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Why Is InterDigital (IDCC) Up 1.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for InterDigital (IDCC - Free Report) . Shares have added about 1.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is InterDigital due for a pullback? 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 catalysts.

InterDigital Beats Q3 Earnings & Revenue Estimates

InterDigital kept its earnings steak alive in the third quarter of 2018 as well, comfortably beating both the top and bottom-line estimates.

GAAP earnings for the quarter came in at 60 cents per share (under the revenue recognition standard "ASC 606"), which surpassed the Zacks Consensus Estimate of 21 cents. Notably, the bottom-line figure for the year-ago quarter was $1.00 per share (under the revenue recognition standard, "ASC 605").

Inside the Headlines

In the reported quarter, the company’s revenues totaled $75.1 million, down 22.8% year over year. However, the reported figure surpassed the Zacks Consensus Estimate of $72 million. The year-over-year decline was due to adoption of a new revenue recognition standard (ASC 606) that impacted its revenue recognition from certain of its fixed-fee and per-unit license agreements.

While revenues from patent royalties came in at $74 million, the same from current technology solutions totaled $1 million.

The company’s operating expenses came in at $62.2 million, reflecting an increase of 10.1% year over year. Notably, adoption of ASC 606 did not have any impact on operating expenses in the reported quarter.

Selling and administrative expenses, as a percentage of total operating expenses, were 20.6% compared with 22.3% in the year-ago quarter.

Balance Sheet & Cash Flow

As of Sep 30, 2018, InterDigital’s cash & short-term investments were $1,058.4 million with total long-term debt and other long-term liabilities aggregating $344 million.

For the first nine months of 2018, net cash provided by operating activities was $176.6 million compared with $98.3 million in the prior-year period.

Technicolor Integration on Track

In July, InterDigital completed the buyout of the patent licensing business of Technicolor, a global technology leader in the media and entertainment sector. The company is on track in integrating the patent portfolio as well as the team of Technicolor employees in its fold. The deal is expected to provide InterDigital with an enhanced portfolio of video technologies while opening up new opportunities in the consumer electronics market. The company expects the Technicolor video coding assets to eventually add about 10% to the revenue base of its core terminal unit licensing business.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -16.31% due to these changes.

VGM Scores

At this time, InterDigital has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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.




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