InterDigital Inc

NASDAQ:IDCC

Earnings Call Transcript 2018-Q4

[Operator]

Good day, and welcome to the InterDigital's Fourth Quarter 2018 Earnings Call. This call is being recorded. At this time, I would like to turn the conference over to Mr. Patrick Van de Wille. Please go ahead, sir.

[Patrick Van de Wille, Chief Communications Officer]

Thank you very much, and good morning, everyone, and welcome to InterDigital's Fourth Quarter 2018 Earnings Conference Call. With me this morning are Bill Merritt, our President and CEO; Kai Öistämö, our COO; and Rich Brezski, our CFO. Consistent with last quarter's call, we'll offer some highlights about the quarter and the company and then open the call for questions.

Before we begin our remarks, I need to remind you that in this call, we will make forward-looking statements regarding our current beliefs, plans and expectations, which are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results and events to differ materially from results and events contemplated by such forward-looking statements. These risks and uncertainties include those set forth in our earnings release and our annual report on Form 10-K for the year ended December 31, 2018, filed this morning and from time to time in our other filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof. And except as required by law, we undertake no obligation to update or revise any of them, whether as a result of new information, future events or otherwise.

In addition, today's presentation may contain references to non-GAAP financial measures, such as non-GAAP operating expenses. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measure is included in our fourth quarter 2018 financial metrics tracker, which can be accessed on our home page, www.interdigital.com, by clicking on the link on the left side of the home page that says Financial Metrics Tracker for Q4 2018.

With that taken care of, I'll turn the call over to Bill.

[William Merritt, President, CEO & Director]

Good morning, everyone, and thank you for joining us on the call this morning. As you saw from this morning's press release, we delivered another very solid year. Financially, we performed very well. And strategically, we made some very important moves that we believe will drive substantial value going forward. Rich will focus on the financial results, and Kai will review some of the quarter's operational highlights.

Let me talk about the strategic positioning. At our Investor Day a few months back, I had the opportunity to talk about the amazing transition the company has gone through in the last 12 months. Let me summarize what I said then and also update us to the actions we've taken since our Investor Day. At the beginning of 2018, we had a single focus as a company: developing standardized wireless technology for mobile device. And this has been our focus for years. Now there's something to be said about being laser-focused. It allows you to get very good at what you do. And that's what we did. We became extraordinarily skilled at developing fundamental wireless technology and contributing that technology to global standards. We did it in 2G, 3G and 4G, and we're on track to do it again with 5G. With those efforts, we believe we've created one of the most valuable patent portfolios in the world involving wireless technologies, one that typically ranks somewhere in the top 3 or 4 in the world in independent third-party studies evaluating [indiscernible] essential patents for 3G and 4G.

As a result, we built a current revenue platform that has a strong stable base but also has significant growth ahead, both in terms of licensing new customers and also addressing the new markets that will be enabled by 5G, which is certainly the most revolutionary of the wireless standards to date.

Our success lens asked a question confronting any company that has had a long, highly profitable one. What else can we do to drive even greater value? For us, the answer was simple: expand our technology offering to our wireless handset consumers, but in doing so, ensure we don't lose our focus. Maintaining focus meant finding technology offerings that are synergistic with our wireless capability, synergistic not only in the underlying signal processing skills but how one thinks about the technology. For example, are these technologies ones that would be typically thought of as complements to one another? Do they work together in some manner? Can they be designed together? It also meant not developing a vast array of different technologies. Instead, we would focus on one more technology and do it extraordinarily well.

Maintaining focus also meant staying fixed on standardized technologies. Standards derisk, what can otherwise be viewed as very risky, long-term technology development and also result in a single point of sale that's all about expertise, not scale and technologies we develop may not come to market for 10 years. In a traditional sense, not knowing for 10 years whether a technology you are developing is going to have a market application is a very risky bet. However, the standard provide a near-term indication of value. If a contribution gets accepted into the standard, then you know there will be market uptake of your innovation, so long as there is market uptake of the standard itself. It's still risky, but the reward is significant if we innovate correctly. So it's a risk we're going to take.

Staying focused also meant remaining focused on licensing. When you look at other licensing companies that have struggled, I believe it's because they have mixed licensing businesses with product businesses. I appreciate that some can make it work. But more often than not, conflicts arise that result in those businesses running self-optimally. We're good at licensing. Indeed, we're very good at it. And the board and I saw no reason to belittle that strength by mixing in other types of businesses.

Now looking back at where we wanted the journey to take us and where we eventually landed. I'm thrilled to report that we've arrived exactly where we wanted to go at a modest price and at a really good place. We've changed from the single technology company focused on a single-market connected devices to a much larger company with substantial innovation strength in 2 key technologies: video and wireless. Those two technologies operate in three massive overlapping and complementary markets: wireless devices, IoT and consumer electronics. That represents a very significant value-creation opportunity for the company as the addressable licensing market in each of these segments is measured in the hundreds of billions of dollars.

Equally important, this significant change in the company did not affect our focus. Our video and wireless R&D investment will be standards driven. The technologies are also very synergistic in terms of the underlying engineering skills as well as how they work together in consumer devices. Indeed, we've had research going on within InterDigital for years, specifically targeting video innovation that addresses the transmission of video over wireless networks.

Assuming we close on the most recent transaction with Technicolor, we will control the video R&D team, in addition to our wireless R&D team. That combined research team will represent the strongest and most talented teams in the world focused on these 2 technologies and one of the largest teams in the world focused on technology standards. We will also have Technicolor as a paying customer with our production services team providing superb technology direction for advanced video processing techniques. And we get a word about how excited we are at the prospect of Technicolor's R&I team joining the company. During the months since our acquisition of their licensing business, we've been able to engage with them as part of the current joint research arrangement. That collaboration has given us a view into what a fantastic team they are, truly living up to their global reputation. They share our culture for deep innovation and bring a set of skills that will be incredibly valuable to us going forward.

Beyond research, our monetization plan will remain via licensing. That is what we excel at and how we generate the greatest return. So while we are much bigger and operating in more markets, our fundamental DNA remains unchanged.

Lastly, we got to this new place at a very low cost. The acquisition of the Technicolor licensing business costs $150 million, plus any earn-out on future consumer electronics license revenue. With the new transaction in which we expect to acquire Technicolor's research team, that earn-out is substantially reduced. As Rich will discuss, we also remain confident that despite the significant growth in the company and its opportunities, we can return the business to the 2017 cost levels. So we're all in. For what amounts to less than $2 to $3 per share or just a small portion of our cash balance, we have greatly and positively transformed the business. That is very exciting.

Of course, the key is now to deliver, and that's what 2019 is all about. For that end, we have revamped the management team with precisely this type of opportunity in mind. They all have 6 months or more under their belts and are ready and able to deliver -- to drive value. But these are very exciting times here.

With that, let me turn the call over to Kai.

[Kai Öistämö, COO]

Thanks, Bill, and good morning, everyone, and thanks for joining us. With Bill having taken us through the strategy, I wanted to provide a view of the main operational points that are on our dashboard. First, looking at the wireless R&D. We have had a tremendous quarter and maintained our course of being primary contributors of core technologies in the wireless market, including 5G research. As much is spent there from various companies these days about the first 5G devices and while that is exciting, that's just the first generation of 5G, and much of the most exciting work is being done at the network transformation level.

We are proud to say that our research efforts in the areas of cloud networks, virtualized radio and other areas are among the most comprehensive in the space. In the fourth quarter, we announced the successful trial of cloud-native deployment that would enable industrial mobile networks to be realized as pure cloud-based applications running on easily deployed cloud services instead of expensive specialized equipment. We also demonstrated in Taiwan as part of the 5G-CORAL research consortium a comprehensive fog and edge deployment, a technology that takes away for cost savings and low latency deployments like robotics and drones.

Our work in 5G has only been recognized, not just with the contributions in standards, but also in external recognition. InterDigital received a special commendation at Global Telecoms Awards for Advancing Road to 5G also having won other awards earlier in the year. And while it's still early days for tallying up contributions and IP in the standard, our internal metrics reassure us that we are well on our track to maintain at the leadership position that we have had in 3G and 4G. That is a strong position. To repeat what Bill highlighted, our patent portfolio typically ranks in the top 3 or 4 in the world of independent third-party studies.

We also continued our integration work with the acquisition of Technicolor's licensing business which has been going very well. Rich will provide some guidance on how well that integration is going in terms of the numbers. But on the operational side, our focus has been on technology collaboration and organizing the licensing teams to take advantage of the new market opportunity. Under our Chief Licensing Officer, Tim Berghuis, we've defined two licensing teams, each with specific task -- staffing, leadership and roles to grow the wireless opportunity on one hand and to address the new consumer electronics opportunity in the other. In terms of a technology collaboration, our video team has worked strongly with their counterparts at Technicolor R&I, and we'll be co-demonstrating technologies at Mobile World Congress next week in Barcelona. And of course, last week, we announced our binding offer to acquire Technicolor's R&I division, which would take things to a new level and make InterDigital Labs to be one of the largest, most diverse technology standards R&D teams in the world.

Still on licensing, we were able to assign a new license with Sony late in the fourth quarter that once again underscored the tremendous working relationship that we have with that company. In addition to license, Sony also became an investor in Chordant, our IoT platform business, which was spun off as a standalone company three weeks ago. This week, Deutsche Telekom announced that Chordant was the platform provider for their IoT solution optimizer, which is a great win for Chordant.

And our talks with other unlicensed companies continue. Some of you may have noticed that Huawei started the year by bringing a case against us in China. Just to put that in context, when we reached the agreement with Huawei in 2014, our two companies had several actions pending in court. So while we do prefer a simple discussion to reach fair agreements, we also understand that litigation is sometimes a part of those discussions.

Finally, a word about China, in general. It is very difficult and since it is very much in people's minds these days as China and U.S. continue their trade negotiations. It is true that context of uncertainty around outcomes has an influence on license negotiations. It will be silly to pretend otherwise. However, the entire matter has a very positive component to us, which is that the U.S. administration has made it clear that IT matters. And the respect for IT and global trade rules is one of, if not, the most important component of trade talks. There is a strong level of support out of the administration, and that support has been mirrored in Europe and other areas. So our outlook remains positive, and our government affairs team is working very hard to make sure that the appropriate level of awareness of our issues exists in the right circles. And of course, we continue our talks, offering neutral arbitration as a way of resolving economic differences and making sure that prospective licensees understand, not only the need to license, but our potential value as a partner.

With that, let me turn over the call to Rich.

[Richard Brezski, CFO & Treasurer]

Thanks, Kai. As you heard from Bill, we are very excited to follow up our July acquisition of Technicolor's technology licensing business with the pending acquisition of Technicolor's world-class Research & Innovation team. My remarks today will focus first on the status of the former, and second, on the financial expectations for the latter. One year ago, when we announced our intention to acquire Technicolor's technology licensing business, I knew that, that was a long-term value play and would temporarily add cost. More recently, I noted that we expected our fourth quarter 2018 and first quarter 2019 operating expenses and capitalize patent prosecution costs would be $5 million to $10 million higher than Q3 2018 levels before coming down over the balance of 2019. On both occasions, I said we expect our cost should return to 2017 levels by early 2020. I am happy to report that as of fourth quarter 2018, the ongoing economic cost of our business has already returned to levels comparable to 2017. I'll expand on that in a moment. But first, I am also happy to report that even including the anticipated cost of the pending acquisition of Technicolor's R&I division, we still expect to return our ongoing economic cost levels to approximate 2017 levels by the end of 2020. As previously discussed, in measuring our cost levels for this purpose, we include a few adjustments that are necessary to convert our GAAP operating expenses to a more meaningful measure of the ongoing economic cost of the transaction. These include removing litigation, removing depreciation and amortization and adding capitalized patent costs. An additional adjustment is partly reimbursements, which are present in the first Technicolor deal and will become more prominent as a result of the pending acquisition.

Let me expand for a moment on partner reimbursements. Under the terms of the acquisitions and related partnerships, we will receive full or partial reimbursement for costs related to specified activities that benefit our partners. For example, under the first Technicolor agreement, we are partially reimbursed by both Sony and a financial investor for the cost of filing and maintaining the patents related to our Madison program. Due to differences in our partner relationships, accounting rules require us to report those reimbursement in different ways. For example, some of those reimbursements offset our operating expenses on our GAAP P&L while others are recorded as revenue. There is even a small amount that was prepaid to Technicolor and essentially acquired as cash under the July 2018 acquisition. For purposes of measuring our ongoing economic costs, we subtract from our operating expenses the partner reimbursements that were either prepaid or reported as revenue. For clarity, we will disclose these reimbursements in the financial metrics we publish each quarter.

With that as a background, our economic cost for Q4 2018 is almost $58 million. However, that includes about $8 million of transaction and integration costs. Excluding these items, our ongoing economic cost is about $50 million for the quarter or $200 million on an annualized basis, which is only slightly above our comparative metric for 2017. So based on the metric we have previously discussed, we have already reduced our ongoing economic cost to levels comparable with 2017. Of course, cost management requires continual effort. We will continue to see some additional cost for a time, particularly with the pending acquisition of Technicolor's R&I division, but our ongoing economic cost are in line.

Moving on to that pending acquisition. Our view is that the transaction can essentially be cost-neutral even while acquiring a low-class team of 150-plus engineers. There are a number of levers that help make that possible. First, our cost -- our current cost reflect that, as a result of our prior agreement, we are already paying $5 million a year towards R&I's efforts. The second is that French labor cost is materially lower, in part, due to significant research and development credits from the French government. Finally, third, is the partner reimbursements I alluded to before. In this case, Technicolor will be funding a portion of our research in exchange for certain rights. So if completed, the transaction would increase our research capacity significantly, will only have a small impact on expenses. And as I said earlier, our expectation would be to return the ongoing economic cost of the business to approximate 2017 levels by the end of 2020.

As per usual, I will end with a few words on capital allocation. With no cash purchase price for the Technicolor R&I team and our plans to hold the line on expenses, we have continued to repurchase shares of our stock under our recently increased authorization. We returned $130 million of capital to our shareholders through share buybacks from the start of the fourth quarter through yesterday, thereby continuing our commitment to return excess capital to our shareholders.

I'll now turn it back to Patrick.

[Patrick Van de Wille, Chief Communications Officer]

Okay. Thank you very much, Rich. Moderator, if we can open the call for questions.

[Operator]

[Operator Instructions]. Our first question comes from Charlie Anderson with Dougherty & Company.

[Charles Anderson, Dougherty & Company]

Yes. So I wanted to start with kind of a question about sort of the pipeline of opportunity. Bill, you mentioned that you've got a new team in place. You've got Technicolor in-house. You have a bigger patent portfolio. You've got the R&I team coming in later. You've got Hillcrest for a few years now. So I guess I'm just kind of curious, taking all that in, sort of what are your expectations in terms of the signing new licensees and then maybe renewals as well in 2019? And then I've got a follow-up.

[William Merritt, President, CEO & Director]

Sure. So if you look -- if you break the opportunities into buckets, right, so you have the licensing of folks for, I mean, this positional program for mobile devices, right. As Kai mentioned in his talk, there's a lot going on with China on the -- with the trade talks and a lot of other things involving that area of the world. I think the long-term trajectory there is very positive because it's pushing a positive IP environment and pushing structural change within China. I'd say we're not -- you don't have to wait for all of that to occur. There's already pressure being put to that process on a variety of folks over there. So with the discussions with the prospective licensees in China continue, I think we feel like there's good opportunity to push them over the line this year. But obviously, it's always the case that we need to do things at the right level, at the right value and not so much be driven just by timing. But I think there's opportunity in that space.

And so -- and that's really the bulk of what -- of the opportunity within the wireless handset licensing business. The second opportunity is within the consumer electronics space. So that, I'd say mostly focused on digital TV. That's the biggest addressable market within that space, at least today for us. There's certainly opportunity that can be driven over time with respect to the broader consumer experience, so there's good opportunity with the large TV manufacturers. So we're engaged with them now. We picked up some of those discussions that were -- already had been started by Technicolor. Others are sort of fresh. We're early in the game there, and we'll see how that proceeds. But certainly, we have good assets, and there's good relationships we already have with these customers. So I think there's an opportunity as well in that space for success in 2019, but again, early, early stages. The third piece of the pipeline is IoT. That I'd say is still early, right.

So the market on IoT itself is still developing, still positive, very positive signs in terms of deployment of oneM2M as a standard, kind of InterDigital marks the success of Chordant in getting some of its solutions adopted. So I think that 2019 is mostly a year of continuing to position that technology in a positive way, somehow in a price discovery and also creating a go-forward structure on the licensing side. I would note that a component of IoT is sometimes better than IoT. Sometimes the model of IoT is things like the Avanci initiative around smart cars. They continue to push forward in the market. I think this is a year for them. I think they had to work through some structural issues in the market because the automobile manufacturers are not the typical licensee. I think they're having success in sort of working the structural issues, so I would say that 2019 is also a year for them to deliver as well.

[Charles Anderson, Dougherty & Company]

Great. And then a couple of questions for Rich. Rich, I wonder if you could maybe just help us on just some of the elements in Q4 on the operating expense side that were sort of onetime in nature related to transaction, et cetera, that potentially don't recur in Q1. Is there any specific in Q1 we should be on the lookout for as far as maybe a onetime effect also on OpEx? I'm talking both on the GAAP and non-GAAP. And then I've got one more follow-up.

[Richard Brezski, CFO & Treasurer]

Yes. Sure, Charlie. So a couple of things. I think in both the release and in my comments, I talked a little bit to some of the transaction and integration costs, which what one view as the onetime on the other hand. Some of those costs recur into the second quarter because integration continues. And then beyond that, we also, of course, have costs as we prepare for the pending acquisition of Technicolor's R&I business. So aside from integration-type things, there's also a P&L charge associated with chewing up some balance sheet items that came over in connection with the acquisition. And that's something that, just as you move forward over time, their fair value, you're putting in liquidity in the fair value of assets and liabilities and that get updated over time. So that's another element of it as well.

[Charles Anderson, Dougherty & Company]

Okay. And then I think I heard a reference to some share buybacks activity in 2019 as well. Could you maybe update us on how many shares you bought at whatever price in 2019?

[Richard Brezski, CFO & Treasurer]

Yes. What I'll do, Charlie, is direct you to our footnote where we describe what we've done on a subsequent-event basis. I think that the figure for -- beginning of Q4 through yesterday is $130 million. I don't have in my fingertips the split between what was in the fourth quarter versus the beginning of 2019.

[Charles Anderson, Dougherty & Company]

Yes. $67 million, I think in Q4, Rich, looked like.

[Richard Brezski, CFO & Treasurer]

Yes. Okay.

[Operator]

Our next question comes from Eric Wold with B Riley.

[Eric Wold, B. Riley FBR, Inc.]

Two questions. I guess, one, a follow-up on one of the past ones, kind of around the unsigned handset operation in China. I guess with the understanding that the main hurdle is kind of the past payments that continued to accumulate and their own declining market share issues, I mean, is there a path to settlement without InterDigital kind of giving up the brunt of the upside, performing litigation? Do they have attractive patent portfolios you could lay your hands on? Are there paths to revenues now with Technicolor? Maybe just give us some sense there.

[William Merritt, President, CEO & Director]

So is that with respect to a specific customer? I missed the front end of your question, just to make sure I got the right question.

[Eric Wold, B. Riley FBR, Inc.]

Just the unsigned Chinese handset operators kind of as a group.

[William Merritt, President, CEO & Director]

Yes. So, look, while it's a group, I'd say everyone in the group is very different from one another, say, that people that have had increasing fortunes. They got people with declining fortunes. People are operating steady state. We also know that things can change really rapidly over there depending upon a variety of things, both competition, trade and otherwise. So those are the things we do need to take into account when we're -- and Kai mentioned, it would be silly for us to suggest that what's going on China isn't impacting the pace of things. But I would tell you -- still tell you that discussions continue there. There's lots of ways, but I'd say they are different, for each customer to try to work within whatever level of uncertainty that they have. So certainly getting access to patents is a really good way for us to secure value and for the customer to be able to manage the license cost in a better way. And, yes, there's great innovation that goes on within that group. There is also -- the way you can structure agreements where you can look at running royalties versus fixed payments and upfront payments that kind of try to bound risk for both parties, and so the nice thing is we've developed a lot of tools over the years as a company or years at the company. We're not a single-template licensing house. Every deal is a custom deal. Sometimes, that creates a little bit of a drag in terms of how fast we can move. But frankly, our ability to be flexible and use different combinations of tools and we feel will be very helpful this year. So as I said, there's certainly big challenges over there. That said, I think there's a way to maneuver in that market and drive value. But it is definitely going to be -- I think, each customer will bring its own set of requirements and its own set of ways of dealing with them.

[Eric Wold, B. Riley FBR, Inc.]

And then just one follow-up. As you think about 5G, now that standards are set. Your position is set. You kind of have some sense of timing. Maybe -- I don't know how you want to address this. Maybe -- where are you with the handset operators unsigned so far? What percentage of either customer base or the revenue base, however you want to frame it, what percentage is already covered by 5G kind of amendments where you're covered by 5G rollout versus once. If you go back and amend the license to add 5G? And how much incremental, on average, do you think 5G could have with -- excluding any kind of benefit from Technicolor kind of moving on the mix, just the cellular alone? 5G kind of be added with 2G, 3G probably being lesser value. What's kind of the expected rise in value from this contract as 5G is rolled in?

[William Merritt, President, CEO & Director]

Yes. So generally, I think when we look at 5G, we look at it as really 2 things, right. But first is sustaining the current licensing businesses that we have. And so you're right. I mean, in a traditional sense, technology can -- data can erode over time. But if when a new layer of technology comes in, that lifts up the value. It lifts it up for a couple of reasons because not only can these royalty rate itself, assisted by the new technology coming in, but the selling price of devices have gone up. I don't know if you saw the -- there's a free announcement from Mobile World Congress in terms of Samsung's 5G phone and what the [indiscernible] phone is. So ultimately, I think that if you look at the core business, and that's the handset licensing business, 5G, in my mind, sustains that business and allows it to kind of move with the market, which is really good because that's a really good, solid business, right. The world 5G I think has more growth potential for us in how it contributes to the other markets that we talked about. So IoT is an example. I think 5G is the enabler that consist -- it's a technology enabler for that market. 5G also is going to penetrate the home more so than any other technology. So it drives value in the consumer electronics space. So I think that's where you see new value being created versus on the handset side. While there may be a bump on the technologies initially introduced with the handset prices go up, over time, that business is just going to be sustained by those different layers of technology. It's things like the Technicolor agreement that bring in added value on top of that.

[Kai Öistämö, COO]

So let me add a couple of things on that. So I think it's still worth the read, right, it's only a couple of first releases of 5G that are out there and there's going to be multiple more. Also, with the new handsets, 5G handsets out, that's the -- kind of the handset piece of it, but there is going to be kind of the low latency which is the applications like cars. And then there is going to be the IoT releases and IoT [indiscernible] 5G. So there's the other aspect of 5G's much broader market than what just really wireless handsets such as the 3G and 4G have been.

[Operator]

Our next question comes from Anja Soderstrom with Sidoti & Company.

[Anja Soderstrom, Sidoti & Company]

So I just have a few questions. The first one on the Technicolor. As you're upselling those contracts, is there a chance for a catch-up payment like you have with others for unused use of the licenses there as well?

[William Merritt, President, CEO & Director]

Yes. So typically with -- I think with the -- most of the opportunities we're seeing in the acquired Technicolor licensing business, there is opportunity for catch-up. There are licenses there that people have been on licensing and would be a renewal without that. But generally, I think there's a reasonable opportunity to get some catch-up payments there.

[Anja Soderstrom, Sidoti & Company]

Okay. And then I noticed in your 10-K that Huawei now is less than 10% of your revenues for 2018 versus, what, 14% in 2017. Can you speak a little bit about that composition on your revenue mix among your largest customers?

[Richard Brezski, CFO & Treasurer]

Yes, sure. That was the result of our adoption of 606 at the beginning of the year. So the Huawei agreement was obviously entered in as a result of the arbitration, a little bit of the unique path to get an agreement, and it resulted in terms that are a little bit different than what you'd expect for a top 3 manufacturer and different kinds of it we'd expect, even on renewal. So it was what we call a static agreement in terms of the capture rights under the agreement, and we couldn't spread the -- continue to spread the revenue post adoption of 606 on January 1 '18.

[Operator]

[Operator Instructions]. Our next question comes from Scott Searle from Roth Capital.

[Scott Searle, Roth Capital Partners]

Rich, just quickly to follow up on Charlie's question earlier related to the $12.6 million in onetime charges. Could you give us an idea about how that kind of breaks down through some of the different OpEx items, line items? And additionally, Chordant now spun off as a joint venture. Could you just give us a brief overview of the accounting related to that? I assume in joint venture, you're still controlling it. So it's on a fully consolidated basis, and then you're taking one line item out. Or how are you treating that from an accounting standpoint? And then I had a couple of follow-ups.

[Richard Brezski, CFO & Treasurer]

Sure. I'll start with Chordant. So for accounting purposes, we're still deemed to be the primary beneficiary and therefore are -- with online is we're still consolidating it, so that still shows up in our P&L from a cost perspective. And then on the question on onetime items, you referenced the $12 million. I think you're probably pointing at least to the press release I know we disclosed. We had $12.6 of million transaction integration or amortization expenses. That defers from my description in my script of $8 million, which was just transaction and integration. The delta between the 2 is the added noncash amortization of the Chordant, the asset value for the portfolio we acquired. And then of the $8 million, that's where you get a mix of some of that balance sheet true-ups that I talked to you about as well as integration costs.

[Scott Searle, Roth Capital Partners]

Got you. Okay. Helpful. And just a follow-up on the Technicolor comments. Bill, I think you mentioned in your comments related to the relationship now with Technicolor, some rights and exclusivity in terms of purchasing that. Are there any areas that are not open to you now in terms of taking over the R&I division of the pending R&I transaction? And also in the original press release, I think there were some mentions of some things other than video, specifically I think machine learning, AI, VR, AR were there as well. Is that a big component of the opportunity then that you're seeing within R&I development team?

[William Merritt, President, CEO & Director]

Certainly, artificial intelligence, machine learning are very important skills and capabilities for us as an organization to have, so we had some. It's a tough panel to recruit. It's a very [indiscernible] panel, I think. But it's one of those talents that we think, long term, is going to be important, both in terms of how technology is developed within video and wireless but also the technology is ultimately deployed in terms of that capability being resident in the technology. So it was certainly one of the attraction of the R&I team. I would tell you the teams got many, many attractions. It's a really, really capable team. So in terms of the transaction itself being one of the benefits of the transaction, actually it simplified the relationship between the companies and reduce restrictions. And so we feel like all of the business opportunities that we want to pursue that business, the acquisition fully enables those opportunities. Having Technicolor as a customer was an important component, I think, for both companies. The fact Technicolor does some amazing things that we all see in theaters in terms of how they help the directors produce films and how they bring all the various animations to life, and that's -- what's behind that is some incredible technology development, and it's very much a leading edge type of development because it's the first place these things occur. And so being able to work with them and work with their teams on driving that innovation is important in providing a nice research compass to the organization. So it's a really, really exciting transaction, one that I think both sides are really, really thrilled that we've been able to put it together. And we'll work the close, but I think it provides a great strategic benefit to both companies.

[Scott Searle, Roth Capital Partners]

And lastly, Bill, if I could. You did certainly have some comments in around engaging with the Chinese OEMs and the current geopolitical climate aside. Do you continue to see more and more of the Chinese looking for exports as the domestic market is has come under some pressure and a lot of those announcements have been coming out t more recently we're going into more of the European marketplace for some of the larger Chinese OEMs, not in common for this time of your right life ahead of Mobile World Congress, but I'm wondering how is Europe looking at enforcing intellectual property on these fronts? Where do they stand from an injunction standpoint and other license? Is that really playing into your hands and giving more of a heightened sense of urgency from a Chinese OEMs standpoint or to be determined enough really change at this point in time?

[William Merritt, President, CEO & Director]

Sure. It's a positive development. I mean, one, we always love to see our customers succeed and respect the customers. So to the extent that they're able to extend their operations, that's great. It tells you that the standard is doing its job in terms of enabling really strong businesses. I think Europe is obviously a very mature market from an intellectual property standpoint. The rules are pretty well defined over there. I think there's very -- if there's a need for enforcement, there are other available mechanisms for enforcement. And so all in, that is just all good, but it's all good for us in terms if we need to go down that path. But frankly, I think that beyond the fact that these customers have been able to expand in their market position reflects on the power provided of the standard.

[Operator]

Our final question comes from Matthew Galinko with National Securities.

[Matthew Galinko, National Securities Corporation]

So you touched on the difficulty of running, I think, a product and licensing business under one roof in the -- in your kind of initial commentary. Curious about in forms or strategy of kind of [indiscernible] holding initiatives like Chordant under the InterDigital umbrella directly?

[William Merritt, President, CEO & Director]

Yes. I think it does. I mean, if you think about it, if you own the set of skills that you need to run product businesses, different set of skills than what you need to run a research and licensing business. Second, to the extent that you're approaching the same customer with -- from both sides, that can create confusion and conflict at that customer. And frankly, we saw that with the -- when we did the original Technicolor transaction, that is actually the reason we spread gates, providing [indiscernible] happy because they have that conflict. So I think we -- you learn over time what you're really good at. You want to focus on what you're really good at it. I think we've done a really good job with things like Chordant and XCellAir and other options of taking -- of incubating new businesses, but we also know when we need to let them go and move out on their own. And that's essentially what we've done with Chordant. It's great to have Sony as an investor there because they obviously bring value, and we actually think that they can do really well, but they will do better operating outside of the InterDigital envelope. We consolidated them up. They're running as an independent entity, and we think that that's a much better structure for them and for us.

[Matthew Galinko, National Securities Corporation]

Got it. And I think you did mention engagement between Chordant and [indiscernible] Can you touch at all on what that means for that, that business. I'm trying to try to remember if there was a previous commercial engagement. I can't think of any. So I was just hoping you could expand on that a little bit.

[Kai Öistämö, COO]

The question is specifically on Chordant?

[William Merritt, President, CEO & Director]

And DT.

[Kai Öistämö, COO]

And DT. So as you know, Chordant provides the software platform or services platform on top of which mobile operators can build their own IoT business. And that's basically, I will say, the first major operator success that we've had with Chordant on actually bringing that promise to life where DT will build their own IoT business on -- kind of on top of the Chordant platform. We're kind of engaged in multiple other ones as well. And obviously, there kind of early successes have been more of a -- with kind of public entities like in U.K., different counties and then so on.

[Operator]

This concludes today's question-and-answer session. I will now turn the conference back over to Mr. Patrick Van de Wille.

[Patrick Van de Wille, Chief Communications Officer]

Thanks very much, Bernie. And just to note, we'll be in Barcelona next week for Mobile World Congress, which, as most people know, is the Super Bowl for our industry. It's an exciting time for us because a lot of the products that are rolling out this year are 5G, and they'll be implementing some of the things that we've been demonstrating over the last 5 or 6 years. It's great to see those technologies finally come to market. We will be demonstrating some exciting technologies of our own. They'll be featured on the website, and we'll also be hosting some very interesting widescreen discussions on various technologies. So I invite you all to check out the website, and we'll be sending some e-mail updates and also updating the website as well. So please join us next week for a look at Mobile World Congress, and we look forward to speaking again next quarter. Thank you.

[Operator]

Thank you, everyone. This concludes today's teleconference. You may now disconnect.