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InterDigital Inc  (NASDAQ:IDCC)
Q4 2018 Earnings Conference Call
Feb. 21, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the InterDigital 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 Oistamo, 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 up 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 are included in our fourth quarter 2018 financial metrics tracker, which can be accessed on our homepage www.interdigital.com by clicking on the link on the left side of the homepage that says financial metrics tracker for Q4, 2018.

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

William J. Merritt -- President and Chief Executive Officer

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've 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 have 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 as to the actions we've have 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 we 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 were on track to do it again with 5G. With those efforts, we believe we created one of the most valuable patent portfolios in the world involving wireless technologies, one that typically ranked somewhere in the three or four in the world in the independent third-party studies evaluating who owns essential patents for 3G and 4G. As a result, we built a current revenue platform that has a strong stable base, but also has a 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 today.

Our success lens asked the 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 single processing skills, but it is how one thinks about this technology.

For example, all these technologies are ones that will be typically thought as a compliments to one another. Do they work together in some manner? Can they be designed together? It also 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. Standard derisk, what can otherwise be viewed as a very risky long-term technology development, and also results in a single point of sale that's all about expertise not scale.

The 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 the contribution gets excepted 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 could make it work. But more often than not conflicts arise that result in those businesses running sub-optimally. We're good at licensing. Indeed we're very good at it. And the Board and I saw no reason to dilute 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 a single technology company focused on a single market connected devices to a much larger Company with substantial innovation strength in two 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, the significant change in the Company did not affect our focus. Our video and wireless R&D investment will both 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 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 two 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 had a word about how excited we are at the prospects 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 our current joint research and 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 cost $150 million, plus any earnout on future consumer electronics licensing revenue. With the new transaction in which we expect to acquire Technicolor's research team that earnout has 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 amount 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 six 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 Oistamo -- Chief Operating Officer

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 (inaudible) fanfare 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 a pure cloud-based applications running on easily deployed cloud services instead of expensive specialized equipment.

We also demonstrated in Taiwan as part of their 5G-CORAL research consortium, a comprehensive fog and edge deployment, the technology that takes away for cost savings and low latency deployments like robotics and drones. Our work in 5G has been 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 after 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 three or four 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 defined two licensing teams each with specific staffing leadership and goals to grow the wireless opportunity on one hand and to address the new consumer electronic opportunity in the other. In terms of a technology collaboration, our video team has worked strongly with their counterparts at Technicolor R&I, and will 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 and most diverse technology standards R&D teams in the world.

(Inaudible) on licensing, we were able to assign a new license with Sony late in the fourth quarter that once again underscores the tremendous work relationship that we have with that Company. In addition to license, Sony has also became an investor in Chordant, our IoT platform business, which spun off as a stand-alone Company three weeks ago. This week, Deutsche Telecom announced that Chordant was the platform provider for their IoT solution optimizer, which is a great win for Chordant. And our task -- 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 made part of those discussions.

Finally, a word about China in general. It is very difficult -- it is very much on 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 narrowed 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 the 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 J. Brezski -- Chief Financial Officer

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'm 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 the approximate 2017 levels by the end of 2020. As previously discussed in measuring our cost levels for this purpose, we included 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 part of the 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 cost related to specified activities that benefit our partners. For example under the first Technicolor agreement, we are partially reimbursed by both Sony and the financial investor for the cost of filing and maintaining the patents related to our Madison program. Due to the 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 the 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 costs 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 toward 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 when completed, the transaction would increase our research capacity significantly, but 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

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

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from Charlie Anderson with Dougherty & Company.

Charles Anderson -- Dougherty & Company -- Analyst

Yes, thanks for taking my questions. Good morning everyone. 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 J. Merritt -- President and Chief Executive Officer

So if you look at -- if you break the opportunities into buckets, right, so you have the licensing of folks for -- under the (inaudible) program for mobile devices, right? As Kai mentioned in his talks, there's a lot going on with China, 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 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 line this year, but obviously it's always the case that we need to do things at the right level and the right value, and not so much to be driven just by the timing. But I think -- I think there's opportunity in that space. And so that's really the bulk of what 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 TVs. 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 a large TV manufacturers. And so we're engaged with them now. We picked up some of those discussions that were already have been started by Technicolor other are sort of fresh. We are early in the game there and we'll see how that precedes, 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 -- Kai noted in his remarks, the success in Chordant in getting some of its solutions adopted. So I think that 2019 is mostly a year of continuing to position the 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 the component of IoT is sometimes better than IoT, sometimes it is involved with the (inaudible) things like the Avanci initiatives around wireless (inaudible). They continued 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 those structural issues, so I would say that 2019 is also a year for them to deliver as well.

Charles Anderson -- Dougherty & Company -- Analyst

Great. And then a couple of questions for Rich. Rich or one of you could maybe just help us on just some of the elements in Q4 on the operating expense side that were sort of one-time 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 one-time effect also on OpEx? I'm talking both on the GAAP and non-GAAP. And then I've got one more follow-up.

Richard J. Brezski -- Chief Financial Officer

Sure Charlie. So, a couple of things, I think in both the release and in my comments, I talked a little bit -- some of the transaction and integration costs, which what one view as the one-time 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 -- Analyst

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 J. Brezski -- Chief Financial Officer

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

Charles Anderson -- Dougherty & Company -- Analyst

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

William J. Merritt -- President and Chief Executive Officer

Yes, OK.

Richard J. Brezski -- Chief Financial Officer

Okay, sounds good. Thanks very much guys.

William J. Merritt -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Eric Wold from B. Riley & Co.

Eric Wold -- B. Riley & Co. -- Analyst

Thank you. Good morning guys. 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 for 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 J. Merritt -- President and Chief Executive Officer

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

Eric Wold -- B. Riley & Co. -- Analyst

Just the unsigned Chinese handset operator, kind of as a group.

William J. Merritt -- President and Chief Executive Officer

Yes. So, look -- while it's a group, I'd say everyone in the group is very different from one another. So you've got 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 -- 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 of kind, 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 really 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 & Co. -- Analyst

Thank you. 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 assigned so far? What percentage of either customer base or the revenue base. How 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 have to 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 J. Merritt -- President and Chief Executive Officer

Yes. So generally, I think when we look at 5G, we look at it as really two things, right. The first is sustaining the current licensing businesses that we have. And so you're right. I mean, in a traditional sense, technology can -- value can erode over time, but -- 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 the royalty rate excel, assisted by the new technology coming in, but the selling price of devices are going 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 cost of the headphone 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 word 5G I think has more growth potential for us, in how it contributes to the other markets that we talk 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.

Richard J. Brezski -- Chief Financial Officer

So let me add a couple of things on that. So I think it's still worth reiterate that, 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 the low latency, which is the applications like cars. And then there is going to be the IoT releases and IoT (inaudible) 5G. So there's the other aspect of 5G is much broader market than what just really a wireless handsets such as the 3G and 4G have been.

Operator

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

Anja Marie Soderstrom -- Sidoti & Company -- Analyst

Hi gentlemen. Thank you for taking my questions. So I just have a few questions. The first on the Technicolor. As you are upselling those contracts, is there a chance to catch up payment like you have with others for unused use of the licenses there as well?

William J. Merritt -- President and Chief Executive Officer

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 -- more 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 Marie Soderstrom -- Sidoti & Company -- Analyst

Okay. Thank you. 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 J. Brezski -- Chief Financial Officer

Yes, sure. That was a 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 to an agreement and it resulted in terms that are a little bit different than what you'd expect for top three manufacturer and different -- frankly -- would expect even on renewal. So it was what we call static agreement in terms of the capture rights under the agreement. And we couldn't spread the -- continue to spread the revenue post adoption 606 on January 1, '18.

Anja Marie Soderstrom -- Sidoti & Company -- Analyst

Okay, thank you. That was helpful. That's all from me.

Operator

(Operator Instructions) Our next question comes from Scott Searle from Roth Capital.

Scott Searle -- Roth Capital. -- Analyst

Hey, good morning. Thanks for taking my question. Hey, Rich just quickly to follow-up on Charlie's question earlier related to the $12.6 million in one-time charges. Could you give us some 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 you are taking one line item out or how are you treating that from an accounting standpoint? And I have a couple of follow-ups.

Richard J. Brezski -- Chief Financial Officer

Sure. I'll start with Chordant. So for accounting purposes we're still deemed to be the primary beneficiary and therefore are -- where bottom line we're still consolidating it. So that still shows up in our P&L from a cost perspective. And then on the question on one-time items, you referenced $12 million, I think you were probably pointing at least to the press release that we disclosed. We had $12.6 million of 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 two is the added non-cash 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 about as well as integration costs.

Scott Searle -- Roth Capital. -- Analyst

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 was some mentions of some things other than video, specifically I think machine learning, AI, VR, AR were in there as well. Is that a big component of the opportunity then that we're seeing within the R&I development team?

William J. Merritt -- President and Chief Executive Officer

So 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 popular talent out there, 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 resonant in the technology. So it was certainly one of the attraction of the R&I team. I would tell you that the teams has got many, many attractions. It's a really really capable team. In terms of the transaction itself being one of the benefit of the transaction is 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 that Technicolor does some amazing things as 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 in the first place these things appear. 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 to close, but I think it provides a great strategic benefit to both companies.

Scott Searle -- Roth Capital. -- Analyst

And lastly, Bill, if I could. You did certainly have some comments in and 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 more recently as we're going into more of the European marketplace for some of the larger Chinese OEMs, not uncommon for this time of year, right ahead of Mobile World Congress, but I'm wondering how is Europe looking at in 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 and there is really change at this point in time? Thanks.

William J. Merritt -- President and Chief Executive Officer

Sure. Well look 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 stronger business. 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 available mechanisms for enforcement. And so all in -- that is just all good -- 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 their market position reflects on the power provider of the standard.

Scott Searle -- Roth Capital. -- Analyst

Okay, thank you.

Operator

Our final question comes from Matthew Galinko with National Securities.

Matthew Galinko -- National Securities -- Analyst

Hey, good afternoon. Thanks for taking my question. So you touched on the difficulty of running, I think, a product and licensing business under one roof in the -- in your initial commentary. Curious about in forms or strategy of kind of (inaudible) holding initiatives like Chordant under the InterDigital umbrella directly?

William J. Merritt -- President and Chief Executive Officer

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 business is a 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 (inaudible) is 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 be able to 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 -- Analyst

Got it. And I think did mention an engagement between Chordant and (inaudible). 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 hoping you could expand on that a little bit?

Kai Oistamo -- Chief Operating Officer

The question is specifically on Chordant?

William J. Merritt -- President and Chief Executive Officer

And DT.

Kai Oistamo -- Chief Operating Officer

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've kind of engaged in multiple other ones as well and obviously, that kind of early successes have been more of a -- with kind of public entities like in U.K., different counties and then so on.

Matthew Galinko -- National Securities -- Analyst

Great, thank you.

Operator

Thank you. And 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 five or six years. It's great to see those technologies finally come to market. We will be demonstrating some exciting technology of our own. They will be featured on the website and we'll also be hosting some very interesting live-streamed discussions on various technologies. So I invite you all to check out the website and we'll be sending some email 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.

Duration: 48 minutes

Call participants:

Patrick Van de Wille -- Chief Communications Officer

William J. Merritt -- President and Chief Executive Officer

Kai Oistamo -- Chief Operating Officer

Richard J. Brezski -- Chief Financial Officer

Charles Anderson -- Dougherty & Company -- Analyst

Eric Wold -- B. Riley & Co. -- Analyst

Anja Marie Soderstrom -- Sidoti & Company -- Analyst

Scott Searle -- Roth Capital. -- Analyst

Matthew Galinko -- National Securities -- Analyst

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