Immersion (IMMR) 22 Feb 182017 Q4 Earnings call transcript

Good day, ladies and gentlemen, and welcome to the Immersion Corporation Fourth Quarter and 2017 Conference Call. Please note today’s conference is being recorded. At this time, I’d like to turn the conference over to Ms. Jennifer Jarman. Please go ahead, ma’am.

Hally. you, Thank thank fourth and joining today us Good and you fiscal Immersion’s quarter call. year on afternoon, for XXXX conference is website at live broadcast be Investor also web www.immersion.com. section call Relations Company’s can the accessed over the of and from This the being the on of call and today’s Erba, Nancy me Carl Schlachte, and With CEO CFO. Interim is Chairman Board;

opportunities strategies, assumptions. During and risks, market results or financial may include this projected anticipated These topics. call, we forward-looking results uncertainties products, metrics, other may differ litigations, business statements make demand to future forward-looking materially. or Accordingly, statements, which subject could anticipated operating are actual and

For Form factors the press a this, recent XX-Q cause filed after could release we with identified in issued as the close. listing the risks today the that as most please see market our SEC of well

Additionally, non-GAAP that discuss call financial we measures. please may during note this

differences financial press measure comparable turn comparable measure to For that a reconciliation each most the available GAAP non-GAAP directly Schlachte. Carl the the like I’d call financial said, Interim of With the measure measure today’s over most in directly and presentation is and Carl? the a between non-GAAP GAAP release. financial discussed, to of CEO, discussed financial

our torchbearer Apple. in Thanks share has of many the about and talk to opportunities fourth everyone results, afternoon. Today quarter the in point Jennifer. continue and with the will a of will you us to at exciting been will I'm joining having Immersion and settlement Company we XXXX be front fiscal license haptics. agreement and this be Thanks, after reached to for pleased this with history. year speaking Immersion's we full XX-year

technology remains is the In become mobile and of is forefront we the the for customers. development With fascinating next which seemingly is on why here. haptic in and haptic the strategy by challenges proven the the to core a five on stream so and are edge mobile future well exceptional our of strategy. announced work our we now our across market, at patent insurmountable continue entire able and we we market presence on I'm our market first years. is the This refocused an mainstream are mobile, Immersion. to innovation markets. Company leading competencies Apple innovate and wearables, this focus cutting mobile December, expertise, do of wearables licensee, through portfolio have a investments our the In and employees provide Today in ecosystem. additional gaming, with as our why that attracting haptic XX This during Company for Our patent expand the performance restructuring haptic solutions time portfolio end Between will the working and positioned of to we about to experience. work revenue and technology haptic our optimized and are provide Immersion-based and to our users OEM automotive we OEM excited

automotive Turning to market. the

new seeing signing are existing terms we both the We customer growth pleased are in traction licensees. the and of with of

area has The As to with the Immersion. of mainstream to including gaming will revenue reality increase car this begins implementation been for we expect reality historically vehicles, an in of expand innovation virtual from adoption haptics luxury augmented and our models line rate. market important

haptics. utilization this of see the also opportunities with revenue benefit from increased applications VR, in the future both of AR to space that would but continue the We adoption

am portfolio the are innovation we the and recent patent will team. in now discuss Immersion well confident value enough solutions who and over today our mainstream AR to outlook technology. become call the research drive positioned turn foundational XXXX. particularly Nancy strength will by of believe that financials, for I I’ll emphasize are ingenuity Our to our changes, edge, we accounting and the technology Nancy? I shareholders. tomorrows amazed in for and cutting the efforts are research our haptic and am I and our both in continuously of can't doing

Carl. per a start of today. also down full-year XXXX. Cuts year fixed unit Act, the licenses period. accounting million of recognition the in in royalties from reflecting $X.X decreases Revenues outlook definitely prices before automotive for and compares for lot the prior medical, were in year $X.X the results. based our offset ASC royalties $X.X revenue of new and down million license license million In million. volumes with December payment totaled mobility of and fees variable Revenues our XXXX, gaming, $X.X Thanks QX revenue prior We totaled cover XXX million were period. and shipping I’ll the million, Jobs sharing increased from have $X.X quarter and XX% the fourth part on to the of of Tax and revenue. cover quarter impact business, variable I'll to the implementation and by from fees XX% XXXX lines standard, This year-over-year of $X.X fixed the royalties and

from For the XX% from from quarter X% was and XXXX, total of mobility, medical. of by XX% revenues from line breakdown of auto, fourth a XX% business gaming,

Sony licensees. principally gross revenue our due Medical regarding gaming quarter Gross profit down revenue to volume. quarter, recognized down mix. were primarily Automotive the transitioning profit of revenues trends, from XX% were compared line due revenue our volume decrease expectations down lower customers our partially increased or was existing of revenues revenues were were XX% $X.X was new million revenues automotive Mobility from XX% to million well from Nintendo. due at $X.X up from with revenue licensees in to during XX% in like XXXX. revenues in offset as Looking the of to which year-over-year a XX% new fourth by as

operating expenses. to our now Turning fourth quarter

included $XXX,XXX amortization in included of and in sales in $X.X $X.X in and and in expense stock-based A depreciation was million higher related marketing, G&A. period. of and the sales of million legal various in XXXX fourth of was expenses, million restructuring non-cash $X.X by significant compensation million $X.X $XXX,XXX was driven quarter R&D expenses $XX.X legal to G&A of XXXX, operating charges, litigation in GAAP $XXX,XXX the and the $XX.X year-ago million. of total portion expense quarter compensation the matters. research non-cash in of revenue, was primarily this as other the million $XXX,XXX and in included expense. charges $XXX,XXX Of stock-based of as and $X development cost of well and Operating fourth Excluding comprised total million charges, Of to costs quarter's marketing, compared

Looking included per million valuation for quarter now the of compared net at and quarter $XX.X was tax recorded $XX.X deferred our XXXX diluted or a net $X.XX primarily basic loss company’s GAAP GAAP fourth the to loss establish and of to net fourth million, loss allowance net tax a against GAAP the share per $XX.X full of share. diluted to U.S. a related provision million basic charge XXXX million $XX.X of $X.XX non-cash assets. results. for or of

tax our the XXXX allowance, valuation incurred. of the expense assets result of reflect tax XXXX, did our of the to quarter and no was Cuts in reduction we due the a tax of federal Act As deferred and Jobs revalue to fourth rate. Tax liabilities But

We and guidance revise future available. as in continue and evaluate become the to may act interpretations of estimates aspects the other additional

loss net of as In income define GAAP performance. XXXX business the $X.X million stock-based and GAAP and non-GAAP metrics, compensation earnings quarter net reflect per We net expected or per normal diluted income non-GAAP or We earnings less per period we share addition non-GAAP XX%, to or net non-GAAP to rate compared million loss to and loss in long-term December the $X.XX an share of income costs. income per define was as diluted tax share use in last $X.XX non-GAAP restructuring share. basic and share year. track effective Non-GAAP same our adjusted to non-GAAP $X.X net per net basic

royalty in fees from XX% $XX.X variable down licenses volumes million year. a fees fixed from reported XXXX were lower $XX.X amounts, of of and license million, The the reflects customers. to in in and variable fixed by with and license full-year to recognized Samsung fee million from and XXXX royalties $XX these million. was million royalties XXXX. down $XX.X of totaled million XX% were in $XX.X impact Revenues of license The $XX.X million, and decrease Turning royalties mobile, medical XXXX. a down in of prior fees Revenues reflection Of variable results. license the fixed totaled one-time from OEM gaming, expired certain contracts decrease $XX primarily

XX% included and automotive, compared the share. expenses million in were net previously in gross $X or business $X.XX million compared diluted of of mobility, for loss and XXXX and year, operating resolved a of per million provision and to share, cost related XXXX million action of tax related GAAP enforcement per profit XX% was primarily against loss XXXX. for XXXX $XX.X $XX.X $X.XX previously $XX.X expense, excluding revenues million share of of revenues, $XX.X non-GAAP XXXX. million and of from basic was and related to per $XX.X was million $X.XX mentioned. or in as million For share, Apple, basic to of for or $XX.X loss from Gross revenues million litigation Non-GAAP or $X.XX to announced charge in X% now year for of net included loss non-cash gaming, diluted net XXXX, the line GAAP breakdown and net XX% to in $XX.X $XX.X and million down primarily loss total basic net XXXX of XXXX from from the a GAAP cost in diluted XXXX diluted $XX.X compared million or $X.X GAAP basic was restructuring $XX.X for million our per to activities. from XX% medical. by profit

December balance our actions The address including down short-term as used sheet, million to operations $XX.X reflects investment expenditures to XXXX XXXX. cash cash million $XX.X and exiting portfolio XX, Apple enforcement from cash in primarily and against related of Now our was others. decrease including

As of strength streamline our activities with liquidity to as we look our XXXX. in forward are the recent reached of confident the restructuring undertaken and result Apple, a operations we to position settlement

as of factors and well to stock. balance continue non-operational and including future market we our cash price stock strategic will as We as cash uses our of consider conditions our any monitor buybacks

impact XXXX, enforcement our we the take recently Recognition continuing in normal XXX. ASC announced well addition our The of Samsung, forward. with Revenue Fitbit, considerations, into for with going the of expenses action as diagnosis Regarding restructuring Apple and consideration our operating and activities as of the litigation resolution new Motorola effect to Standard, the Accounting on

of based implication one will estimates standard. new the in me explaining period, rather XXXX, be our based the ASC reported XXX QX the as shipments royalty accounting for has on quarter Let underlying a reported practice revenue rear the than revenues report our frame from royalty received customers, our historically. guidance by Effective current on been of

ratably period the required revenue a the the upon not but timing required In contrast, report fee Under do effect be up substantial expect customers we We this license million difficulty on for ASC when the projecting of changes our the performance with agreements estimate fixed the contract the there I recognition we reflecting recognized current independent contract fee anticipated ASC existing should significant this these to any fee the this we as the $XX forecast $XX in royalty expect of projection, versus from period. significant for expectations estimated recognized future seasonality satisfied. that are be possible impact our following contracts be over could license and of note expect our and years. revenue as revenue license unpredictability XXX, we executed. revenue fixed to do remainder on in obligations to and mind, in revenue is will be will a have expect do revenue recognition record full-year practices, contracts from currently will outlook XXX portion regarding recognition based likely with in million. We on revenue the true fixed significant. royalty be expect royalty With light litigation change prior royalty fixed arrangements license in outcome. a expect execution fee receive our accordance as term of XXXX revenue patterns we the In to and when also change of in

generate the $XX tax net income we expense for Based side, expected cash is are which finally, cash million adjusted forward, year. approximately non-GAAP totaling $XX million stock-based expenses as expense the And will of net stock-based million the million compensation of anticipate reflect going to allowance litigation $XXX,XXX. tax valuation forecasting income between less define in to XXXX, litigation this assuming Beginning XXXX expense on of tax quarter. million expense occur $XX full million be $X.X in income currently On XXXX. to that, for outside Carl. and the Due of compensation. GAAP and we of GAAP results now bottom $XX this After changing the expect and expense of for line forecast, non-GAAP $XX to all operating we for $X to first expected back the million I turn and the between call to the $X.X net to we million. with year, regulations, highest will between

begin District a we I'll with settlement issued the all of in investigation. commenced In are Motorola of the provide on to of with Thanks litigation current and Eastern and our Apple, proceedings. the an Samsung brief announced basic haptics that multi-year agreement On the August patents. on District update XXXX order in Nancy. alleging against Delaware, and Court now February legal Texas the ITC ALJ XX, infringing we XX, patent the proceedings signing Motorola license Apple. and Court Samsung District terminating our in in January I’d against enforcement like

For case, XXXX. be the the jury of selection day in Samsung February first will

the the September trial been For XXXX. has Motorola case, for scheduled date

Their Court of We and for to Northern in and to year. these I actions in portfolio of look our Immersion progress been in want cases forward The XXXX. work is trial look the In in employees for Finally, profitable Property scheduled hard forward of Shanghai efforts to District we and coming in our fruit patent tireless making the California. XXXX. progress thank Court confident we their year and commitment significant for to Intellectual make against continue District May the all date XXXX. closing, has a portfolio X, of wearables on in infringement Fitbit our bearing remain

are in achievements of to have XXXX previously, in the we unwavering deliver our adoption helped we've shareholders and stated we portfolio haptics. our confirm monetization innovative we the The to our focus thus do. As through work the confidence far and in that patent value

call now will your the up We open to questions.

come Thank from Anthony you. from [Operator today Instructions] question Stoss Our will first Craig-Hallum.

your just you're I'm million Samsung Apple. a that from to with not point? that litigations want few assuming this settlement your on Congrats thanks. Hi, or Quite other anything questions, to at curious in and in confirm guide $XX $XX million

correct. That’s

auto starting Okay. I And the folks, then more the side I you last how to you and touching for grow are OEMs? here penetrated market? more wanted that curious Are What you Is it's you auto the think that really than the dashboard, major to to finding? love just all migrating more a much hear your on I’m little it had to follow-up. one

this market. beginning just of part Sure. we've it the This penetrated think We is Carl. at

look higher another and taking and and cars, to of road If dashboard screen, driving area and the for for more in without whole touching the big ability more is you luxury you're something when yet forward. growth a distracted eyes going end your aspect us modern is becoming the know cars, off the certainly

we're the our far, progress we're start. but So so at pleased just with

light in Apple that that? start advertising back is year, look you you And last I’m your late that some you cash opportunity balance, of or to after curious on on the going your and put with settlement would shared expense, thoughts back then the something

way. add along really something some it's We to we're the on. Yes. I don't intellectual interesting back think that property looking generated

company for we traction One to have us. with advertising, didn't success learned good that that our relates of scale the sense fiscal money is to amount the The prudent with size make order good especially seeing a despite seeing in would as along it were we that were that and that spend to we things of success. we and just

in, got back that adding having make for space us that I see that think sense. with that partners do in discussions don't I So avenues but we've might

Great. Final question, Carl.

uptick of Following sidelines you ahead interest now on interest, the terms with was of moving sitting that settlement – you and any the consumer the quickly? anybody have there noticed feel in Apple announcement customer they’re

engagement where a settlement reason us. for as with an engaging with actually have We discussion particular in discussions that they've referenced folks

strength nice the I of think it's to a intellectual when the very and of validation public that we've customers. validation developed, talking property always kind to comes of helps that it

Thank guys. you. Great Perfect. job,

you. Thank

Anthony. you, Thank

Our with Riley next B. Nichols FBR. question will Josh come from

my revenue taking for was growth I signed? just curious guidance, of that's ballpark amount for looking Thanks assumed what Yes. not about at is question. currently XXXX

it I of signed. about taking you're say a just good revenue a say so always consideration, this would feel our percentage currently aware we're the be We and forecast. well forecast Josh. pipeline I'll we as There's every do would small. into Not year – that

at the see in look stages and volumes. different and our our and we where some assumptions variability we And of have where also need you won't. If some we achieve upon will make our agreements what royalty-based some full customer dependent that pipeline things we're are

have is some good we take we've there, that that there to So about place but the given. judgment certainly range feel

little things to Over that the if feel where we able we see come year, for through, right comfortable. we a maybe that's now tighten but bit

some And in about and then, should the seasonality QX? handset space the in think we Historically, business? has how gaming throughout there been QX particularly and

Yes.

this into year. rec, would be should QX also overall I I that revenues front-end and and arrears. in move for loaded expect more will be won't QX But that think particularly QX say given you seasonality versus likely rev new the see simply to XXXX we QX for gaming in recognizing

before, company’s And cash company the balance? historically the what’s current has provided

We're balance our balance as we're to which is giving you going $XX.X of to decided – that current not today. disclose million. XX/XX we've Well

QX with that pleased with sheet very but that we balance health with of and cash. the will I get the You'll we say where the numbers, are sit

me. all helpful. are Thank Those Okay. you. That's for

Josh. Thanks Okay.

Instructions] will you. with Dougherty & next Company. question Charlie Our [Operator Anderson Thank come from

Thanks Yes. taking for and my good afternoon. questions

wondered bit there. there XXX we and that's at a business? wonder few guidance where if and talk mentioned the relates is as I there's then XXXX they of deals, there what’s could little if with a maybe non-recurring ups. thinking if sales you something element the past impact often with episodic rate it So in to I'm about and the ASC you then consistent or recognized any could you as And I the time execution, got help about again us run non-recurring I’ve sort of potentially the of follow think revenue a

Sure.

I the past accountant. on this So our mentioned we over and been our will that we've really of last call, working couple with say months closely

will Valley performance in has license relative standard. is new portion meaning mix think a the I be we that landed some a ratably the our where almost that recognized but upfront, revenue portion to recognized agreement. component, everyone we that's obligation, be of also will have have will certain over the there have fee due will that of contracts And to ongoing

it the would and reflects would slightly or that thought different is thought recognized So guidance that is be what previously we where of interpretation the all from upfront. majority what be that had we

be over portion the able contracts. the of to that certain term will come Now, of subset individual It we've depend agreement. that's our been a on for agreement. only alignment And recognized will of the it to actually

XXXX maybe of us the specific business on to call that that we if not and sort be that K in at is you help of Can – specifically baseline would and loaded look makes understand if is disclosed the how much the how there front-end sense? the on on just something XX-Q, Okay. be is

that disclosing in K. be won't the We

modified have we little and Q, part detail. in at not the But retrospective point we a the the be that will disclosed As do what bit there K, information more now in time. of as will will of and we that

it. Got Okay.

tax you the long-term I'm mentioned share the the about on curious, the then the So we tax and think $XXX,XXX business? expense, tax of for also provision, count should how rate full-year,

Yes.

the allowance the we're on some valuation forecasting we our the move seeing So and not the are year valuation now share was to because this full-year going we going Immersion. of during the of to that evaluate be we I like act but right now, said year, forward, and expense XXX have of in a to continue cash terms We that on impact. $XXX,XXX, count modifications which of books impact tax as as huge with may allowance make through the tax

Carl. for it. Got And questions then a couple

guys like really So you what's efficiently of Carl Just going the your one sounds people I'd where independently; done, terms your comfortable I'm degree to be program to it on feel general rate? balance balance doesn't portfolio And views the feel with curious maximize sheet read you the in got given views have that you there? like other got do enough over general forward more make in I there what questions. you've monetizing on there like rush some of the sheet that sort are Apple is most into the right do the partners curious you've to also there? to enough And then Do time? licensing sense for

second I’ll answer Yes, question the first.

really in about see of the not on to of near – relates if handle it we able that what of comfortable future, kind our worried any feel think you so I stuff. sheet that plate to particularly and our balance with being that the we status mid-term as

different to licensing. pulled get individual other that these As things things negotiations nature different deals, they're interested it by in closing are some different all and people in license relates into time, – are

forward. of of going addition in of their it access on the are it's Android to actually phone, in different are. discussing also getting few like actuators gone the order to patents portfolio as that technology the that one things our own pieces have supplement Haptics, turns increasing interested actually in In technology that hardware In can XXX% we the mobile is something up that ecosystem market, areas like the out cost.

on And highly way do that of on rate and and a in a of emphasis these you that folks. negotiations roundabout answering effect you how way the mind question, the It's do interested in being advantage dependent these placed hasn’t of suite take on So portfolios there's we there that of lot that? that have kind is technologies and a of licensing. the for of each do they're

I’ve would you about? one what of so a has these that’s understand mentioned that it, more help that’s of is the got Can there fixed some maybe deals and be in a that Nancy, fixed you just smaller Got future portion the portion you're than future sort in talking deliverable a just us deliverable. as component larger or portion

be and other deliver Again the we upon in and particular deliverables solutions the describe vary in our terms it be say we agreement and agreement. and it will specific to can do What do that on this K, structure. and dependent what I of will they the planned of the the over the is portfolio life depending technology

be by the upfront in versus customer. specific very So will future the ratable amount

much. so thanks Okay,

of End Charles. Thanks Q&A

session Ladies for in gentlemen, you to conclude you. participation. all We your our Thank and addition question-and-answer for this today thank does our conference.

You may disconnect. now