Yahoo Finance InterDigital, Inc. (NASDAQ:IDCC) Q4 2023 Earnings Call Transcript
InterDigital, Inc. (NASDAQ:IDCC) Q4 2023 Earnings Call Transcript February 15, 2024
InterDigital, Inc. beats earnings expectations. Reported EPS is $1.41, expectations were $1.21. InterDigital, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the InterDigital Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation there will be a question and answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over today to your speaker, Raiford Garrabrant. Please go ahead.
Raiford Garrabrant: Good morning to everyone, and welcome to InterDigital's fourth quarter 2023 earnings conference call. I am Raiford Garrabrant, Head of Investor Relations for InterDigital. With me on today's call are Liren Chen, our President and CEO; and Rich Brezski, our CFO. Consistent with prior year-end calls, we will offer some highlights about Q4 and fiscal year 2023 before opening up the call for questions. For additional details, you can access our earnings release and slide presentation that accompany this call on our Investor Relations website. Before we begin our remarks, I need to remind you that in this call, we will make forward-looking statements regarding our current beliefs, plans and expectations, which are not guarantees of future performance and are made only as of the date hereof.
Forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from results and events contemplated by such forward-looking statements. These risks and uncertainties include those described in the Risk Factors section of our 2023 annual report on Form 10-K and in our other SEC filings. In addition, today's presentation may contain references to non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the supplemental materials posted to the Investor Relations section of our website. With that taken care of, I will turn the call over to Liren.
Liren Chen: Thank you, Raiford. Good morning, everyone. Thanks for joining us today. 2023 was another outstanding year for InterDigital. We made excellent progress across our business as we signed new agreement and our smartphone and our consumer electronics and IT programs significantly increased our revenue and net income year-over-year, strengthened our innovation engine with a record number of new patent filings and return more capital to shareholders. Today, we will summarize our progress in Q4 our achievements throughout 2023 and why we feel we are really well positioned for further growth in 2024 and beyond. Revenue for fourth quarter was $106 million, including recurring revenue of just over $103 million, and our adjusted EBITDA was $53 million.
In the quarter, we returned about $47 million to our shareholders and expanded our existing repurchase authorization to a total of $300 million. Our status as a world-class innovator was again underlined in the fourth quarter as one of our senior wireless engineers was elected to the Board of ACI, the European standard organization, which played a key role in the development of cellular wireless technology. Looking across the full year, Q4 capped an outstanding 12 months for the company. Our revenue for 2023 was $550 million, up 20% year-over-year. Revenue from the smartphone licensing program increased by 32% year-over-year. Our recurring revenue increased to a record level of just over $408 million. As we drive growth in our top line, we see an even greater impact on our bottom line, first shown in our more than 80% year-over-year increase for our non-GAAP EPS.
In addition, we returned almost $380 million to shareholders through dividends and share buybacks. Rich will go through the numbers in more detail in his section. First, our excellent financial performance indices, 2023 was full of highlights for the company. On the licensing side, we entered into 8 new license agreements, including cellular and HEVC license with Lenovo, a cellular agreement with TCL and 2 agreements with Panasonic. 2023 was also an exceptional year for our inventors and patent team, which created a record-setting number of inventions and new patent filings up more than 70% year-over-year. Taking our total patent portfolio past 30,000 granted patents and applications. As the quality of our innovation was again recognized as we were named 1 of the top 5 patent holders for 5G patents in terms of both quality and quantity by a leading third-party research company.
We take pride in how engineers this evolution of technology globally. In addition to the recent election I noted above, several of our engineers went the election to senior leadership positions for wireless radio and AI standard development organizations. Across our research team, our engineers now hold more than 100 leadership positions in those organizations. In 2023, our dispute with Lenovo when our patents were tested in litigation, they were repeatedly found to be added and inference by courts in both U.K. and Germany, which is a clear indicator of quality of our innovation. Right before end of the year, we bring a notable victory in our pursuit in compensation for Oppo's use of our patented technology. According Germany rule that infringement our IP and that it should be excluded from the German market.
The court ruled resoundingly in our favor, agreed that we conducted licensing negotiation in a third and reasonable manner and other courts has ruled down uphold the quality of patented innovation. The court's strong criticism of Oppo's behavior throughout our negotiation reflects why from time to time, we help reinforce our pattern in litigation. While we always prefer to sign new agreements through our amicable bilateral negotiations, we are firmly committed to defending the value of our IP through enforcement efforts if necessary. Our progress was recently recognized by Forbes which ranked us as 1 of our market's top 100 most successful mid-cap companies. While I'm particularly pleased by this recognition, we also firmly believe that there is still considerable upside for us in multiple areas.
Our business momentum continued into Q1 of 2024. In January, we announced a landmark agreement with Samsung, which licensed their digital TV and TV monitors to arrange our video and WiFi patents and 2 patents that are part of our joint licensing program with Sony. But Rich will explain in more detail, we expect the agreement to have a considerable positive impact on our Q1 result. Samsung is the largest manufacture TV in the world, and this agreement reflects not only the strength that we see on the CE side, but also more broadly the value of video and wireless innovation. As previously discussed, our video compression technology is important for devices but it also essentially enables the entire distribution platform of streaming and other cloud services, which we continue to see as an attractive third pillar of growth along with the significant opportunity we have in smartphones and CET program.
I also want to remind everyone that our new license with Samsung is separate to our license agreement with them for cellular devices, which we announced at the beginning of 2023 and is now being finalized through agitation. The arbitration hearing is on track to be held this summer with the final resolution expected by not this year. With our recent licensing success, we have signed more than 30 new agreements and renewals with an aggregate contract value of over $2.5 billion since early 2021. This gives us an incredible strong platform from which to deliver further success and another very strong result in 2024. Looking ahead through this year, we have guided that our revenue will be between $620 million and $670 million for the full year, which reflects our pipeline for contracted revenue and projected growth through new agreements.
As we continue our journey to grow the company, we announced on Monday that we have appointed Ken Kaskoun as our new Chief Group Officer. Ken was recently in charge of strategy and business development as a life science company and before that, that strategy in Qualcomm's licensing business. He understands our space very well, and his recruitment underlines our status as a destination for top level talent. Later this month, we will once again take part in Mobile World Congress in Barcelona. While we have several demonstrations of our innovation in wireless, video and AI, one of our senior video engineers will give a key new presentation on the power of haptics to enhance immersive streaming experience. On the wireless side, our demonstration will focus on integrated sensing and communication, a technology, which will be a key pillar of 6G and where we are already a leader.
On the radio and AI side, we will showcase the latest VC technology, coupled with our energy over media solutions and AI expertise to seam high-quality video content by lowering energy usage. I hope to see you at our booth if you are attending Mobile Congress. With that, I'll hand you over to Rich to talk you through our numbers in more detail.
Richard Brezski: Thanks, Liren. A year ago at this time, we mentioned that our strong execution throughout 2022 drove excellent financial results and put us in what we believe was the strongest position the company has ever been in. Now after achieving 20% top line growth, significant margin expansion and licensing momentum beyond the smartphone market. We are excited to reiterate our belief that the company has never been better positioned to drive growth. Our final results for Q4 came in above our preliminary estimates, which we published last month. The improvement was driven primarily by a lower effective tax rate as well as favorable order reports we received in the intervening period. Building on Liren's comments, I'll highlight a few noteworthy items from our full year 2023 results that demonstrate success towards our objective of delivering consistent revenue growth combined with strong margins.
Total revenue accelerated to $550 million, an increase of 20% year-over-year, resulting in a compounded annual growth rate of 15% over the past 4 years. Recurring revenue reached an all-time high of $408 million. Our 2023 revenue included $81 million of CE and IoT revenue. This is more than triple our CE and IoT revenue from 2020 and represents a 19% compounded annual growth rate over the past 4 years. This success demonstrates our ability to grow revenue by capitalizing on the value our fundamental horizontal technologies bring new markets other than smartphones. Because of the financial leverage inherent in our model, adjusted EBITDA grew 36% and almost twice the rate of revenue growth to $345 million. As a result, our adjusted EBITDA margin continued to improve and rose by 7 points to an exceptional 63%.
This represents a 22-point improvement over the past 4 years. We ended the year with roughly $1 billion in cash and $400 million of net cash. Cash flow continued to be robust with $214 million of cash from operations and $169 million of free cash flow for the year. These strong cash flows enabled us to return a record $379 million to shareholders in 2023. Most of this was through buybacks of nearly $340 million and we also increased our dividend by 14%. After the increase to the share repurchase authorization in December 2023, and our repurchases through the first half of Q1 '24, we have room to buy back another $285 million. Since we announced our first dividend in December 2010, and we have returned nearly $1.8 billion to shareholders through buybacks and dividends.
In that time, we have reduced our outstanding share count by more than 40%, from more than 45 million shares to fewer than 26 million shares. With all that we accomplished in 2023, the most important thing is that we've built on our strong foundation and have carried that momentum into 2024. The Samsung TV agreement Liren discussed is a significant step toward reaching our goals in CE and IoT. On the strength of the Samsung TV deal, we expect Q1 revenue will be in the range of $245 million to $255 million. This includes $152 million to $160 million of catch-up sales and almost $22 million of recurring revenue or more than $85 million on an annualized basis from CE and IoT. Our Q1 quarterly guidance does not include any new agreements or renewals we may sign between now and the end of the quarter.
We expect Q1 operating expenses will be $149 million to $154 million, including revenue share expense from existing agreements of $66 million to $69 million, an adjusted EBITDA margin of about 50% and non-GAAP diluted earnings per share of roughly $3 to $3.60. Given the momentum in the business, and a strong pipeline of opportunities, we feel it's an appropriate time to introduce full year guidance in addition to our typical quarterly outlook. For fiscal year 2024, we have guided to total revenue in the range of $620 million to $670 million. We expect an adjusted EBITDA margin of roughly 50% due to the revenue share associated with large catch-up revenue from recent CE licenses. With that, we expect non-GAAP diluted earnings per share of $7.45 to $8.76.
Longer term, our goal remains to achieve and sustain a 60% adjusted EBITDA margin on $650 million of annual recurring revenue from device licenses with upside from the greenfield opportunity in video streaming and cloud services. Before I conclude, I'd like to mention that we'll be attending three upcoming conferences; the Susquehanna Tech Conference in New York City on February 29, Sidoti's Virtual Small Cap Conference on March 13 and 14, and the 36th Annual ROTH Conference in Southern California on March 18. Please check with the representatives at those firms, if you would like to schedule a meeting. With that, I'll turn it back to Raiford.
Raiford Garrabrant: Thanks, Rich. At this point, Lisa, we are ready to take questions.
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