Pro forma net income for first nine months 2009, which excludes a $37.0 million repositioning charge, totaled $72.4 million or $1.61 per diluted share, reflecting an increase of $24.0 million, more than three times the reported first nine months 2008 net income of $22.4 million, or $0.48 per diluted share.
Revenues of $221.0 million in first nine months 2009 grew $51.2 million, or 30 percent, over the $169.8 million in first nine months 2008. Patent licensing royalties were $215.0 million in first nine months 2009, a 32 percent increase over the $163.0 million in first nine months 2008. The increase in patent licensing royalties was primarily related to a $72.8 million increase in fixed-fee amortized royalty revenue associated with the company’s new patent license agreement with Samsung signed in January 2009. This increase was partially offset by a decrease in per-unit royalty revenue related to industry-wide declines in handset sales in 2009 relative to 2008.
Technology solutions revenue in first nine months 2009 decreased 12 percent to $6.0 million from $6.8 million in first nine months 2008. The decrease is primarily attributable to engineering service fees earned in first nine months 2008 associated with the company’s SlimChip modem IP business, which did not recur in first nine months 2009. This decrease was partially offset by an increase in royalties of $4.2 million earned on the company’s SlimChip modem IP. During first nine months 2009, 63 percent of the company’s total revenue of $221.0 million was attributable to companies that individually accounted for 10 percent or more of total revenue, Samsung (33 percent), LG (20 percent), and Sharp (10 percent).
Operating expenses in first nine months 2009 decreased 20 percent to $111.0 million from $138.0 in first nine months 2008, excluding a first nine month 2009 repositioning charge of $37.0 million. This repositioning, which the company announced on March 30, 2009, decreased development expenses by $17.7 million, or 26 percent year-over-year, from $68.5 million in first nine months 2008 to $50.8 million in first nine months 2009. Patent litigation and arbitration costs of $11.5 million decreased 64 percent year-over-year, primarily due to the resolution of the company’s various disputes with Samsung and the third quarter 2008 resolution of the Nokia U.K. disputes.
Net interest and investment income of $2.0 million in first nine months 2009 decreased 29 percent from $2.8 million in first nine months 2008, driven by lower rates of return in first nine months 2009 compared to 2008.
The company’s effective tax rate was 35.5 percent for first nine months 2009, slightly higher than the 35.3 percent for first nine months 2008.
During first nine months 2009, the company generated $307.0 million of free cash flow1 compared to $77.2 million in 2008. First nine months 2009 free cash flow was driven by receipt of the first two of four $100.0 million installments from Samsung under its patent license agreement and new prepayments from two existing licensees totaling $182.4 million, offset in part by cash-based operating expenses, capital investments, and changes in working capital. As of October 28, 2009, the company had repurchased approximately 1.0 million shares for $25.0 million since the inception of the March 2009 $100.0 million share repurchase program.
Scott McQuilkin, Chief Financial Officer, commented, “We continue to be optimistic about the fundamental growth prospects for the 3G handset market, which bodes well for our business model. Indeed, global economic conditions appear to have stabilized. More importantly, the recent ruling in our litigation with Nokia does not alter our confidence in our ability to successfully add new licensees which could further increase our royalty revenues.”
“As for fourth quarter 2009, we will provide an update on our revenue expectations after we receive and review the applicable patent license and product sales royalty reports,” concluded Mr. McQuilkin.
Due to the repositioning announced on March 30, 2009, the company reclassified its income statement presentation to better align its operating expense classifications with its ongoing activities. The company eliminated the General and administrative and Sales and marketing classifications within operating expenses and created the Selling, general and administrative classification. All costs previously reported under General and administrative have been reclassified to Selling, general and administrative, while Sales and marketing costs have been reclassified between Selling, general and administrative and Patent administration and licensing. Additionally, the company reclassified portions of its Development costs to Patent administration and licensing.
Conference Call Information
InterDigital® will host a conference call on Thursday, October 29, 2009 at 10:00 a.m. Eastern Time to discuss its third quarter 2009 performance and other company matters. For a live Internet webcast of the conference call, visit www.interdigital.com and click on the link to the Live Webcast on the homepage. The company encourages participants to take advantage of the Internet option.
For telephone access to the conference, call (888) 802-2225 within the U.S. or (913) 312-1254 from outside the U.S. Please call by 9:50 a.m. ET on October 29 and ask the operator for the InterDigital Financial Call.
An Internet replay of the conference call will be available for 30 days
on InterDigital’s web site in the Investor Relations section. In
addition, a telephone replay will be available from 1:00 p.m. ET October
29 through 1:00 p.m. ET November 3. To access the recorded replay, call
(888) 203-1112 or (719) 457-0820 and use the replay code 4990705.