InterDigital, Inc. - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - PRESS RELEASE - October 26, 2017

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INTERDIGITAL ANNOUNCES FINANCIAL RESULTS FOR THIRD QUARTER 2017

Year-over-year Growth in Recurring Revenue, Strong Cash From Operating Activities

WILMINGTON, DE. - October 26, 2017 - InterDigital, Inc. (NASDAQ:IDCC), a mobile technology research and development company, today announced results for the third quarter ended September 30, 2017.
Third Quarter 2017 Financial Highlights

•
Recurring revenue grew 5% to $88.5 million, compared to $84.3 million in 2016, primarily driven by an increase in fixed-fee revenue due to new agreements entered into in second half 2016. Recurring revenue consists of current patent royalties and current technology solutions revenue.
•
Third quarter 2017 total revenue was $97.3 million, compared to $208.3 million in third quarter 2016. Third quarter 2016 included $124.0 million of past patent royalties, as compared to $8.8 million in third quarter 2017.
•
Third quarter 2017 operating expenses were $56.5 million, compared to $51.6 million in third quarter 2016. The increase in operating expenses was primarily due to a $2.7 million increase in costs associated with commercial initiatives and a $1.3 million increase in depreciation and amortization, both of which were primarily attributable to the acquisition of Hillcrest Labs during fourth quarter 2016.
•
Fixed-fee amortized royalties constituted 88% of company's current patent royalties in third quarter 2017, compared to 56% in third quarter 2016.
•
Net income1 was $35.5 million, or $1.00 per diluted share, compared to $104.5 million, or $2.99 per diluted share, in third quarter 2016.
“This quarter’s results highlight the tremendous stability of our business, emphasizing our company’s continued efforts to manage for the long term,” said William J. Merritt, President and CEO of InterDigital. “The strong visibility over our revenues and future cash flows, given our high fixed-fee revenue contribution and long-term agreements, put us once again in a position to return value to shareholders with last month's announcement of our third dividend increase in the past four years.”
Additional Highlights
•
The company's third quarter 2017 effective tax rate was 10.2% compared to 32.3% during third quarter 2016. The change in effective tax rate was attributable to a discrete benefit of $9.1 million primarily related to the reversal of a previously recorded tax reserve.
•
In third quarter 2017, the company recorded $104.7 million of cash provided by operating activities, compared to $10.1 million of cash used in third quarter 2016. The company generated $94.9 million of free cash flow2 in third quarter 2017, compared to $19.2 million of free cash flow used in third quarter 2016. These changes were primarily due to the timing of cash receipts under fixed-fee agreements. Ending cash and short-term investments totaled $967.2 million.
•
On September 14, 2017, the company announced an increase in its quarterly cash dividend from $0.30 to $0.35 per share ($1.40 per share on an annual basis), as well as a $100 million increase to its existing stock repurchase program.
•
On October 24, 2017, InterDigital received notice of a favorable decision from the Taiwan Fair Trade Commission, stating that the Commission did not find that InterDigital had violated Taiwan’s Fair Trade Act and has closed the investigation that was initiated in 2013.





Conference Call Information
InterDigital will host a conference call on Thursday, October 26, 2017 at 10:00 a.m. Eastern Time to discuss its third quarter 2017 financial performance and other company matters. For a live Internet webcast of the conference call, visit www.interdigital.com and click on the link to the live webcast on the Investors page. The company encourages participants to take advantage of the Internet option.
For telephone access to the conference, call (877) 830-2636 within the United States or +1 (785) 424-1802 from outside the United States. Please call by 9:50 a.m. ET on October 26 and give the operator conference ID number 6767363.
An Internet replay of the conference call will be available on InterDigital's website in the Investors section. In addition, a telephone replay will be available from 1:00 p.m. ET October 26 through 1:00 p.m. ET October 31. To access the recorded replay, call (888) 203-1112 or +1 (719) 457-0820 and use the replay code 6767363.
About InterDigital®
InterDigital develops mobile technologies that are at the core of devices, networks, and services worldwide. We solve many of the industry's most critical and complex technical challenges, inventing solutions for more efficient broadband networks and a richer multimedia experience years ahead of market deployment. InterDigital has licenses and strategic relationships with many of the world's leading wireless companies. Founded in 1972, InterDigital is listed on NASDAQ and is included in the S&P MidCap 400® index.
InterDigital is a registered trademark of InterDigital, Inc.
For more information, visit the InterDigital website: www.interdigital.com.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.  Such statements include information regarding our current beliefs, plans and expectations, including, without limitation, our visibility with respect to revenues and future cash flows. Words such as "believe," "anticipate," "estimate," "expect," "project," "intend," "plan," "forecast," "goal," and variations of any such words or similar expressions are intended to identify such forward-looking statements.
Forward-looking statements are subject to risks and uncertainties.  Actual outcomes could differ materially from those expressed in or anticipated by such forward-looking statements due to a variety of factors, including, without limitation, those identified in this press release, as well as the following: (i) unanticipated delays, difficulties or acceleration in the execution of patent license agreements; (ii) our ability to leverage our strategic relationships and secure new patent license agreements on acceptable terms; (iii) our ability to enter into sales and/or licensing partnering arrangements for certain of our patent assets; (iv) our ability to enter into partnerships with leading inventors and research organizations and identify and acquire technology and patent portfolios that align with InterDigital's roadmap; (v) our ability to commercialize the company's technologies and enter into customer agreements; (vi) the failure of the markets for the company's current or new technologies and products to materialize to the extent or at the rate that we expect; (vii) unexpected delays or difficulties related to the development of the company's technologies and products; (viii) changes in the market share and sales performance of our primary licensees, delays in product shipments of our licensees, delays in the timely receipt and final reviews of quarterly royalty reports from our licensees, delays in payments from our licensees and related matters; (ix) the resolution of current legal or regulatory proceedings, including any awards or judgments relating to such proceedings, additional legal or regulatory proceedings, changes in the schedules or costs associated with legal or regulatory proceedings or adverse rulings in such legal or regulatory proceedings; (x) changes or inaccuracies in market projections; and (xi) changes in the company's business strategy.
We undertake no duty to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by applicable law, regulation or other competent legal authority.

Footnotes




1    Throughout this press release, net income (loss) and diluted earnings per share ("EPS") are attributable to InterDigital, Inc. (e.g., after adjustments for noncontrolling interests), unless otherwise stated.
2    Free cash flow is a supplemental non-GAAP financial measure that InterDigital believes is helpful in evaluating the company's ability to invest in its business, make strategic acquisitions and fund share repurchases, among other things. A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in the company's cash balance for the period. InterDigital defines “free cash flow” as net cash provided by operating activities less purchases of property and equipment, technology licenses and investments in patents. InterDigital's computation of free cash flow might not be comparable to free cash flow reported by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. A detailed reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable GAAP financial measure, is provided at the end of this press release.





SUMMARY CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands except per share data)
(unaudited)
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
REVENUES:
 
 
 
 
 
 
 
Per-unit royalty revenue
$
10,081

 
$
35,804

 
$
37,338

 
$
154,018

Fixed fee amortized royalty revenue
73,653

 
45,740

 
220,083

 
103,936

Current patent royalties
83,734

 
81,544

 
257,421

 
257,954

Past patent royalties
8,832

 
123,973

 
56,692

 
129,417

Total patent licensing royalties
92,566

 
205,517

 
314,113

 
387,371

Current technology solutions revenue
4,759

 
2,790

 
13,521

 
4,615

 
$
97,325

 
$
208,307

 
$
327,634

 
$
391,986

 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 
 
 

 
 
 
 
Patent administration and licensing
28,673

 
26,149

 
83,559

 
81,601

Development
15,924

 
15,560

 
52,228

 
50,438

Selling, general and administrative
11,853

 
9,880

 
36,056

 
31,790

 
56,450

 
51,589

 
171,843

 
163,829

 
 
 
 
 
 
 
 
Income from operations
40,875

 
156,718

 
155,791

 
228,157

 
 
 
 
 
 
 
 
OTHER EXPENSE (NET)
(2,187
)
 
(3,798
)
 
(7,331
)
 
(11,641
)
Income before income taxes
38,688

 
152,920

 
148,460

 
216,516

INCOME TAX PROVISION
(3,963
)
 
(49,397
)
 
(29,413
)
 
(46,813
)
NET INCOME
$
34,725

 
$
103,523

 
$
119,047

 
$
169,703

Net loss attributable to noncontrolling interest
(811
)
 
(943
)
 
(2,744
)
 
(2,828
)
NET INCOME ATTRIBUTABLE TO INTERDIGITAL, INC.
$
35,536

 
$
104,466

 
$
121,791

 
$
172,531

NET INCOME PER COMMON SHARE — BASIC
$
1.02

 
$
3.05

 
$
3.52

 
$
4.99

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC
34,709

 
34,280

 
34,589

 
34,607

NET INCOME PER COMMON SHARE — DILUTED
$
1.00

 
$
2.99

 
$
3.40

 
$
4.92

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED
35,388

 
34,953

 
35,865

 
35,091

CASH DIVIDENDS DECLARED PER COMMON SHARE
$
0.35

 
$
0.30

 
$
0.95

 
$
0.70






SUMMARY CONSOLIDATED CASH FLOWS
(dollars in thousands)
(unaudited)
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Income before income taxes
$
38,688

 
$
152,920

 
$
148,460

 
$
216,516

Taxes paid
(15,063
)
 
(6,341
)
 
(29,173
)
 
(58,626
)
Non-cash expenses
21,772

 
21,048

 
66,463

 
66,529

Increase in deferred revenue
142,610

 
41,952

 
330,387

 
324,122

Deferred revenue recognized
(84,594
)
 
(172,681
)
 
(240,331
)
 
(242,104
)
Increase (decrease) in operating working capital, deferred charges and other
1,336

 
(47,026
)
 
(177,465
)
 
(105,573
)
Capital spending and capitalized patent costs
(9,872
)
 
(9,117
)
 
(27,248
)
 
(27,751
)
FREE CASH FLOW
94,877

 
(19,245
)
 
71,093

 
173,113

 
 
 
 
 
 
 
 
Payments on long-term debt
—

 
—

 
—

 
(230,000
)
Long-term investments
(2,500
)
 
—

 
(3,201
)
 
(2,000
)
Acquisition of patents
—

 
(300
)
 
—

 
(4,800
)
Dividends paid
(10,413
)
 
(6,858
)
 
(31,107
)
 
(20,849
)
Taxes withheld upon vesting of restricted stock units
(46
)
 
(43
)
 
(22,236
)
 
(3,368
)
Share repurchases
—

 
(5,690
)
 
—

 
(64,685
)
Net proceeds from exercise of stock options
—

 
74

 
82

 
302

Unrealized (loss) gain on short-term investments
(93
)
 
(287
)
 
(180
)
 
128

NET (DECREASE) INCREASE IN CASH AND SHORT-TERM INVESTMENTS
$
81,825

 
$
(32,349
)
 
$
14,451

 
$
(152,159
)





CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
 
SEPTEMBER 30,
2017
 
DECEMBER 31, 2016
ASSETS
 

 
 

Cash & short-term investments
$
967,212

 
$
952,761

Accounts receivable (net)
400,126

 
228,464

Other current assets
52,966

 
39,894

Property & equipment and patents (net)
321,359

 
323,394

Other long-term assets (net)
194,459

 
183,340

TOTAL ASSETS
$
1,936,122

 
$
1,727,853

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Accounts payable, accrued liabilities, taxes payable & dividends payable
$
89,427

 
$
65,288

Current deferred revenue
351,012

 
360,192

Long-term deferred revenue
373,049

 
261,013

Long-term debt & other long-term liabilities
290,618

 
286,992

TOTAL LIABILITIES
1,104,106

 
973,485

TOTAL INTERDIGITAL, INC. SHAREHOLDERS' EQUITY
820,101

 
739,709

Noncontrolling interest
11,915

 
14,659

TOTAL EQUITY
832,016

 
754,368

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,936,122

 
$
1,727,853






RECONCILIATION OF FREE CASH FLOW TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES

In the summary consolidated cash flows and throughout this release, the company refers to free cash flow. The table below presents a reconciliation of this non-GAAP financial measure to net cash provided by operating activities, the most directly comparable GAAP financial measure.

 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Net cash provided by (used in) operating activities
 
$
104,749

 
$
(10,128
)
 
$
98,341

 
$
200,864

Purchases of property, equipment, & technology licenses
 
(117
)
 
(1,211
)
 
(942
)
 
(3,477
)
Capitalized patent costs
 
(9,755
)
 
(7,906
)
 
(26,306
)
 
(24,274
)
Free cash flow
 
$
94,877

 
$
(19,245
)
 
$
71,093

 
$
173,113






CONTACT:
InterDigital, Inc.:
 
Patrick Van de Wille
 
patrick.vandewille@interdigital.com
 
 +1 (858) 210-4814



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