“We are very pleased with InterDigital’s performance this quarter,” commented William J. Merritt, President and Chief Executive Officer. “We recorded strong recurring revenue based on good sales growth from our broad base of 2G and 3G patent licensees. We also secured our first product win for our SlimChip™ high performance mobile broadband IC and successfully delivered our 3G modem IP to a fabless customer.”
“We also progressed nicely toward our top priority of growing our base of new 3G patent licensees, including the very important task of signing all of the top 5 manufacturers,” continued Mr. Merritt. “Toward that end, the U.S. International Trade Commission (USITC) action against Samsung moved forward with the evidentiary hearing held in July. We believe our case is going very well, and we remain confident that we will prevail in this matter. Last week, we also prevailed in two important legal actions – one against Samsung and the other against Nokia. The decision by the arbitral tribunal in the Samsung matter confirmed InterDigital’s position that Samsung cannot use the 2006 settlement agreement between InterDigital and Nokia to avoid its obligation (determined by a prior arbitration panel) to pay over $150 million in royalties owed for Samsung’s sale of 2G handsets. As for Nokia, we believe the decision of the Second Circuit Court of Appeals clears the path for the resumption of the USITC investigation regarding Nokia’s sales of 3G terminal units. These positive developments create the right environment for the resolution of these patent license disputes on favorable terms.”
Second Quarter Summary
The company’s second quarter 2008 net income totaled $5.8 million, or $0.13 per share (diluted), a significant increase from the company’s reported net loss of $4.4 million, or $0.09 per share, in the comparable quarter in 2007. The company’s second quarter 2007 pro forma1 net income totaled $6.6 million, or $0.13 per share (diluted), excluding a $16.6 million charge relating to an award in the arbitration with Federal and related tax effects.
Revenues in second quarter 2008 were $58.7 million, compared to $55.0 million in second quarter 2007. Recurring patent licensing royalties in second quarter 2008 were $55.9 million, compared to $52.6 million in second quarter 2007. Technology solution revenue increased to $2.5 million in second quarter 2008, compared to $0.6 million in second quarter 2007, due primarily to an increase in engineering services provided under a license for our SlimChip 3G modem IP. Licensees that accounted for 10% or more of our recurring revenue are LG (25%), Sharp Corporation of Japan (18%) and NEC Corporation of Japan (13%).
Second quarter 2008 operating expenses of $50.9 million increased $3.6 million compared to second quarter 2007 after excluding a $16.6 million second quarter 2007 charge related to an arbitration award. The increase was primarily due to increased litigation and arbitration expenses and increased amortization costs related to technology licenses for the development of our SlimChip product family. Excluding a $6.9 million insurance reimbursement and $1.2 million reduction in contingent liabilities, both recognized in first quarter 2008, second quarter 2008 operating expenses decreased sequentially by $2.3 million. The sequential decrease from first quarter 2008 was primarily due to lower litigation and arbitration expenses.
Net interest and investment income of $1.2 million in second quarter 2008 decreased $1.1 million from second quarter 2007 due primarily to lower rates of return.
The company’s second quarter 2008 tax provision was $3.2 million, reflecting an effective tax rate for the quarter of approximately 35%. In second quarter 2007, the company reported a $2.2 million tax benefit against its pre-tax loss, reflecting an effective tax rate of approximately 33%. The lower rate in 2007 was attributable to estimated future tax credits related to 2007 research and development activity.
Six Months Summary
Net income for first half 2008 totaled $13.2 million, or $0.28 per share
(diluted), reflecting a decrease of $11.0 million from pro forma net
income for first half 2007 (which excludes a $16.6 million charge
relating to an award in the arbitration with Federal and related tax
effects) of $24.2 million or $0.48 per share (diluted).