InterDigital (IDCC) Down 44.4% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for InterDigital (IDCC). Shares have lost about 44.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is InterDigital due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

InterDigital's Q4 Earnings Beat on Higher Revenues

InterDigital reported solid fourth-quarter 2019 results, wherein both the bottom line and top line 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

Net income in the quarter was $13.8 million or 44 cents per share compared with $2.1 million or 6 cents per share in the year-ago quarter. The significant year-over-year improvement was largely attributable to higher revenues. The bottom line surpassed the consensus estimate by 17 cents.

In 2019, net income declined to $20.9 million or 66 cents per share from $65 million or $1.84 per share in 2018 due to higher operating and income tax expenses.

Revenues

The wireless R&D company’s revenues totaled $102.2 million, up from $75.3 million in the year-earlier quarter. The top line surpassed the Zacks Consensus Estimate of $96 million. The increase was primarily due to new license agreements signed in the quarter, including cellular-based licensing agreements with ZTE (HK:0763) and Alphabet Inc.’s (NASDAQ:GOOGL) Google and a video-based licensing agreement with Funai. Collectively, these agreements contributed above $26 million revenues in the quarter, including more than $4 million of recurring revenues.

Recurring revenues during the reported quarter were $77.5 million compared with $73.7 million a year ago. While revenues from patent royalties came in at $99.4 million, the same from current technology solutions totaled $2.7 million. In 2019, total revenues were $318.9 million compared with $307.4 million in 2018.

Other Details

Total operating expenses were $76.9 million compared with $71.5 million in the prior-year quarter due to intellectual property enforcement and non-patent litigation costs. Operating income was $25.3 million compared with $3.8 million a year ago.

Cash Flow and Liquidity

During the fourth quarter, InterDigital generated $17.5 million of net cash in operating activities compared with cash utilization of $29.8 million in the year-ago quarter, bringing the tallies for cash flow in 2019 and 2018 to $89.4 million and $147 million, respectively. The company’s free cash flow at year-end 2019 was $51.4 million compared with $112.1 million a year ago.

The company repurchased 0.4 million shares under its share repurchase program during the quarter for approximately $25 million. At year-end 2019, about $71.8 million was available for repurchase under the stock buyback program. As of Dec 31, 2019, InterDigital had $924.7 million in cash and short-term investments with $396.6 million of long-term debt and other liabilities compared with respective tallies of $945.8 million and $351.5 million in the year-ago period.

Outlook

With solid licensing agreements in the reported quarter and ongoing licensing discussions with other consumer electronics customers, InterDigital is eyeing annual licensing potential from new consumer electronics business at $150 million in three to five years. The combined revenue-generating potential of the wireless and consumer electronics licensing platforms has reached around $650 million.

InterDigital remains poised to gain from growth opportunities from 5G rollout. For first-quarter 2020, the company expects to revenues in the range of $73-$75 million.

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months. The consensus estimate has shifted -48.72% due to these changes.

VGM Scores

At this time, InterDigital has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

InterDigital has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.