Here's rmarchma's take on IDCC's recurring royalties. With only 53 million shares outstanding, IDCC starts to pop up on a lot of valuation screens once its recurring royalty per share exceeds the $1 per share milestone (or $13M-$14M a quarter) and stays consistently above that level since it now appears that the global handset replacement cycle may be elongating (read: slower handset sales).
From Yahoo.....
11. Recurring royalties from our 26 existing licensees are improving dramatically. The accounting change that spreads prepaid royalty over the appropriate years as the royalties are earned is helping to smooth-out and make these royalties easier to project. The first quarter of 2002 marked the first quarter in which IDCC recorded earned revenue from some of the 3G prepaid advance royalties, in addition to having a significant increase in 2G recurring royalties.
Recurring royalties were less than $10 million in 1999. In both 2000 and 2001, recurring royalties were over $30 million. During the first quarter of 2002, recurring royalty increased to $19 million.....
....... First-time recurring royalty in the first quarter of 2002 included 3G earned royalties of $7 million, CDMA narrowband royalties of $2 million, and NEC 2G settlement royalties of $2.6 million for the period Jan.16 to Mar. 31. The NEC settlement of $53 million will be recorded into revenue at the rate of $13 million per year over four years beginning in 2002. Thus IDCC has a sure base of $3.3 million of recurring royalty per full quarter for the next sixteen quarters just from the NEC settlement alone. Also IDCC has over $106 million of deferred royalties on the books at Mar. 31, 2002. These deferred royalties will turn into recurring royalty revenue as they are earned by licensee product sales under SAP accounting principles. Therefore, IDCC’s recurring royalties has and should continue to increase dramatically in 2002.
IDCC expects to have at least a 20% increase in total revenues throughout 2002, even with a significant anticipated decline in engineering service revenues. The very significant increase in recurring royalty is helping to compensate for the expected decline from Nokia engineering service revenues, as the Nokia WTDD engineering project winds down. The projected revenue increases do not even include anything yet for Nokia P2 recurring royalties, which started accruing as of Jan.1, 2002, because the royalty rate has not been finalized yet. Howard Goldberg, CEO, stated in the first quarter CC that we have "ample opportunities for much more upside to recurring royalty for this year"......
.........At this point, nothing has been included in recurring royalty projections for three big possible financial events that might be done this year according to Howard. Those events included a Nokia rate agreement, an Ericy resolution, and a Samsung arbitration resolution.
Howard Goldberg did mention in the first quarter CC that IDCC would be discussing the rate and licensing matters with Nokia during the second quarter. Rich Fagan, CFO, mentioned in the CC that when a rate is finalized with Nokia there would be no restatement of a previous quarter. The cumulative provision for recurring royalty for Nokia from Jan. 1, '02 would be recorded into the quarter that the rate is finalized.
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