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InterDigital (IDCC) Q3 Earnings Beat on Top-Line Growth

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Despite the coronavirus-induced adversities, InterDigital, Inc. (IDCC - Free Report) reported solid third-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 $23.8 million or 76 cents per share compared with $2.2 million or 7 cents per share in the year-ago quarter. The stellar year-over-year increase in earnings was largely attributable to top-line growth. Adjusted earnings for the reported quarter were 17 cents per share, which surpassed the consensus mark by 3 cents.

InterDigital, Inc. Price, Consensus and EPS Surprise 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 $87.5 million, up from $72.5 million in the year-earlier quarter. The top line surpassed the Zacks Consensus Estimate of $85 million. The healthy double-digit growth amid the challenging macroeconomic environment was primarily driven by the new fixed-fee patent license agreement signed over the trailing 12-month period with China-based telecom equipment manufacturers, Huawei and ZTE.

Recurring revenues during the reported quarter were $87 million compared with $72.1 million a year ago. While total revenues from patent royalties came in at $85.2 million, the same from current technology solutions aggregated $2.3 million.

Other Details

Total operating expenses were $72.1 million, up from $68.7 million in the prior-year quarter due to intellectual property enforcement and non-patent litigation costs with Lenovo and Xiaomi. Operating income was $15.4 million compared with $3.8 million a year ago, buoyed by higher revenues in the reported quarter.

Cash Flow and Liquidity

In the first nine months of 2020, InterDigital generated $144.2 million of cash from operating activities compared with $72 million in the year-ago period. Free cash flow in the first nine months of 2020 was $110.6 million, up from $42.8 million in the prior-year period. As of Sep 30, 2020, the company had $919.4 million in cash and short-term investments along with $411.8 million of long-term debt and other liabilities.

Outlook

Banking on solid licensing agreements with leading consumer electronics customers, InterDigital is eyeing a healthy licensing business despite the coronavirus-induced pandemonium. The company is 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). Some better-ranked stocks in the broader industry are Viavi Solutions Inc. (VIAV - Free Report) , Altice USA, Inc. (ATUS - Free Report) and Knowles Corporation (KN - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Viavi delivered a positive earnings surprise of 17.5%, on average, in the trailing four quarters.

Altice has a VGM Score of A and has gained 25.8% in the past six months.

Knowles has a long-term earnings growth expectation of 10%. It delivered a positive earnings surprise of 12.5%, on average, in the trailing four quarters.

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