Net interest and investment income for third quarter 2010 of $0.6 million increased from $0.5 million in third quarter 2009 primarily due to higher investment balances in third quarter 2010.
The company’s third quarter 2010 effective tax rate was approximately 36 percent, slightly higher than the 35 percent effective tax rate experienced in third quarter 2009.
Nine Months Summary
The company’s first nine months 2010 net income totaled $119.3 million, or $2.66 per diluted share, a 65 percent increase over the first nine months 2009 pro forma net income1 of $72.4 million, or $1.61 per diluted share. The first nine months 2009 pro forma results do not include a $37.0 million repositioning charge. This year-over-year increase in net income was driven by revenue contributions from several new customers as well as growth in sales from existing customers. On a GAAP-reported basis, first nine months 2009 net income totaled $48.4 million, or $1.08 per diluted share.
Total revenue in first nine months 2010 of $299.3 million increased 35 percent from $221.0 million reported in first nine months 2009, driven by a $70.0 million, or 33 percent, increase in patent licensing royalties. Of this increase, $38.5 million related to past sales generated by new and renewed agreements and routine audits, the largest contributor to which was Casio Hitachi Mobile Communications Co., Ltd. (“CHMC”). The fixed fee amortized portion of royalty revenue in first nine months 2010 totaled $146.3 million, an increase of 9 percent over first nine months 2009 of $133.7 million, driven by a new customer agreement with Pantech and a full nine months of revenue from the agreement with Samsung signed during first quarter 2009. Per-unit royalties of $97.4 million in first nine months 2010 rose 24 percent over $78.5 million reported for first nine months 2009, driven by new, renewed and expanded license agreements with customers as well as increased sales of customers’ smartphone products. Technology solutions revenue in first nine months 2010 of $14.3 million more than doubled from $6.0 million in first nine months 2009 due to contributions from new technology solutions agreements added in first nine months 2010 and royalties on customer sales of products containing the company’s SlimChip™ modem core platform. Customers that accounted for ten percent or more of the $299.3 million of first nine months 2010 total revenue were Samsung (26 percent), LG Electronics (14 percent), and CHMC (11 percent).
First nine months 2010 operating expenses of $117.1 million increased by 5 percent over the $111.0 million operating expenses during first nine months 2009, which excludes the $37.0 million repositioning charge during first nine months 2009. The increase in expense is largely the result of adjustments to the accrual for the company’s LTCP, as described above. In addition, expenses rose $7.2 million as a result of sublicense fees and other non-personnel expenses to support technology transfers under the new technology solutions agreements entered into during first nine months 2010, patent amortization and an increase in costs associated with due diligence related to potential patent acquisition opportunities. These and other increases were offset by lower levels of personnel, depreciation and amortization and other costs resulting from the company’s March 2009 decision to cease further development of its SlimChip modem technology. In addition, the company experienced a lower level of intellectual property enforcement activity in first nine months 2010 ($10.3 million in first nine months 2010 versus $11.5 million in first nine months 2009).
Net interest and investment income for each of first nine months 2010 and first nine months 2009 totaled $2.0 million.
The company’s first nine months 2010 effective tax rate was approximately 35 percent, as compared to the first nine months 2009 effective tax rate of approximately 36 percent.
In first nine months 2010, the company generated $141.4 million of free cash flow2 compared to $307.0 million in first nine months 2009. The decrease of $165.6 million in free cash flow was driven primarily by a reduction of $149.3 million in cash receipts from patent license agreements due to a higher level of patent licensing prepayments received in first nine months 2009 compared to first nine months 2010.
Scott McQuilkin, Chief Financial Officer, commented, “Our third quarter results reflect the growth of our customer base and strong sales from our existing customers driven by the rebound in industry mobile phone shipments. We will provide an update on our revenue expectations for fourth quarter 2010 after we receive and review the applicable patent license and product sales royalty reports.”
Conference Call Information
InterDigital will host a conference call on Thursday, October 28, 2010 at 10:00 a.m. Eastern Time to discuss its third quarter 2010 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 homepage. The company encourages participants to take advantage of the Internet option.
For telephone access to the conference call, please dial (888) 802-2225
within the U.S. or (913) 312-1254 from outside the U.S. Please call by
9:50 a.m. ET on October 28 and ask the operator for the InterDigital