UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2023
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-38334
Immersion Corporation
(Exact name of registrant as specified in its charter)
Delaware | | 94-3180138 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
2999 N.E. 191st Street, Suite 610, Aventura, FL, 33180
(Address of principal executive offices, zip code)
(408) 467-1900
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, $0.001 par value | IMMR | NASDAQ Global Market |
Series B Junior Participating Preferred Stock Purchase Rights | IMMR | NASDAQ Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | | Smaller reporting company | ☒ |
| | | Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Number of shares of common stock outstanding at May 5, 2023 was 32,633,851.
5. CONTINGENCIES
From time to time, we receive claims from third parties asserting that our technologies, or those of our licensees, infringe on the other parties’ IP rights. Management believes that these claims are without merit. Additionally, periodically, we are involved in routine legal matters and contractual disputes incidental to our normal operations. In management’s opinion, unless we disclosed otherwise, the resolution of such matters will not have a material adverse effect on our consolidated financial condition, results of operations, or liquidity.
In the normal course of business, we provide indemnification of varying scope to customers, most commonly to licensees in connection with licensing arrangements that include our IP, although these provisions can cover additional matters. Historically, costs related to these guarantees have not been significant, and we are unable to estimate the maximum potential impact of these guarantees on our future results of operations.
LGE Korean Withholding Tax Matter
On October 16, 2017, we received a letter from LG Electronics Inc. (“LGE”) requesting that we reimburse LGE with respect to withholding tax imposed on LGE by the Korean tax authorities following an investigation where the tax authority determined that LGE failed to withhold on LGE’s royalty payments to Immersion Software Ireland, a subsidiary of the Company, from 2012 to 2014. Pursuant to an agreement reached with LGE, on April 8, 2020, we provided a provisional deposit to LGE in the amount of KRW 5,916,845,454 (approximately $5.0 million) representing the amount of such withholding tax that was imposed on LGE, which provisional deposit would be returned to us to the extent we ultimately prevail in the appeal in the Korean courts. In the second quarter of 2020, we recorded this deposit in Long-term deposits on our Condensed Consolidated Balance Sheets.
On November 3, 2017, on behalf of LGE, we filed an appeal with the Korea Tax Tribunal regarding their findings with respect to the withholding taxes. The Korea Tax Tribunal hearing took place on March 5, 2019. On March 19, 2019, the Korea Tax Tribunal issued its ruling in which it decided not to accept our arguments with respect to the Korean tax authorities’ assessment of withholding tax and penalties imposed on LGE. On behalf of LGE, we filed an appeal with the Korea Administrative Court on June 10, 2019. The Company has had numerous hearings before the Korea Administrative Court in the years 2019 through 2022. The Korea Administrative Court had indicated that it expected to render a decision on this matter by December 31, 2022, but had subsequently updated the parties to indicate that a decision on this matter was expected by February 16, 2023. On February 15, 2023, we were informed that the Korea Administrative Court had scheduled another hearing for April 27, 2023 due to a change in the main judge for this matter. We had a hearing on April 27, 2023, and the Korea Administrative Court indicated that it expects to render a decision on this matter by June 8, 2023.
On April 25, 2023, we received notice from LGE requesting us to reimburse LGE with respect to withholding tax imposed on LGE by the Korean tax authorities following a recent tax audit of LGE for the years 2018 through 2022 in the amount of KRW 3,025,251,775 (approximately $2.3 million). We are currently evaluating our next steps with respect to the reimbursement of such withholding taxes in accordance with our obligations pursuant to the license agreement with LGE. As of March 31, 2023, we have accrued $0.3 million of withholding taxes, interest and penalties related to the 2018 to 2022 period for which the Korean tax authorities have recently assessed LGE. The additional income tax is accrued in Other Current Liabilities in our Condensed Consolidated Balance Sheets.
Based on the developments in these cases, we regularly reassess the likelihood that we will prevail in the claims from the Korean tax authorities with respect to the LGE case. To the extent that we determine that it is more likely than not that we will prevail against the claims from the Korean tax authorities, then no additional tax expense is provided for in our Condensed Consolidated Statements of Income and Comprehensive Income. In the event that we determine that it is more likely than not that we will not prevail against the claims from the Korean tax authorities, or a portion thereof, then we would estimate the anticipated additional tax expense associated with that outcome and record it as additional income tax expense in our Condensed Consolidated Statements of Income and Comprehensive Income in the period of the new determination. If the additional income tax expense was related to the periods assessed by Korean tax authorities and for which we recorded a Long-term deposits on our Condensed Consolidated Balance Sheets, then the additional income tax expense would be recorded as an impairment to the Long-term deposits. If the additional income tax expense was not related to the periods assessed by Korean tax authorities and for which we recorded in Long-term deposits on our Condensed Consolidated Balance Sheets, then the additional income tax expense would be accrued as an Other current liabilities.
In the event that we do not ultimately prevail in our appeal in the Korean courts with respect to this case, the applicable deposits included in Long-term deposits would be recorded as additional income tax expense on our Condensed Consolidated Statements of Income and Comprehensive Income, in the period in which we do not ultimately prevail.
In the fourth quarter of 2021, we recorded an impairment charge of $0.8 million related to the long-term deposits paid to LGE.
Immersion Corporation vs. Meta Platforms, Inc., f/k/a Facebook, Inc.
On May 26, 2022, we filed a complaint against Meta Platforms, Inc. (formerly known as Facebook, Inc.) (“Meta”) in the United States District Court for the Western District of Texas. The complaint alleges that Meta’s augmented and virtual reality (“AR/VR”) systems, including the Meta Quest 2, infringe six of our patents that cover various uses of haptic effects in connection with such AR/VR systems. We are seeking to enjoin Meta from further infringement and to recover a reasonable royalty for such infringement.
The complaint against Meta asserts infringement of the following patents:
• U.S. Patent No. 8,469,806: “System and method for providing complex haptic stimulation during input of control gestures, and relating to control of virtual equipment”
• U.S. Patent No. 8,896,524: “Context-dependent haptic confirmation system”
• U.S. Patent No. 9,727,217: “Haptically enhanced interactivity with interactive content”
• U.S. Patent No. 10,248,298: “Haptically enhanced interactivity with interactive content”
• U.S. Patent No. 10,269,222: “System with wearable device and haptic output device”
• U.S. Patent No. 10,664,143: “Haptically enhanced interactivity with interactive content”
Meta responded to our complaint on August 1, 2022. On September 12, 2022, Meta filed a motion to transfer the lawsuit to the Northern District of California or, in the alternative, to the Austin Division of the Western District of Texas. Meta’s motion remains pending, and a hearing on the transfer motion occurred on January 23, 2023. In the meantime, the claim construction briefing is closed, and fact discovery opened on February 7, 2023. The claim construction hearing was scheduled for March 6, 2023, but was rescheduled by the Court for April 24, 2023 and again rescheduled to May 11, 2023.
Immersion Corporation vs. Xiaomi Group
On or about March 3, 2023, we initiated patent infringement lawsuits against several companies of the Xiaomi-Group (the “Xiaomi-Group”) in Germany, France and India. We initiated lawsuits against Xiaomi-Group companies and their agents in the Düsseldorf Regional Court in Germany, the Tribunal judiciaire de Paris (Paris First Instance Civil Court) in France, and the High Court of Delhi, at New Delhi, in India.
The complaints allege that the Xiaomi-Group’s devices, including the Xiaomi 12, infringe our patents that cover various uses of haptic effects in connection with such devices. We are seeking injunctions that would allow us to prohibit Xiaomi-Group from selling the infringing devices in Germany, France and India, as well as costs and damages as compensation for such infringement.
The complaints against the Xiaomi-Group assert infringement of the following patents:
• EP 2 463 752 B1 (German part) titled “Haptisches Feedback-System mit gespeicherten Effekten”
• EP 2 463 752 B1 (French part) titled “Système de rendu haptique avec stockage d’effets”
• IN 304 396 (India) titled “Haptic Feedback System With Stored Effects”
6. STOCK-BASED COMPENSATION
Stock Options and Awards
Our equity incentive program is a long-term retention program that is intended to attract, retain, and provide incentives for employees, consultants, officers, and directors and to align stockholder and employee interests. We may grant time-based options, market condition-based options, stock appreciation rights, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance shares, market condition-based performance restricted stock units (“PSUs”), and other stock-based equity awards to employees, officers, directors, and consultants.
On January 18, 2022, our stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”), which provides for a total number of shares reserved and available for grant and issuance equal to 3,525,119 shares plus up to an additional 855,351 shares that are subject to stock options or other awards granted under the 2011 Equity Incentive Plan. On March 30, 2023, our stockholders approved an amendment to the 2021 Plan to increase the number of shares reserved for issuance under the 2021 Plan by 4,621,488 shares.
Under our equity incentive plans, stock options may be granted at prices not less than the fair market value on the date of grant for such stock options. Stock options generally vest over four years and expire seven years from the applicable grant date. Market condition-based stock awards are subject to a market condition whereby the closing price of our common stock must exceed a certain level for a number of trading days within a specified time frame or the awards will be canceled before expiration. RSAs generally vests over one year. RSUs generally vest over three years. Awards granted other than a stock option or a stock appreciation right shall reduce the common stock shares available for grant by 1.75 shares for every share issued.
A summary of our equity incentive program as of March 31, 2023 is as follows (in thousands):
Common stock shares available for grant | 5,158 |
Stock options outstanding | 140 |
RSUs outstanding | 754 |
RSAs outstanding | 75 |
PSUs outstanding | 413 |
Time-Based Stock Options
The following summarizes time-based stock options activities for the three months ended March 31, 2023:
| Number of Shares Underlying Stock Options (in thousands) |
| |
| Weighted Average Exercise Price Per Share |
| |
| Weighted Average Remaining Contractual Life (Years) |
| |
| Aggregate Intrinsic Value (in thousands) |
|
Outstanding at December 31, 2022 | 140 |
| | $ | 7.57 |
| |
| 4.03 |
| | $ | — |
|
Granted | — |
| |
| — |
| |
| |
| |
| |
|
Exercised | — |
| |
| — |
| |
| |
| |
| |
|
Canceled or expired | — |
| |
| — |
| |
| |
| |
| |
|
Outstanding as of March 31, 2023 | 140 |
| | $ | 7.57 |
| |
| 3.78 |
| | $ | 193 |
|
Vested and expected to vest at March 31, 2023 | 138 |
| | $ | 7.57 |
| |
| 3.78 |
| | $ | 190 |
|
Exercisable at March 31, 2023 | 111 |
| | $ | 7.57 |
| |
| 3.78 |
| | $ | 153 |
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the exercise price of our common stock for the options that were in-the-money.
We did not grant stock options in the three months ended March 31, 2023.
Restricted Stock Units
The following summarizes RSU activities for the three months ended March 31, 2023:
|
| Number of Restricted Stock Units (in thousands) |
| |
| Weighted Average Grant Date Fair Value Per Share |
| |
| Weighted Average Remaining Recognition Period (Years)
|
| |
| Aggregate Intrinsic Value (in thousands) |
|
Outstanding at December 31, 2022 |
| 887 |
| | $ | 5.85 |
| |
| 2.38 |
| | $ | 6,226 |
|
Granted |
| — |
| |
| — |
| |
| |
| |
| |
|
Released |
| (82 | ) | |
| 5.67 |
| |
| |
| |
| |
|
Forfeited |
| (51 | ) | |
| 6.91 |
| |
| |
| |
| |
|
Outstanding at March 31, 2023 |
| 754 |
| | $ | 5.79 |
| |
| 2.22 |
| | $ | 6,738 |
|
The aggregate intrinsic value is calculated as the market value as of the end of the reporting period.
Restricted Stock Awards
The following summarizes RSA activities for the three months ended March 31, 2023:
|
| Number of Restricted Stock Awards
(in thousands) |
| |
| Weighted Average Grant Date Fair Value Per Share |
| |
| Weighted Average Remaining Recognition Period (Years) |
|
Outstanding at December 31, 2022 |
| 119 |
| | $ | 5.47 |
| |
| 1.31 |
|
Granted |
| 75 |
| |
| 8.31 |
| |
| |
|
Released |
| (119 | ) | |
| 5.47 |
| |
| |
|
Forfeited |
| — |
| |
| — |
| |
| |
|
Outstanding at March 31, 2023 |
| 75 |
| | $ | 8.31 |
| |
| 1.00 |
|
Market Condition-Based Performance Stock Units
The following summarizes PSU activities for the three months ended March 31, 2023:
| Number of Market Condition-Based Performance Stock Units (in thousands) |
| |
| Weighted Average Grant Date Fair Value Per Share |
| |
| Weighted Average Remaining Recognition Period (Years) |
|
Outstanding at December 31, 2022 | 615 |
| | $ | 3.69 |
| |
| 1.12 |
|
Granted | — |
| |
| — |
| |
| |
|
Released | (202 | ) | |
| 3.65 |
| |
| |
|
Forfeited | — |
| |
| — |
| |
| |
|
Outstanding at March 31, 2023 | 413 |
| | $ | 3.71 |
| |
| 1.00 |
|
Employee Stock Purchase Plan
Under our 1999 Employee Stock Purchase Plan (“ESPP”), eligible employees may purchase common stock through payroll deductions at a purchase price of 85% of the lower of the fair market value of our common stock at the beginning of the offering period or the purchase date. Participants may not purchase more than 2,000 shares in a six-month offering period or purchase stock having a value greater than $25,000 in any calendar year as measured at the beginning of the offering period. A total of 1.0 million shares of common stock have been reserved for issuance under the ESPP. During the three months ended March 31, 2023, 1,298 shares were purchased under the ESPP. Effective February 1, 2023, our ESPP was discontinued and 193,134 shares expired following the ESPP termination.
Stock-based Compensation Expense
Valuation and amortization methods
Stock-based compensation is based on the estimated fair value of awards, net of estimated forfeitures, and recognized over the requisite service period. Estimated forfeitures are based on historical experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The stock-based compensation related to all of our stock-based awards and ESPP for the three months ended March 31, 2023, and 2022 is as follows (in thousands):
|
| Three Months Ended March 31, |
|
|
| 2023 |
| |
| 2022 |
|
Stock options | $ | (56 | ) | | $ | (43 | ) |
RSUs, RSAs and PSUs |
| 1,002 |
| |
| 1,187 |
|
ESPP |
| — |
| |
| (3 | ) |
Total | $ | 946 |
| | $ | 1,141 |
|
|
| |
| |
| |
|
Sales and marketing | $ | (99 | ) | | $ | 90 |
|
Research and development |
| (74 | ) | |
| 107 |
|
General and administrative |
| 1,119 |
| |
| 944 |
|
Total | $ | 946 |
| | $ | 1,141 |
|
As of March 31, 2023, there was $5.6 million of unrecognized compensation cost adjusted for estimated forfeitures related to non-vested stock options, RSUs, RSAs and PSUs granted to our employees and directors. This unrecognized compensation cost will be recognized over an estimated weighted-average period of approximately 1.8 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.
7. STOCKHOLDERS’ EQUITY
Stock Repurchase Program
On February 23, 2022, our Board of Directors (the "Board") approved a stock repurchase program of up to $30.0 million of our common stock for a period of up to twelve months (the "February 2022 Stock Repurchase Program"). Any stock repurchases were made through open market or privately negotiated transactions, at such times and in such amounts as management deemed appropriate, including pursuant to one or more Rule 10b5-1 trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. Additionally, the Board authorized the use of derivative or similar instrument to effect stock repurchase transactions, including without limitation, accelerated share repurchase contracts, equity forward transactions, equity option transactions, equity swap transactions, cap transactions, collar transactions, naked put options, floor transactions or other similar transactions or any combination of the foregoing transactions. The stock repurchase program was implemented as a method to return value to our stockholders. The timing, pricing and sizes of any repurchases depended on a number of factors, including the market price of our common stock and general market and economic conditions. The stock repurchase program did not obligate us to repurchase any dollar amount or number of shares, and the program could be suspended or discontinued at any time. The February 2022 Stock Repurchase Program was terminated on December 29, 2022.
In the year ended December 31, 2022, we repurchased 1,637,566 shares of our common stock for $8.9 million at an average purchase price of $5.46 per share. The February 2022 Stock Repurchase Program was terminated on December 29, 2022.
On December 29, 2022, the Board approved a stock repurchase program of up to $50.0 million of our common stock for a period of up to twelve months (the “December 2022 Stock Repurchase Program”), which terminated and superseded the stock repurchase program that had been approved by the Board on February 23, 2022. Any stock repurchases may be made through open market and privately negotiated transactions, at such times and in such amounts as management deems appropriate, including pursuant to one or more Rule 10b5-1 trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. Additionally, the Board authorized the use of any derivative or similar instrument to effect stock repurchase transactions, including without limitation, accelerated share repurchase contracts, equity forward transactions, equity option transactions, equity swap transactions, cap transactions, collar transactions, naked put options, floor transactions or other similar transactions or any combination of the foregoing transactions. The stock repurchase program was implemented as a method to return value to our stockholders. The timing, pricing and sizes of any repurchases will depend on a number of factors, including the market price of our common stock and general market and economic conditions. The stock repurchase program does not obligate us to repurchase any dollar amount or number of shares, and the program may be suspended or discontinued at any time.
We did not repurchase shares during the three months ended March 31, 2023. As of March 31, 2023, we had $50.0 million available for repurchase under the December 2022 Stock Repurchase Program.
Dividends Payment
On November 14, 2022, our Board declared a quarterly dividend in the amount of $0.03 per share, which was paid on January 30, 2023, to stockholders of record on January 15, 2023. In addition, on December 29, 2022, the Board declared a special dividend in the amount of $0.10 per share, which was paid on January 30, 2023 to stockholders of record on January 15, 2023.
On February 21, 2023, the Board declared a second quarterly dividend, in the amount of $0.03 per share, which was paid on April 28, 2023 to stockholders of record on April 13, 2023.
On May 10, 2023, we announced that the Board declared a quarterly dividend. The quarterly dividend, in the amount of $0.03 per share, will be payable, subject to any prior revocation, on July 28, 2023, to shareholders of record on July 13, 2023. Future dividends will be subject to further review and approval by the Board in accordance with applicable law. The Board reserves the right to adjust or withdraw the quarterly dividend in future periods as it reviews the Company’s capital allocation strategy from time-to-time.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements involve risks and uncertainties. Forward-looking statements are frequently identified by words such as “anticipates”, “believes”, “expects”, “intends”, “may”, “can”, “will”, “places”, “estimates”, and other similar expressions. However, these words are not the only way we identify forward-looking statements. Examples of forward-looking statements include among other things, any expectations, projections, or other characterizations of future events, or circumstances, and include statements regarding: the continued impact of COVID-19 on our business, including as to revenue, and potential cost reduction measures, and the continued impact of COVID-19 on our customers, suppliers, and on the economy in general; our strategy and our ability to execute our business plan; our competition and the market in which we operate; our customers and suppliers; our revenue and trends related thereto, and the recognition and components thereof; our costs and expenses, including capital expenditures; our investment of surplus funds and sales of marketable debt securities; seasonality and demand; our investment in research and technology development; changes to general and administrative expenses; our foreign operations and the reinvestment of our earnings related thereto; our investment in and protection of our IP; our employees; capital expenditures and the sufficiency of our capital resources; unrecognized tax benefit and tax liabilities; the impact of changes in interest rates and foreign exchange rates, as well as our plans with respect to foreign currency hedging in general; changes in laws and regulations, including with respect to taxes; our plans and estimates related to and the impact of current and future litigation and arbitration; our leases, sublease and the timing and income related thereto; and our dividend, stock repurchase and equity distribution programs.
Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Actual results could differ materially from those projected in the forward-looking statements, therefore we caution you not to place undue reliance on these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the risk factors contained under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 22, 2023 and below under Part II, Item 1A, “Risk Factors.”
Any forward-looking statements made by us in this report speak only as of the date of this report, and we do not intend to update these forward-looking statements after the filing of this report, unless required to do so by applicable law or regulation. You are urged to review carefully and consider our various disclosures in this report and in our other reports publicly disclosed or filed with the SEC that attempt to advise you of the risks and factors that may affect our business.
OVERVIEW
We are a premier licensing company focused on the invention, acceleration, and scaling, through licensing, of innovative haptic technologies that allow people to use their sense of touch to engage with products and experience the digital world around them. We are one of the leading experts in haptics, and our focus on innovation allows us to deliver world-class intellectual property (“IP”) and technology that enables the creation of products that delight end users. Our technologies are designed to facilitate the creation of high-quality haptic experiences, enable their widespread distribution, and ensure that their playback is optimized. Our primary business is currently in the mobility, gaming, and automotive markets, but we believe our technology is broadly applicable and see opportunities in evolving new markets, including virtual and augmented reality, and wearables, as well as residential, commercial, and industrial Internet of Things. In recent years, we have seen a trend towards broad market adoption of haptic technology. As other companies follow our leadership in recognizing how important tactile feedback can be in people’s digital lives, we expect the opportunity to license our IP and technologies will continue to expand.
We have adopted a business model under which we offer licenses to our patented technology to our customers and offer our customers enabling software, related tools and technical assistance designed to integrate our patented technology into our customers’ products or enhance the functionality of our patented technology. Our licenses enable our customers to deploy haptically-enabled devices, content and other offerings, which they typically sell under their own brand names. We and our wholly-owned subsidiaries hold more than 1,000 issued or pending patents worldwide as of March 31, 2023. Our patents cover a wide range of digital technologies and ways in which touch-related technology can be incorporated into and between hardware products and components, systems software, application software, and digital content. We believe that our IP is relevant to many of the most important and cutting-edge ways in which haptic technology is and can be deployed, including in connection with mobile interfaces and user interactions, in association with pressure and other sensing technologies, as part of video and interactive content offerings, as related to virtual and augmented reality experiences, and in connection with advanced actuation technologies and techniques. Our portfolio includes numerous patents and patent applications that we believe may become essential to emerging standards in development by Standards Development Organizations (“SDOs”) including media standards in development by ISO/IEC Moving Picture Expert Group (MPEG) and software and system standards in development at IEEE-SA.
We were incorporated in 1993 in California and reincorporated in Delaware in 1999.
Results of Operations
Overview
Total revenues for the three months ended March 31, 2023 was $7.1 million, a decrease of $0.2 million, or 3%, compared to the same period in 2022.
Total operating expenses were $3.8 million in the three months ended March 31, 2023, a decrease of $0.1 million, or 3%, compared to the same period in 2022.
Net income was $8.3 million in the three months ended March 31, 2023, a $3.2 million, or 63%, increase compared to a net income of $5.1 million in the three months ended March 31, 2022.
The following table sets forth our Condensed Consolidated Statements of Income and Comprehensive Income data as a percentage of total revenues:
| Three Months Ended March 31, |
| 2023 |
| | 2022 |
|
Revenues: |
|
| | |
|
Fixed fee license revenue | 17 | % | | 24 | % |
Per-unit royalty revenue | 82 |
| | 75 |
|
Total royalty and license revenue | 99 |
| | 99 |
|
Development, services, and other | 1 |
| | 1 |
|
Total revenues | 100 |
| | 100 |
|
Operating expenses: | |
| | |
|
Sales and marketing | 1 |
| | 7 |
|
Research and development | 2 |
| | 7 |
|
General and administrative | 51 |
| | 37 |
|
Total operating expenses | 54 |
| | 51 |
|
Operating income | 46 |
| | 49 |
|
Interest and other income (loss), net | 92 |
| | 28 |
|
Income before provision for income taxes | 138 |
| | 77 |
|
Provision for income taxes | (21 | ) | | (8 | ) |
Net income | 117 | % | | 69 | % |
Revenues
Our revenue is primarily derived from fixed fee license agreements and per-unit royalty agreements, along with less significant revenue earned from development, services and other revenue. Royalty and license revenue is composed of per unit royalties earned based on usage or net sales by licensees and fixed payment license fees charged for our IP and software.
A revenue summary for the three months ended March 31, 2023 and 2022 is as follows (in thousands, except for percentages):
|
| Three Months Ended March 31, |
|
|
| 2023 |
| |
| 2022 |
| |
| $ Change |
| |
| % Change |
|
Revenues: |
| |
| |
| |
| |
| |
| |
| |
|
Fixed fee license revenue | $ | 1,214 |
| | $ | 1,745 |
| | $ | (531 | ) | |
| (30 | )% |
Per-unit royalty revenue |
| 5,795 |
| |
| 5,485 |
| |
| 310 |
| |
| 6 | % |
Total royalty and license revenue |
| 7,009 |
| |
| 7,230 |
| |
| (221 | ) | |
| (3 | )% |
Development, services, and other revenue |
| 65 |
| |
| 78 |
| |
| (13 | ) | |
| (17 | )% |
Total revenues | $ | 7,074 |
| | $ | 7,308 |
| | $ | (234 | ) | |
| (3 | )%
|
Royalty and license revenue
Fixed fee license revenue decreased by $0.5 million, or 30%, in the first quarter of 2023 compared to the same period in 2022 primarily due to a $0.5 million decrease in automotive license revenue.
Per-unit royalty revenue increased by $0.3 million, or 6%, in the first quarter of 2023 compared to the same period in 2022, primarily due to an $0.7 million increase in royalties from gaming licensees and a $0.3 million increase in royalties from other licensees partially offset by a $0.6 million decrease in royalties from mobility licensees.
We expect royalty and license revenue to continue to be a major component of our future revenue as our technology is included in products and we succeed in our efforts to monetize our IP. Our fixed fee license revenue could fluctuate depending upon the timing of execution of new fixed license fee arrangements. We also anticipate that our royalty revenue will fluctuate relative to our customers’ unit shipments.
Geographically, revenues generated in Asia, North America and Europe for the three months ended March 31, 2023 represented 84%, 12%, and 4%, respectively, of our total revenue as compared to 75%, 16%, and 9%, respectively, for the three months ended March 31, 2022.
Operating Expenses
A summary of operating expenses for the three months ended March 31, 2023, and 2022 is as follows (in thousands, except for percentages):
|
| Three Months Ended March 31, |
|
|
| 2023 |
| |
| 2022 |
| |
| $ Change |
| |
| % Change |
|
Sales and marketing | $ | 96 |
| |
| 486 |
| | $ | (390 | ) | |
| (80 | )% |
Research and development |
| 130 |
| |
| 513 |
| |
| (383 | ) | |
| (75 | )% |
General and administrative |
| 3,589 |
| |
| 2,706 |
| |
| 883 |
| |
| 33 | % |
Sales and Marketing - Our sales and marketing expenses primarily consisted of employee compensation and benefits, including stock-based compensation; sales commissions; advertising; collateral marketing materials; market development funds; travel; and allocated facilities costs.
Sales and marketing expenses decreased $0.4 million, or 80%, in the three months ended March 31, 2023, compared to the same period in 2022 This decrease was primarily attributable to decreases in compensation, benefits and other personnel-related costs due to lower headcount and a decrease in stock-based compensation expense.
Research and Development - Our research and development expenses primarily consisted of employee compensation and benefits, including stock-based compensation; outside services and consulting fees; tooling and supplies; and allocated facilities costs.
Research and development expenses decreased $0.4 million, or 75%, in the three months ended March 31, 2023, compared to the same period in 2022. This decrease was primarily attributable to decreases in compensation, benefits and other personnel-related costs due to lower headcount and a decrease in stock-based compensation expense.
General and Administrative - Our general and administrative expenses primarily consisted of employee compensation and benefits including stock-based compensation; legal other professional fees; external legal costs for patents; office expense; travel; and allocated facilities costs.
General and administrative expenses increased $0.9 million, or 33%, in the three months ended March 31, 2023 as compared to the same period in 2022. This increase was primarily due to a $1.0 million increase in compensation, benefits driven by increases in stock-based compensation expense and variable compensation.
We are engaged in, and may be required to engage in further, litigation to protect our IP, which may cause our general and administrative expenses to substantially increase reflecting such litigation costs.
Interest and Other Income (Loss)
Interest and Other Income (loss) - Interest and other income consists primarily of interest and dividend income from cash and cash equivalents and marketable debt and equity securities, short-term investments realized and unrealized gains (losses) on our marketable equity securities and derivative instruments and realized gains (losses) on our marketable debt securities.
|
| Three Months Ended March 31, |
|
|
| 2023 |
| |
| 2022 |
| |
| $ Change |
| |
| % Change |
|
Interest and other income (loss), net | $ | 6,415 |
| | $ | 2,186 |
| |
| 4,229 |
| |
| 193 | % |
Other income (expense), net |
| 110 |
| |
| (152 | ) | |
| 262 |
| |
| (172 | )% |
Interest and other income (loss), net | $ | 6,525 |
| | $ | 2,034 |
| | $ | 4,491 |
| |
| 221 | % |
Interest and other income (loss) increased $4.2 million during the three months ended March 31, 2023, compared to the same period in 2022, primarily driven by a $3.6 million increase in net gains from investments in marketable equity securities and derivative instruments and a $0.7 million increase in interest income.
Other income (expense), net increased $0.3 million during the three months ended March 31, 2023, compared to the same period in 2022, primarily driven by a $0.1 million increase in net foreign currency translation gains and a $0.1 million decrease in interest expense.
Income Taxes
A summary of provision for income taxes and effective tax rates for the three months ended March 31, 2023 and 2022 is as follows (in thousands):
|
| Three Months Ended March 31, |
|
|
| 2023 |
| |
| 2022 |
| |
| $ Change |
| |
| % Change |
|
Income before provision for income taxes | $ | 9,785 |
| | $ | 5,637 |
| |
| |
| |
| |
|
Provision for income taxes |
| (1,507 | ) | |
| (561 | ) | |
| (946 | ) | |
| 169 | % |
Effective tax rate |
| (15.4 | )% | |
| (10.0 | )% | |
| |
| |
| |
|
Provision for income taxes for the three months ended March 31, 2023, and 2022 resulted primarily from estimated domestic and foreign taxes included in the calculation of the effective tax rate.
We provided a partial valuation allowance for certain U.S. federal assets, whose future realization is not more likely than not and continue to maintain full valuation allowance for state and certain foreign deferred tax assets in Canada as a result of uncertainties regarding the realization of the asset balance due to historical losses, the variability of operating results, and uncertainty regarding near term projected results. In the event that we determine the deferred tax assets are realizable based on an assessment of relevant factors, an adjustment to the valuation allowance may increase income in the period such determination is made. The valuation allowance does not impact our ability to utilize the underlying net operating loss carryforwards.
We also maintain liabilities for uncertain tax positions. As of March 31, 2023, we had unrecognized tax benefits under Accounting Standards Certification (“ASC”) 740 Income Taxes of approximately $7.2 million and applicable interest of $0.1 million. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $3.2 million. We account for interest and penalties related to uncertain tax positions as a component of income tax provision. We do not expect to have any significant changes to unrecognized tax benefits during the next twelve months.
Liquidity and Capital Resources
Our cash equivalents, investments - current and investments - noncurrent consist primarily of money-market funds, investments in marketable equity and debt securities (including mutual funds), investments in U.S. treasury securities and certificates of deposit. All marketable securities are stated at market value. Realized gains and losses on marketable equity securities and marketable debt securities are recorded in Other income (expense), net on the Condensed Consolidated Statements of Income and Comprehensive Income. Unrealized gains and losses on marketable equity securities (including mutual funds) are reported as Other income (expense), net on our Condensed Consolidated Statement of Income and Comprehensive Income. Unrealized gains and losses on marketable debt securities reported as a component of Accumulated other comprehensive income on our Condensed Consolidated Balance Sheets. Certificates of deposit are report as Investment - current or Investment -noncurrent based on their remaining maturity days. Interest income from certificates of deposit are reported as Interest and other income (loss), net on the Condensed Consolidated Statement of Income and Comprehensive Income.
Cash, cash equivalents and investments-current - As of March 31, 2023, our cash, cash equivalents, and investments- current totaled $148.4 million, a decrease of $1.3 million from $149.7 million on December 31, 2022.
A summary of select cash flow information for the three months ended March 31, 2023 and 2022 are as follows (in thousands):
|
| Three Months Ended March 31, |
|
|
| 2023 |
| |
| 2022 |
|
Net cash provided by operating activities | $ | 3,523 |
| | $ | 11,038 |
|
Net cash provided by (used in) investing activities | $ | (19,708 | ) | | $ | 4,833 |
|
Net cash used in financing activities | $ | (5,151 | ) | | $ | (4,403 | ) |
Cash provided by operating activities - Our operating activities primarily consists of net income adjusted for certain non-cash items including depreciation and amortization; stock-based compensation expense, deferred income taxes and the effect of changes in operating assets and liabilities.
Net cash provided by operating activities was $3.5 million in the three months ended March 31, 2023, a $7.5 million decrease compared to the same period in 2022. This cash decrease was primarily attributable to a $7.2 million decrease from changes in net operating assets and a $3.5 million decrease from changes in non-cash items partially offset by a $3.2 million increase in net income.
Cash provided by (used in) investing activities - Our investing activities primarily consist of purchases of marketable securities and other investments and proceeds from disposal of marketable securities and other investments; proceeds from issuance of derivative instruments; payments made to settle derivative instruments and purchases of computer equipment, furniture and leasehold improvements.
Net cash used in investing activities during the three months ended March 31, 2023 was $19.7 million primarily consisting of $56.3 million in cash used to purchase marketable securities and in the settlement of derivative instruments partially offset by $36.6 million in proceeds from selling marketable securities and derivatives.
Net cash provided by investing activities during the three months ended March 31, 2022 was $4.8 million primarily consisting of $46.7 million in proceeds from selling marketable securities and derivative instruments partially offset by $41.9 million in cash used to purchase marketable securities and in the settlement of derivative instruments.
Cash provided by (used in) financing activities — Our financing activities primarily consist of cash proceeds from issuance of common stock, proceeds from stock option exercises and stock purchases under our employee stock purchase plan and cash paid for repurchases of our common stock.
Net cash used in financing activities during the three months ended March 31, 2023 was $5.2 million primarily consisting of $4.4 million in dividend payments and $0.8 million in shares withheld to cover payroll taxes..
Net cash used in financing activities during the three months ended March 31, 2022 was $4.4 million primarily consisting of cash paid for stock repurchases.
Total cash, cash equivalents, and short-term investments were $148.4 million as of March 31, 2023 of which approximately 30%, or $44.8 million, was held by our foreign subsidiaries and subject to repatriation tax effects. Our intent is to permanently reinvest a majority of our earnings from foreign operations, and current plans do not anticipate that we will need funds generated from foreign operations to fund our domestic operations.
On November 14, 2022, our Board of Directors (“Board”) declared a quarterly dividend in the amount of $0.03 per share, which was paid on January 30, 2023, to stockholders of record on January 15, 2023. In addition, on December 29, 2022, our Board declared a special dividend in the amount of $0.10 per share, which was paid on January 30, 2023, to stockholders of record on January 15, 2023.
On February 21, 2023, our Board declared a second quarterly dividend, in the amount of $0.03 per share, which was paid on April 28, 2023, to stockholders of record on April 13, 2023.
On May 10, 2023, we announced that the Board declared a quarterly dividend. The quarterly dividend, in the amount of $0.03 per share, will be payable, subject to any prior revocation, on July 28, 2023, to shareholders of record on July 13, 2023. Future dividends will be subject to further review and approval by the Board in accordance with applicable law. The Board reserves the right to adjust or withdraw the quarterly dividend in future periods as it reviews the Company’s capital allocation strategy from time-to-time.
We may continue to invest in, protect, and defend our extensive IP portfolio, which can result in the use of cash in the event of litigation.
On December 29, 2022, the Board approved a stock repurchase program of up to $50.0 million of our common stock for a period of up to twelve months (the “December 2022 Stock Repurchase Program”), which terminated and superseded the stock repurchase program that had been approved by our Board on February 23, 2022. Any stock repurchases may be made through open market and privately negotiated transactions, at such times and in such amounts as management deems appropriate, including pursuant to one or more Rule 10b5-1 trading plans adopted in accordance with Rule 10b5-1 of the Exchange Act. Additionally, the Board authorized the use of any derivative or similar instrument to effect stock repurchase transactions, including without limitation, accelerated share repurchase contracts, equity forward transactions, equity option transactions, equity swap transactions, cap transactions, collar transactions, naked put options, floor transactions or other similar transactions or any combination of the foregoing transactions. The December 2022 Stock Repurchase Program was implemented as a method to return value to our stockholders. The timing, pricing and sizes of any repurchases will depend on a number of factors, including the market price of our common stock and general market and economic conditions. The December 2022 Stock Repurchase Program does not obligate us to repurchase any dollar amount or number of shares, and the program may be suspended or discontinued at any time.
We did not repurchase shares during the three months ended March 31, 2023. As of March 31, 2023, we had $50.0 million available for repurchase under the December 2022 Stock Repurchase Program.
We did not have any other significant non-cancellable purchase commitments as of March 31, 2023.
We anticipate that capital expenditures for property and equipment for the remainder of 2023 will be less than $1.0 million.
While the unprecedented public health and governmental efforts to contain the spread of COVID-19 have created significant uncertainty as to general economic and capital market conditions in the past, as of the date of this Quarterly Report on Form 10-Q, we believe we have sufficient capital resources to meet our working capital needs for the next twelve months and beyond.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, marketable securities and derivative instruments, income taxes and contingencies. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions.
Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 22, 2023, for a complete discussion of our critical accounting policies and estimates. The preparation of financial statements and related disclosures in conformity with U.S. GAAP and our discussion and analysis of our financial condition and operating results require the management to make judgments, assumptions and estimates that affect the amounts reported. See Note 1. Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 herein, which describes the significant accounting policies and methods used in the preparation of our condensed consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Recent Accounting Pronouncements
See Note 1. Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements for information regarding the effect of new accounting pronouncements on our financial statements.
Not applicable.
Based on their evaluation as of March 31, 2023, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective to ensure that the information required to be disclosed by us in this Quarterly Report on Form 10-Q was (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
There were no changes to internal controls over financial reporting that occurred during the quarter ended March 31, 2023, that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Immersion, have been detected.
Immersion Corporation vs. Meta Platforms, Inc., f/k/a Facebook, Inc. (“Meta”)
On May 26, 2022, we filed a complaint against Meta in the United States District Court for the Western District of Texas. The complaint alleges that Meta’s augmented and virtual reality (“AR/VR”) systems, including the Meta Quest 2, infringe six of our patents that cover various uses of haptic effects in connection with such AR/VR systems. We are seeking to enjoin Meta from further infringement and to recover a reasonable royalty for such infringement.
The complaint against Meta asserts infringement of the following patents:
• U.S. Patent No. 8,469,806: “System and method for providing complex haptic stimulation during input of control gestures, and relating to control of virtual equipment”
• U.S. Patent No. 8,896,524: “Context-dependent haptic confirmation system”
• U.S. Patent No. 9,727,217: “Haptically enhanced interactivity with interactive content”
• U.S. Patent No. 10,248,298: “Haptically enhanced interactivity with interactive content”
• U.S. Patent No. 10,269,222: “System with wearable device and haptic output device”
• U.S. Patent No. 10,664,143: “Haptically enhanced interactivity with interactive content”
Meta responded to our complaint on August 1, 2022. On September 12, 2022, Meta filed a motion to transfer the lawsuit to the Northern District of California or, in the alternative, to the Austin Division of the Western District of Texas. Meta’s motion remains pending, and a hearing on the transfer motion occurred on January 23, 2023. In the meantime, claim construction briefing is closed, and fact discovery opened on February 7, 2023. The claim construction hearing was scheduled for March 6, 2023, but had been rescheduled by the Court for April 24, 2023, and again rescheduled to May 11, 2023.
Immersion Corporation vs. Xiaomi Group
On or about March 3, 2023, we initiated patent infringement lawsuits against several companies of the Xiaomi-Group (the “Xiamoi-Group”) in Germany, France and India. We initiated lawsuits against Xiaomi-Group companies and their agents in the Düsseldorf Regional Court in Germany, the Tribunal judiciaire de Paris (Paris First Instance Civil Court) in France, and the High Court of Delhi, at New Delhi, in India.
The complaints allege that the Xiaomi-Group’s devices, including the Xiaomi 12, infringe our patents that cover various uses of haptic effects in connection with such devices. We are seeking injunctions that would allow us to prohibit the Xiaomi-Group from selling the infringing devices in Germany, France and India, as well as costs and damages as compensation for such infringement.
The complaints against the Xiaomi-Group assert infringement of the following patents:
• EP 2 463 752 B1 (German part) titled “Haptisches Feedback-System mit gespeicherten Effekten”
• EP 2 463 752 B1 (French part) titled “Système de rendu haptique avec stockage d’effets”
• IN 304 396 (India) titled “Haptic Feedback System With Stored Effects”
LGE Korean Withholding Tax Matter
On October 16, 2017, we received a letter from LG Electronics Inc. (“LGE”) requesting that we reimburse LGE with respect to withholding tax imposed on LGE by the Korean tax authorities following an investigation where the tax authority determined that LGE failed to withhold on LGE’s royalty payments to Immersion Software Ireland, a subsidiary of the Company, from 2012 to 2014. Pursuant to an agreement reached with LGE, on April 8, 2020, we provided a provisional deposit to LGE in the amount of KRW 5,916,845,454 (approximately $5.0 million) representing the amount of such withholding tax that was imposed on LGE, which provisional deposit would be returned to us to the extent we ultimately prevail in the appeal in the Korean courts. In the second quarter of 2020, we recorded this deposit as Long-term deposits on our Condensed Consolidated Balance Sheets.
On November 3, 2017, on behalf of LGE, we filed an appeal with the Korea Tax Tribunal regarding their findings with respect to the withholding taxes. The Korea Tax Tribunal hearing took place on March 5, 2019. On March 19, 2019, the Korea Tax Tribunal issued its ruling in which it decided not to accept our arguments with respect to the Korean tax authorities’ assessment of withholding tax and penalties imposed on LGE. On behalf of LGE, we filed an appeal with the Korea Administrative Court on June 10, 2019. The Company has had numerous hearings before the Korea Administrative Court in the years 2019 through 2022. The Korea Administrative Court had indicated that it expected to render a decision on this matter by December 31, 2022, but had subsequently updated the parties to indicate that a decision on this matter is expected by February 16, 2023. On February 15, 2023, we were informed that the Korea Administrative Court had scheduled another hearing for April 27, 2023 due to a change in the main judge for this matter. We had a hearing on April 27, 2023, and the Korea Administrative Court indicated that it expects to render a decision on this matter by June 8, 2023.
On April 25, 2023, we received notice from LGE requesting us to reimburse LGE with respect to withholding tax imposed on LGE by the Korean tax authorities following a recent tax audit of LGE for the years 2018 through 2022 in the amount of KRW 3,025,251,775 (approximately $2.3 million). We are currently evaluating our next steps with respect to the reimbursement of such withholding taxes in accordance with our obligations pursuant to the license agreement with LGE. As of March 31, 2023, we have accrued $0.3 million of withholding taxes, interest and penalties related to the 2018 to 2022 period for which the Korean tax authorities have recently assessed LGE. The additional income tax is accrued in Other Current Liabilities in our Condensed Consolidated Balance Sheets.
Based on the developments in these cases, we regularly reassess the likelihood that we will prevail in some or all the claims from the Korean tax authorities. To the extent that we determine that it is more likely than not that we will prevail against the claims from the Korean tax authorities, then no additional tax expense is provided for in our Condensed Consolidated Statements of Income and Comprehensive Income. In the event that we determine that it is more likely than not that we will not prevail against the claims from the Korean tax authorities, or a portion thereof, then we would estimate the anticipated additional tax expense associated with that outcome and record it as additional income tax expense in our Condensed Consolidated Statements of Income and Comprehensive Income in the period of the new determination. If the additional income tax expense was related to the periods assessed by Korean tax authorities and for which we recorded in Long-term deposits on our Condensed Consolidated Balance Sheets , then the additional income tax expense would be recorded as an impairment in the Long-term deposits. If the additional income tax expense was not related to the periods assessed by Korean tax authorities and for which we recorded a Long-term deposits on our Condensed Consolidated Balance Sheets, then the additional income tax expense would be accrued as an Other current liabilities.
We cannot predict the ultimate outcome of the above-mentioned actions that are pending, and we are unable to estimate any potential liability we may incur. Please also refer to our disclosures in Note 5. Contingencies of the Note to the Condensed Consolidated Financial Statements.
Item 1A. Risk FactorsThere have been no material changes to the risk factors disclosed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 22, 2023, except as set forth below. The risk factor set forth below supplements, and should be read together with, that section for disclosures regarding what we believe are the more significant risks and uncertainties related to our businesses
Our business strategy includes acquisitions, and acquisitions entail numerous risks, including the risk of management diversion and increased costs and expenses, all of which could negatively affect the Company’s profitability.
Our business strategy includes, among other things, strategic acquisitions, as well as potential opportunistic acquisitions and strategic actions with respect to our existing investments, such as restructurings, strategic partnerships and collaborations and activist activity. This overall acquisition and investment strategy entails several risks, including the diversion of management’s attention from other business concerns, the incurrence of substantial legal and other advisory fees (including, in the case of activist activity, proxy solicitation fees) and the potential need to finance such acquisitions with additional equity and/or debt. Additionally, to the extent that we are already invested in the entities that are the subject of our acquisitions and other activities, our actions may be temporarily disruptive to the value of the investments, which could adversely affect our financial condition.
In addition, once completed, acquisitions may entail further risks, including: unanticipated costs and liabilities of the acquired businesses, including environmental liabilities, that could materially adversely affect our results of operations; increased regulatory compliance relating to the acquired business; difficulties in assimilating acquired businesses, their personnel and their financial reporting systems, which would prevent the expected benefits from the transaction from being realized within the anticipated timeframe; negative effects on existing business relationships with suppliers and customers; and loss of key employees of the acquired businesses. In addition, any future acquisitions could result in the incurrence of additional debt and related interest expense, contingent liabilities and amortization expense related to intangible assets, which could have a material adverse effect on our business, financial condition, operating results and cash flows, or the issuance of additional equity, which could dilute our stockholder’s equity interests.
There can be no assurance that we will be able to negotiate any pending acquisition successfully, receive the required approvals for any acquisition or otherwise conclude any acquisition successfully, or that any acquisition will achieve the anticipated synergies or other positive results. Overall, if our acquisition strategy is not successful or if acquisitions are not well integrated into our existing operations, the Company’s profitability, business, and financial condition could be negatively affected.
Stock Repurchase Program
On December 29, 2022, the Board approved the December 2022 Stock Repurchase Program, which terminated and superseded the stock repurchase program that had been approved by our Board on February 23, 2022. Any stock repurchases may be made through open market and privately negotiated transactions, at such times and in such amounts as management deems appropriate, including pursuant to one or more Rule 10b5-1 trading plans adopted in accordance with Rule 10b5-1 of the Exchange Act. Additionally, the Board authorized the use of any derivative or similar instrument to effect stock repurchase transactions, including without limitation, accelerated share repurchase contracts, equity forward transactions, equity option transactions, equity swap transactions, cap transactions, collar transactions, naked put options, floor transactions or other similar transactions or any combination of the foregoing transactions. The December 2022 Stock Repurchase Program was implemented as a method to return value to our stockholders. The timing, pricing and sizes of any repurchases will depend on a number of factors, including the market price our common stock and general market and economic conditions. The stock repurchase program does not obligate us to repurchase any dollar amount or number of shares, and the program may be suspended or discontinued at any time.
We did not repurchase shares during the three months ended March 31, 2023. As of March 31, 2023, we had $50.0 million available for repurchase under the December 2022 Stock Repurchase Program.
