InterDigital (IDCC) Q2 Earnings Beat on Solid Revenue Growth

Despite the coronavirus-induced adversities, InterDigital, Inc. IDCC reported solid second-quarter 2020 results, wherein both top and bottom lines surpassed the respective Zacks Consensus Estimate. Higher revenues generated from new licensing avenues highlighted the operating leverage of the company’s business model and reflected the strength of its licensing business.

Net Income

The company reported net income of $22.3 million or 72 cents per share compared with $7.7 million or 24 cents in the year-ago quarter. The three-fold rise in year-over-year earnings was largely attributable to top-line growth. The bottom line surpassed the consensus mark by 10 cents.

InterDigital, Inc. Price, Consensus and EPS Surprise

 

InterDigital, Inc. price-consensus-eps-surprise-chart | InterDigital, Inc. Quote

Revenues

The wireless R&D company’s revenues totaled $104.5 million, up from $75.6 million in the year-earlier quarter. The top line surpassed the Zacks Consensus Estimate of $97 million. The double-digit growth amid the challenging macroeconomic environment was primarily driven by the new fixed-fee patent license agreement signed during the quarter with China-based telecom equipment manufacturer, Huawei.

Recurring revenues during the reported quarter were $85.2 million compared with $74.4 million a year ago. While revenues from patent royalties came in at $101.2 million, the same from current technology solutions totaled $3.3 million.

Other Details

Total operating expenses were $72.6 million, up from $66.7 million in the prior-year quarter due to intellectual property enforcement and non-patent litigation costs with Lenovo and Xiaomi. Operating income was $31.9 million compared with $8.9 million a year ago, buoyed by higher revenues in the reported quarter.

Cash Flow and Liquidity

For the first half of 2020, InterDigital generated $42.9 million of cash from operating activities compared with cash utilization of $53.5 million in the year-ago period. Free cash flow for the first six months of 2020 was $25.3 million. As of Jun 30, 2020, the company had $839.2 million in cash and short-term investments along with $404.7 million of long-term debt and other liabilities.

Outlook

With solid licensing agreements with leading consumer electronics customers in the reported quarter, InterDigital is eyeing a healthy licensing business despite the coronavirus-induced pandemonium. The company remains relatively immune to the adverse economic effects of the virus outbreak as fixed priced agreements make up for more than 90% of revenues. InterDigital also remains poised to gain from growth opportunities from 5G rollout.

Zacks Rank & Stocks to Consider

InterDigital currently has a Zacks Rank #3 (Hold).

Better-ranked stocks in the industry include Clearfield, Inc. CLFD, sporting a Zacks Rank #1 (Strong Buy), and Nokia Corporation NOK and Qualcomm Incorporated QCOM, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Clearfield delivered an earnings surprise of 45.6%, on average, in the trailing four quarters.

Nokia has a long-term earnings growth expectation of 15.6%. It delivered an earnings surprise of 37.5%, on average, in the trailing four quarters.

Qualcomm has a long-term earnings growth expectation of 19.8%. It delivered an earnings surprise of 14.3%, on average, in the trailing four quarters.

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