change: Learn Rich, maybe just a dive in on the fourth quarter guidance. It sounds like certainly of Oppo in there from a recurring revenue standpoint, TPP. But I want to get some clarification in terms of what you're doing from a Lenovo standpoint, given that it's in an arbitration process, or you're going to be recognizing some revenue like Samsung. And I thought you said in your opening remarks that Samsung, you'd expect the resolution of disclosure of the arbitration after the first of the year. Just wanted to clarify that, and if there's any Samsung that recurring number that you talked about of 118 million.
Speaker Change: Yes, Scott, so I'll take the first part of the question. Yeah, our Q4 guidance does include revenue from OPO, the new agreement we signed there in Q4, as well as from Lenovo based on the arbitration agreement we signed there in Q4 as well. So similar to Samsung, you know, the terms will be set through the arbitration process. So at the moment under our accounting rules, we're booking revenue based on what we believe is a conservative estimate.
Yeah, hey, so I'm good morning, dude.
So let me follow up on the Samsung Artificial Intelligence question. So you are correct that I did see in my preparary mark that based on the latest hearing we had with arbitrary television, the result of the arbitration we will be completed.
Song after end of the year.
The primary really is, you know, there are some additional questions, our future was asking, and plus as we approach to the holiday season, so we back these, we'll take a bit longer.
Regarding the revenue recognition of the CEO of where we have been recognizing Samsung revenue under the concerted estimation, you know, the same as a prior agreement, we believe it's conservative.
Speaker Change: and that's the case we continue to do for Q4 and the Arbituces complete if the number will turn out to be higher than we will drop the number at the time of the work.
and if I could rich on the litigation front, it was down a little bit, your cost disorder but now that we've got resolution of some of your major cost factors, Lenovo going to arbitration and opa resolution and litigation dropping, how should we think about that number going forward and into 2025?
Speaker Change: Yes, so Scott, I don't want to comment on details of our expense items other than to say that our current expectations for litigation expense are baked into our guidance for the fourth quarter.
and last week I could.
Leron just on the video services are streaming opportunity. I'm wondering if you could just outline some broad steps in milestones as we go forward. I know this continues to be an evolutionary process, but maybe give us an update in terms of the level of engagement and anticipation and kind of what we should be looking forward to in 2025.
Yeah, hey, thanks God. First of all, we believe we do services of great opportunity for us. As a matter of fact, we believe it's one of the largest, great field opportunity for us.
Speaker Change: We as a company had been working on these for multiple years, we always start with the innovation, which we believe are a video crew that has us and others are very critical to the overall service level and which Franca others has benefited from quite a bit.
Speaker Change: We have been engaging in the field, we have a dedicated team, we are engaging with all the major players but it is hard to predict the precise timing.
When we get the deal down, but we have damaged the deal over the years. We always prove for a pilot or negotiations. We try to negotiate and we are quite patient.
and tried to fly the Ferrari for our assets. But in the meantime though, as you all were, we are always ready to defend the Vario for our patent portfolio if we have to. So this is partially why. You know, when we get into the education planning, we always spend certain amount of money to get ready if we have to.
Speaker Change: Great, thanks so much, I'll get to the back of the queue, but congrats on the quarter and up, thanks.
Speaker Change: Thanks for watching.
One moment for our next question.
Our next question comes from the line of Arjun Vatya with William Blair. Your line is now open.
Speaker Change: and I'm getting really happy with my mother.
Speaker Change: and the Dome, I see that. Maybe Leren actually starting off on that point for you. Obviously these are significant deals for energy as well. When you think about how this might impact your future.
Speaker Change: Opportunities to get licenses signed with the remaining Chinese manufacturers. What kind of impact are you expecting there? Does it kind of speed up the process with Huawei and Vivo or is it maybe a little bit too early to tell what that impact might be?
Speaker Change: Yand.
PRG in good morning, thanks for all kinds of words.
I do feel getting open down is very, very positive for us as a company, but you are over
OPPO is very large regarding their volume. We did say combining with Samsung Apple and Xiaomi.
Now we have, you know, the top four marks when they're signed up and together with some other licensed agreement we have in place we are covering 70% of the world global smartphone sales.
So getting up or down, I do think accelerates our momentum to get a few other vendors if you look at who else do we need to send up.
We are really identifying we will own our folly and transcend which is primary setting, devising in Africa a few other places.
Speaker Change: and then we were essentially sent up all the major players. So I do think it's very positive, as I said in my prepare remark, he was yet another benchmark for you know to value our portfolio and also giving us further momentum clean digital customers.
Speaker Change: Perfect, I'm just in terms of, I know when I was still in arbitration but in terms of pricing and eerie economics with at least the offload agreement.
and what can you comment on in terms of...
What those economics look like, Raiford, or the son of the other, my friend, nice to sing every instrument that you have with you.
that is what I would have to turn out and how do we compare our political, your priorities.
Yes, so I'm in this individual agreement with confidential, so I will not be able to comment specifically. One thing I do want to do attention is to reach this preparatory mark.
We did say in Q4 if you look at our AR for the quarter, it got sub-idently and if you translate the increasing Q4 over the year, the whole year we are essentially backing our $80 million increase in your life's basis.
So that's obviously a competition of multiple accounts, but that should be the same indication.
Okay, got it, Richard, actually on that point. Can you maybe help us understand what the catch up?
Speaker Change: Revenues, well we should expect there in Q4. Are we going to see Revenue and Cashflow from both of these deals coming in Q4 or is that something going to happen a little bit later?
Yes, so I can comment on the revenue that the revenue is kind of baked into that full year guide and I did mention that in Q4 or expecting about 118 million of recurring revenue. So I think you can kind of do the algebra to get to the catch-up there. And it's from that one 18 that we get to the ARR increase of 80 million and 470 overall.
Good, thank you.
Speaker Change: Our next question comes from the line of Madeline Brooks of the other. You line is now open.
Great, thanks for taking my question. I guess I just want to talk a little bit more around longer term as we start to think about 2025.
Speaker Change: Obviously 2024 has been a great year for you all with the different agreements as well as litigation results, men. Can you just remind us what we potentially have in terms of what we can see from litigation and renegotiations that's coming up in 2025? Thanks so much.
Speaker Change: Yeah, hey, Madeline Good morning. So if you look at our 2020-24, we thought we'd increase for a junction and we are predicting a round for setting year.
Speaker Change: for both the top line revenue as well as recurring revenue. As you all were, most of the recurring revenue works very out.
Perry on in 2225 so we are set up to be in a very strong starting from 25
Obviously, we still have two more months for this year, which we hope to add more. And the next year we will continue to make progress in smartphone.
Concentrate on the out here as well as the stream mobilizing side.
Regarding major contractual expireration, we do these schools part of the Bidhing Hour, fighting us as well as our website.
I think the major one that come to my mind is our Xiaomi contract with our Afro-Renial, which we obviously will be able to negotiate in its true course.
Yes, I just want to be clear that's that the end of 25. So we only have five agreements that contributed 17 million a revenue in 2023 that expire at the end of 2024 going into 25. That was disclosed in our last 10.
Speaker Change: Great thanks so much.
As a reminder to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced.
Speaker Change: Please stand by for our next question.
The first time I've seen this video, I've been watching this video for a long time.
Speaker Change: The End
Our next question comes from the line of Ania Soda-Trump with Sadoti. Your line is now open.
Ania Soda-Trump: Hi, and thank you for taking your questions and congrats on the nice progress here and getting up on board. As you grow the recurrent revenue and add this large OEMs, how should we think about the fixed fee ratio in terms of the smartphone revenue?
Hey, I didn't quite hear that. What ratio were you looking for?
The fixed C are these compress going to be on a fixed basis after also larger or are they going to be on a variable ratio basis.
Yeah, on y'all now, you took the exact term of the contract, he signed her NDA, so I won't be with the specific comment on the local agreement. However, you are aware of what a vast accounts are signed on fixed fees.
Speaker Change: Okay, thank you and then in terms of the taxes
with this step-up in Recon Revenue. How should we think about the tax rate?
Come forward.
Speaker Change: Yeah, so, you know, when you think about the tax rate going forward, it doesn't dramatically change our view of the tax rate going forward. You know, we've said kind of like our long term.
Test Tax Rate, we see in the mid-Di-Tees and there's no real change there.
Speaker Change: Okay, thank you, that was all for me.
Dis concludes the question and answer session.
I would now like to turn it back to Leirin Chen for closing remarks.
Thank you. Before we close, I'd like to thank our employees for their dedication and contribution to interdigital, as well as our many partners and customers on outstanding quarter and continuing progress throughout the year.
Thank you everyone who joined the court today and we look forward to updating you our progress next quarter
Thank you for your participation and today's conference. This does conclude the program. You may now disconnect.