InterDigital, Inc. (IDCC) Earnings Call Transcript & Summary

Thanks, Tiziana. Again, welcome to the Shareholder Meeting. This is Liren Chen. Can we go to the next slide, please? InterDigital is a leading pure research company and also is a leading licensing company in the world. We have been creating a very critical technology for the industry for over 4 decades. We consistently invest more than 20% of revenue in R&D and the success of our company is built on top of the contributions of our employees. It's important to note that 60% of our employees at InterDigital are engineers. And out of the engineers, more than 90% of the engineers are inventors. And based on success of the technology we created, we so far has more than 80 licensees and counting. So if we go to the next slide, please. We built our industry-leading R&D research on 3 core pillars of research, which is wireless, visual technology and artificial intelligence. And those are the technology that enables very valuable use cases of smartphone, consumer electronics and some emerging areas. We continue to invest in technology that will bear fruits that enable new use cases 5 to 10 years from now that including some of the new computing technology, including quantum computing, visualization technology that combines virtual content with real content and new architectural network that provide reliability and efficiency in terms of edge computing and synthetic content, which is a merging of artificial intelligence technology with the video technology. So if you could go to the next slide, please. And our leadership in the industry is not only recognized by our customers, but it's really equally importantly is recognized our peers. So there's more than 70 leadership position into digital employees are holding in very important organizations like 3GPP, IT, ITU, IEEE and MPEG. Those are the standard organization that defines important technology for wireless, video and other spaces. In addition, our technology is being recognized by industries and our peers as the best in the industry. In the last 5 years, we have received 10 award wins and 6 additional short fixings that's only in the last few years. If you go to the next slide, please, and this is a chart that illustrate works in our patent portfolio. It's important to note that those numbers are green over time and they become very strong of the patent portfolio. They represent diversified technology areas as well as broad geographic coverage of the inventions we have worldwide. So again, this is the foundation of our value proposition for our licensees. If you go to the next slide, please. And this is a very incredible stats that I'm very, very proud of. This chart illustrates our invention creation in the last year, quarter-by-quarter. If you start from the left-hand side, this is the number of inventions we have created in Q1 of 2020. As everyone remembers, COVID-19 hit us -- and InterDigital as well as anyone else in the world in the first quarter of last year. Through last year, the invention creation of InterDigital normally has not stopped, really have increased quarter-by-quarter. If I count the last quarter versus Q1 of this year, we have essentially observed an 85% year-over-year increase of invention creation and all down through the technology that InterDigital has amended, regarding connectivity and video, that's frankly being today used for this video cloud regarding our video technology and the wireless technology we have created. If you look at the next slide, please. And based on our industry-leading R&D and our very strong patent portfolio, we have built a lot of licensing momentum in the last year despite all the challenges brought up by COVID-19. So in 2020, we have signed 9 new license agreements, including important agreements with Huawei, Sharp and a few other CE vendors. And the number of devices we have licensed in the last year is over 750 million devices. And in totality, cumulatively, we have licensed more than 6 billion devices in the last 10 years. And some of our license agreement expands multiple decades. Next slide, please. And this is really a high-level summary of our financial performance. If you look at the top left panel, our year-over-year recurring revenue has been growing by 13% year-over-year. But equally importantly, our net income, our income from operations and free cash flow has been increasing even at a faster pace. This is a reflection of the operating leverage that our business model has as well as some of the cost management measures this company has been taking at InterDigital. So I'm very proud of our achievement during last year. If you go to the next slide, please. We create value for the shareholder by doing very wise decision on the capital allocation. In the last 5 years ago, we have returned more than $500 million to the shareholders in share buybacks and dividends, while we continue to invest into some of the newer opportunities. Our dividend yield rate is almost twice as high as the average during the yield rate for the NASDAQ on average. So if you go to the next slide, please. And obviously, by taking very, very careful measures to manage our COVID-19 situation in terms of working environment, InterDigital is one of the early first company to transition into remote working and flexible workings when COVID-19 hit us, and we take the priority very seriously for the safety of our employees and their families, while we are balancing the business need to ensure productivity is high as well as stay competitive with our peer group. We have a plan already in place for the future of work, and I'm very confident of our team to continue to execute while we are maintaining flexibility and productivity going forward. If you go to the next slide, please. And ESG is very, very important for us, and that's environmental, social and governing priorities for InterDigital. We continue to be responsible members of the community. We act very responsibly on behalf of our employees, on behalf of our customers. But as a fundamental technology developer, InterDigital is uniquely positioned to solve broader ESG challenges for the whole industry based on technology development. And for last year, we have a comprehensive ESG effort that bolsters our governance, our social and our environmental commitment. And for April of this year, we have published our first ever sustainability report. So if you go to the next slide, please. So before I hand it over to Tiziana for the next section, I'd like to take the opportunity to thank all our employees for their actual hard work, for their dedication in the last year while overcoming the challenges of COVID-19. I want to thank our customers and our licensees for the continuing cooperation during last year and also, equally and more importantly, I want to thank our shareholders for a continued support for InterDigital. Now, Tiziana.

Thank you, Liren. And now we can proceed to the Q&A portion of the meeting. Patrick Van de Wille will facilitate. Thank you, Patrick.

Thanks very much, Tiziana. Just a reminder to our shareholders and our guests, if you'd like to submit a question via the event interface, there is a Q&A section where you can enter your question and 3 people have done so, so far. Thank you very much. You can also send an e-mail to 2021ASM, that's 2-0-2-1-A-S-M, @interdigital.com, and we'll be happy to take your question by e-mail. Lastly, if you go to interdigital.com and click on Contact Us, my name and e-mail is listed as a primary contact for the company. I'll be pleased to take your questions by e-mail as well.

The first question comes from Joseph Kowalsky. It's less of a question than a comment, but I'm happy to share it with you. Good afternoon. Thank you for taking my comment. In prior years, InterDigital, previously international mobile machines, held in-person annual meetings. Long-term shareholders traveled from all areas of the country to attend. And while attendance was not new, many of us had clients where also shareholders or attendance was more significant than numbers might have indicated. Like the Berkshire Hathaway Annual Meeting was not just a meeting but an event. While virtual attendance is a benefit, I encourage IDCC to return to having an in-person annual meeting, in addition to allowing virtual attendance. The cost is low and the benefit is high. Thank you for sharing your comment with us, Mr. Kowalsky. There is a question from shareholder, [ Larry Hinz ]. What is the process to nominate other external directors? For next year, when do the nominations need to be included? I think that question would best be put to Doug Hutcheson, our Chairman of the Board. Can I ask that Doug be unmuted, please? And Doug, could you educate [ Mr. Hinz ] on the process for nominating external directors?

Sure. Thank you, Patrick, and thank you for your question. We put out a notice on the Annual Meeting on the timing of that as a part of the notice process, so you'll see that come out through our website. And as a part of that, it will give the record date when nominations for directors would need to be considered and that would allow you the opportunity to consider any actions that you would like to take in that area. Thank you.

Thanks very much, Doug. [ Mr. Hinz ] has 2 additional questions. First question is, why did InterDigital not spend their allotment of buyback money in the last year? Liren, can I ask you to answer that question?

[Audio Gap] committed to those buybacks in the last year, and we don't make certain buybacks depending on market condition. And going forward, we will continue to do so. Thanks.

Liren, if you could stay unmuted, please. A last question from [ Mr. Hinz ]. Why do we believe that we have the right to spend shareholder money on ESG?

Yes. So first of all, yes, it's really, really important, not just for InterDigital, but also for our customers, for our employees and track it for our shareholders. As the responsible members of the industry of the community, we have the duty to add responsibility -- responsible in these areas as well as convene value of our technology development to the broader industry. Thanks.

Thank you very much, Liren. At the time, there are no further questions. So Tiziana, I'll turn it back over to you.

Thank you, Patrick, and I think this concludes our meeting today. Thank you, everyone, for participating, and we look forward to seeing you next year.

Thank you all for joining us today. This concludes today's meeting. You may now disconnect.