“We are pleased to announce a very strong second quarter, marked by strong earnings and positive cash flow,” commented William J. Merritt, President and Chief Executive Officer. “Our results clearly demonstrate that our licensing efforts continue to drive significant value. Additionally, our first quarter realignment, which refocused our business on our core research and development and licensing activities, contributed to a significant improvement in profitability in the second quarter. All these efforts should continue to produce substantial benefits to our shareholders both in the short and long term.”
Second Quarter Summary
The company’s second quarter 2009 net income totaled $26.4 million or $0.59 per diluted share, more than four times greater than the company’s net income of $5.9 million, or $0.13 per diluted share for the comparable quarter 2008. This year-over-year increase was driven by revenue contributions from a new patent license agreement with Samsung signed in January 2009 as well as reduced operating expenses resulting from the company’s repositioning plan announced in first quarter 2009.
Revenues totaled $74.9 million in second quarter 2009, a 28 percent increase over the $58.7 million reported in second quarter 2008. Patent licensing royalties of $72.7 million in second quarter 2009 posted a 29 percent increase over $56.2 million in second quarter 2008, due to the addition of $25.7 million in fixed-fee amortized royalty revenue from a patent license agreement with Samsung signed in first quarter 2009, $2.3 million in royalties for past sales, partly offset by a $10.4 million decrease in per-unit royalty revenue related to industry-wide declines in handset sales for comparable first quarter sales. Despite this overall decline in per unit royalties, certain licensees with concentrations in the smartphone market reported increased sales for the reporting period. Technology solutions revenue of $2.2 million in second quarter 2009 decreased 12 percent from $2.5 million in second quarter 2008. The decrease is primarily attributable to engineering service fees earned in second quarter 2008 that did not recur in second quarter 2009, offset by an increase in royalties earned on InterDigital’s SlimChip™ modem IP. In second quarter 2009, 53 percent of total revenue of $74.9 million was attributable to companies that individually accounted for 10 percent or more of this amount, Samsung (34 percent) and LG (19 percent).
Second quarter 2009 operating expenses of $34.7 million decreased $16.2 million, or 32 percent, compared to second quarter 2008. The decrease was due primarily to the company’s repositioning announced on March 30, 2009, which decreased development expenses by $9.0 million, or 41 percent year-over-year, from $22.2 million in second quarter 2008 to $13.2 million in second quarter 2009. In addition, patent administration and licensing expenses declined significantly from $21.4 million in second quarter 2008 to $15.6 million in second quarter 2009, a decrease of $5.9 million, or 27 percent. This year-over-year reduction was driven largely by the resolution of the company’s various disputes with Samsung and the third quarter 2008 resolution of the Nokia U.K. patent litigations. On a sequential basis, development expenses declined $13.6 million, or 51 percent, from first quarter 2009, reflecting the results of the company’s repositioning efforts.
Net interest and investment income of $0.6 million in second quarter 2009 decreased $0.6 million from second quarter 2008 because of lower rates of return and lower investment balances.
The company’s second quarter 2009 effective tax rate was approximately 35%, level with second quarter 2008.
During second quarter 2009, the company generated $43.4 million of free cash flow1, compared to $19.9 million of free cash flow in second quarter 2008. The increase of $23.5 million was driven by a higher level of cash receipts in from the company’s patent licensees and a lower level of cash outlays.
Six Months Summary
The company’s first half 2009 net income totaled $17.8 million, or $0.39
per diluted share, a 35 percent increase from the company’s net income
of $13.2 million, or $0.28 per diluted share, for the comparable period
in 2008. This year-over-year increase was driven by revenue
contributions from a new patent license agreement with Samsung signed in
January 2009 as well as reduced operating expenses resulting from the
company’s repositioning plan announced in first quarter 2009.