InterDigital Inc. (IDCC), the patent licensing company run by CEO William Merritt, said its second quarter profit fell 59% as past patent royalties plunged.
Net income fell to $32.6 million, or 89 cents a share, from $78.9 million, or $1.93 a share, a year ago.
Revenue fell 38% to $118.6 million driven by past patent royalties which plunged 77% to $27.3 million. Recurring or current patent revenue rose 23.8% to $89.4 million.
Last year’s second quarter included past patent royalties of $119.9 million, primarily related to new patent license agreements signed during that quarter, including with Samsung Electronics Co. Ltd. This year’s second quarter included $27.3 million of past patent royalties as a result of the previously announced settlement with Arima Communications Corp.
InterDigital said Pegatron Corp. accounted for 30% of its revenue, Arima Communications Corp. for 23% and Samsung for 15%.
"The 23% increase in recurring revenue is the best news in InterDigital's release and I think is a very positive indicator going forward," said Dex Wheeler, the chief research analyst at M-CAM, a Charlottesville, Virginia-based IP investment advisory firm. "Revenue stability through the reproduction of large, one-time settlements or license payments has been challenging in the IP monetization industry. With the withdrawal of Arima and Pegatron's complaints in the Taiwan Intellectual Property Court, those royalty stream appears to be safe and should allow InterDigital to pursue steady growth."
Operating expenses fell 8% to $60 million in the second quarter driven primarily by a $10.8 million decrease in performance-based incentive compensation.
InterDigital said the $5.9 million decrease in operating expenses was primarily due to the $10.8 million decrease in performance-based incentive compensation. The higher performance-based incentive compensation in second quarter 2014 was primarily related to increased accrual rates as a result of new license agreements signed during that quarter. The decrease in operating expenses was partially offset by a $2.5 million increase in commercial initiatives expense, which was primarily attributable to research and development activities to commercialize its IoT and next generation networks technologies.
Expenses from patent administration and licensing fell to $31.2 million from $31.3 million. Development expenses fell 20% to $18.3 million, while selling, general and administrative costs fell 11% to $10.4 million.
“Building on a number of years of success, the second quarter saw us again drive strong revenue, profit and positive cash flow, underscoring the value of our focus on developing fundamental technologies used broadly across the mobile wireless industry," Merritt said in a statement. "Our recent announcements regarding key research projects worldwide highlight InterDigital's continuing efforts to pioneer future mobile technologies and contribute those technologies to worldwide standards, while growing our customer base and market share.”
The company said it generated $17 million of cash flow during the quarter and ended the quarter with cash and short term investments totaling $907.6 million.
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