InterDigital Announces Third Quarter 2012 Financial Results

Expanded Revenue Strategy Delivers Record Quarter

Combination of Intel Patent Sale and Patent Licensing Drives Cash Balance to over $780 Million

WILMINGTON, Del. — (BUSINESS WIRE) — October 24, 2012 — InterDigital, Inc. (NASDAQ: IDCC) today announced results for the third quarter ended September 30, 2012.

Highlights for third quarter 2012:

  • Revenue of $434.0 million;
  • Net income of $235.7 million, or $5.56 per diluted share;
  • Ending cash and short-term investments totaling $781.3 million.

“The record performance in third quarter 2012 illustrates the strength of our strategy to expand our revenue streams beyond core licensing into other areas, in line with the changes we are seeing in the dynamics of the patent market,” commented William J. Merritt, President and Chief Executive Officer of InterDigital. “We remain confident in our core licensing efforts, which are progressing on plan. With our cash position and strong technologies, we're working from a position of tremendous strength, and we believe addressing multiple revenue opportunities is the key to sustained growth going forward.”

“On top of that success, we announced yesterday the further broadening of our sourcing strategy for technology as well as the launch of InterDigital Solutions, both of which align with the transition we've seen in mobile technology. We expect the new sourcing strategy to continue to deliver high-quality innovation in a cost-effective manner. With InterDigital Solutions, we look forward to new opportunities to align with industry players in ways that we expect will yield both technology strength and revenue opportunities,” added Mr. Merritt.

“The Intel transaction is a highlight of our third quarter,” said Richard Brezski, Chief Financial Officer. “In addition to reporting record revenues, we remain committed to careful financial management. In that vein, I am pleased to note that we reported reductions in development and selling, general and administrative expenses, both on a sequential basis and year over year. Patent administration and licensing expenses have increased, to support high value transactions such as Intel and to make investments in intellectual property enforcement, which we expect will yield positive outcomes. We also expressed confidence in our business through the execution on our share repurchase program, repurchasing 2.5 million shares during the quarter and bringing our cumulative 2012 repurchase total to 4.9 million shares for $152.7 million. We will provide an update of our revenue expectations for fourth quarter 2012 after we receive and review the applicable patent license and product sales royalty reports.”

Third Quarter 2012 Summary

Revenue in third quarter 2012 totaled $434.0 million, as compared to $76.5 million in third quarter 2011. This increase in total revenue was primarily attributable to a $375.0 million patent sale to Intel Corporation ("Intel"), representing 86 percent of total revenue. Patent licensing royalties of $58.4 million in third quarter 2012 declined $16.9 million, or 22 percent, from $75.3 million in third quarter 2011, primarily due to a $10.6 million decrease in per-unit royalty revenue and lower past sales revenue. The decrease in per-unit royalty revenue resulted primarily from lower shipments by our Japanese per-unit licensees, as well as Research in Motion Limited ("RIM") and HTC Corporation ("HTC"). Additionally, technology solutions revenue decreased to $0.6 million in third quarter 2012 from $1.2 million in third quarter 2011, primarily due to lower royalties recognized in connection with the company's SlimChip modem IP business. As of September 30, 2012, the company has deferred $40.1 million, including $3.6 million in third quarter 2012, of disputed SlimChip modem IP royalties pending the outcome of an ongoing arbitration.

The company's third quarter 2012 net income was $235.7 million, or $5.56 per diluted share, compared to $26.2 million, or $0.57 per diluted share, in third quarter 2011. Not including the Intel patent sale revenue of $375.0 million, cost of patent sale of $15.6 million and the related income tax impact of $124.7 million, third quarter 2012 net income would have been $1.0 million or $0.02 per diluted share.

Third quarter 2012 operating expenses totaled $70.9 million, an increase of $26.6 million from $44.3 million in third quarter 2011. This increase was driven by $15.6 million of costs associated with our patent sale to Intel and an $11.3 million increase in intellectual property enforcement and non-patent litigation costs. Third quarter 2012 intellectual property enforcement and non-patent litigation costs were $18.0 million as compared to $6.7 million in third quarter 2011, and related primarily to the ITC patent infringement proceeding initiated in second half 2011. These and other increases were partially offset by lower costs associated with long-term compensation and the 2011 strategic evaluation process.

Third quarter 2012 other expense of $2.7 million decreased $0.4 million from $3.1 million in third quarter 2011. The change between periods primarily resulted from higher returns on the company's investment balances during third quarter 2012 as compared to third quarter 2011.

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