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InterDigital (IDCC) Down 3.1% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for InterDigital (IDCC). Shares have lost about 3.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is InterDigital due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

InterDigital Q2 Earnings Beat on Solid Revenue Growth

InterDigital reported solid second-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 $22.3 million or 72 cents per share compared with $7.7 million or 24 cents in the year-ago quarter. The three-fold rise in year-over-year earnings was largely attributable to top-line growth. The bottom line surpassed the consensus mark by 10 cents.

Revenues

The wireless R&D company’s revenues totaled $104.5 million, up from $75.6 million in the year-earlier quarter. The top line surpassed the Zacks Consensus Estimate of $97 million. The double-digit growth amid the challenging macroeconomic environment was primarily driven by the new fixed-fee patent license agreement signed during the quarter with China-based telecom equipment manufacturer, Huawei.

Recurring revenues during the reported quarter were $85.2 million compared with $74.4 million a year ago. While revenues from patent royalties came in at $101.2 million, the same from current technology solutions totaled $3.3 million.

Other Details

Total operating expenses were $72.6 million, up from $66.7 million in the prior-year quarter due to intellectual property enforcement and non-patent litigation costs with Lenovo and Xiaomi. Operating income was $31.9 million compared with $8.9 million a year ago, buoyed by higher revenues in the reported quarter.

Cash Flow and Liquidity

For the first half of 2020, InterDigital generated $42.9 million of cash from operating activities compared with cash utilization of $53.5 million in the year-ago period. Free cash flow for the first six months of 2020 was $25.3 million. As of Jun 30, 2020, the company had $839.2 million in cash and short-term investments along with $404.7 million of long-term debt and other liabilities.

Outlook

With solid licensing agreements with leading consumer electronics customers in the reported quarter, InterDigital is eyeing a healthy licensing business despite the coronavirus-induced pandemonium. The company remains 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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -65.25% due to these changes.

VGM Scores

Currently, InterDigital has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise InterDigital has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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