Immersion (IMMR) 26 Feb 192018 Q4 Earnings call transcript

Good day and welcome to the Immersion Corporation Q4 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jennifer Jarman of The Blueshirt Group. Please go ahead, ma'am.

Thank you, Brad. you conference us call. thank fourth on and XXXX quarter afternoon for today joining Immersion's Good Investor the This over can the the is web section call also and be being accessed www.immersion.com. website at company's broadcast live Relations of from call With CEO; and Ramzi Nancy me are Haidamus, CFO. Erba, on today's

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

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

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

discussed each I the of non-GAAP a of our turn release. the non-GAAP differences measure said, in With comparable today's is most the press available now directly measure the discussed, financial the and For to GAAP financial GAAP Ramzi. financial over reconciliation and that presentation between call measure will most directly measure comparable financial

XX. call and experiences. was of surround the early joining Dolby, the introduction, voice have I’ve Jennifer, for on my listening you, sound around of everyone, career vision of for high-fidelity will the developing since I CEO results. to the and Nancy way licensing development speak joining observation at Nokia on of technologies. with At I financial human-immersive you opportunity January focused where my company and website background centered on you through range emphasis most Corporation high-dynamic begin technologies before our this my on those earnings us Immersion and the live on Dolby on Labs Thank walks spent later By replay. first thanks, I'm or a to on few and call thrilled you on comments with as

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touch-sensory my background I and as see such a for opportunity build passion technologies to on sensory video, Given technology. and an successful enterprise audio based

world enrich reviewing surround to expect and in perspective As with interface consumers the experience will I bringing is and demand look believe in forward our applying they emerge beginning employees, into engaging. people with market as create just marketplace enable our the and intimate product more has spent immersive month capability be offices, haptics. is our to deep technologies, a haptics to their the that infancy and closer, experiencing and CEO experiences its video, and our we richer a products our technology around high-definition senses to and unique customers' tactile Today first market. visiting dive fresh sound meeting at market media Immersion, in with a them. to opportunities still also to the doing their touch haptics I've technologies licensing the for my roadmap bring experiences, the

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consumers technologies groundbreaking Montréal that In experienced. fact, our truly have some few ever labs have in

largely the and a had other and The proud untapped because potential increasingly we substantial first around to we breadth interest from China portfolio, to acknowledgment patent as of and of in licenses launch in this several Additionally, address. in partner yielded end for will driver The broad driver say for of discussions emerged happy acquisition front to across channel On us and in Today with the haptic a the their our to which technology explore XX their day. begun make last has places technology agreement with haptic last manufacturers that Immersion OEMs at this world-class our as we world. significant to of Korean-based channel that related channel, and the haptics our to Anatech, quarter's patent portfolio haptic mentioned to simplify IC is due best-in-class remains each strategy in I available years to am opportunity know-how mobile to innovation Immersion provider. part of haptics markets of a call, capability announce part the implementation due market we're IC haptic the the and process customers. wearable customers. our market Dongwoon patent haptic semiconductor become important phone This

expect be year. us market, this form mobile for lead fiscal To and partnerships pleased We're QX brings as bring way business technology the to as full to that this generated and customers These Immersion the technology China We can cost-effectively financial also of results XXXX. innovate our customers. to approach proposition to begin scale shareholder reached business find access continue fiscal are and demonstrate required in milestone succeed best to value premium to gain haptic market. that the the market will to the our devices value and will in to the the model. This to have through well our year we additional as that be in kind our to we report thrilled and to allow our results to this channel

allow we our time. royalty it to shareholders an interest per more in are customers best unit This for customer toward discussions structured lumpiness and minimum in markets example, the of predictable decrease we experienced sustainable more our seeing over is commitments. and in our certain shift we As XXXX a revenue in agreements believe some of without and the may revenue

deep-dive XX days, to operating annual the continue next into and potential XXXX Over market our organization, will I Immersion for our plan. the

very TAM, of and that the Haptics success us. advantage still most our which of to be in approach. prioritization is For means thoughtful What market in address, and evaluating of uniquely a applicability, markets from the remains the is need before front opportunity Immersion size coming in realized terms our analysis take that each we technology I that are of the early growth positioned importantly take to as share market our has us the years. is of in we market broad we

regarding Samsung with confident remain position legal and matters in the we our Lastly, Motorola.

May This and a asserted German Court filing the Apple. scheduled patents. infringement Court GmbH Samsung we we patent for our the Court Samsung a announced was patent have case Electronics for As in is against XXXX. a infringing of Today one reminder, jury District selection in of patent District against U.S. District that Mannheim counterpart asserted against Samsung previously 'XXX U.S. our case is of in German suit the

for Motorola, October XXXX. For scheduled trial is

recent on to this which additional I of time Proceedings the lines excited Legal to In at you filed I'm joined and the For refer very events, details summary, tomorrow. have XX-K, will Immersion case section time. be our

for forward and believe further look value not we in driving us before management have are on the I in but and now the for for quarter place I I Nancy aligned questions. team business We possible. just XXXX beyond. along sustainably to years to the of shareholder strategic achieve our to detail up turn call updating approach fundamentals is will to you The the with model focused front on over profitable work call with are provide an opening financials next the update market. to many our on

Ramzi. Thanks,

me the our revenue QX by impact highlighting and the full the comparison XXX. period afternoon's of a tables our the ASC press Let for year to fourth regarding year information quarter illustrate referring and performance, year ago, for of financial begin that including this adoption full of you to release same our

of for $XX.X of of QX XXXX million was from $X.X revenue the period. revenue up in XX% year-ago million Our

we ASC retrospective a We previous adopted XXX we in have calls, -- as have on discussed modified basis. discussed

particularly a quarter not meaningful. to the same ago a year So be comparison may

licensees, an offset royalty-bearing up depicts shipments fixed-license arrangements fee or the declines fees compared under the on gaming by XXX and in by from royalty in from shipments, prior of Revenue a table, increase reported unit licensees. by in in comparable refer part reflecting XXXX. comparable was medical mobile basis, quarter, new recognized on reported year If you will the you a revenue to X% automotive from quarter XXX% to license per royalty-bearing with and arrangements $XXX,XXX which down see revenue ASC basis, fourth customers was due primarily

$XX million quarter a XX, revenue $XX first was year of fee XXXX. million in the million XX, license ended large increase fixed $XXX of XXXX, fixed signed The result ended the to of or total revenue as attributable the a primarily in year agreement a XXXX. For December increased XXX%, compared to fee increase December

we calls, in fee As to in continue lack the of is under drive the results discussed our treatment and with of lumpiness comparability year previous ASC our -- XXX contribute to expected arrangements and prior fixed results.

business The expenses Operating earlier initiatives. year. and with December Apple We prior of the comparable year fourth laser-focused settlements the quarter well key from reflect XX% on expenses the XXXX as managing reduction reached as restructuring expenses. year efficient XX, December progress our operating lower remain the expenses ended continuing while impact respectively period. XXXX an in operationally manner to undertook down for in to Turning year XX%, litigation on the we quarter due Fitbit and activity and were to in and the for in make

the onto We finalized taxes Act. fourth of the during effects the of and act XXXX. of Moving quarter Tax effects income Reform the the

impact deferred carry due the against we significant all the to substantially allowance of assets. full expected we our As not valuation tax was

to the appropriate. if realizability is of when allowance assets We determine or adjustment related to our our deferred continue tax to assess valuation factors an to

allowance impact assets net utilize As a carryforwards. loss our deferred to does valuation the including our tax reminder, operating ability not

the share. net net $X.XX share. December million ended XX, during for the As net for Non-GAAP $XXX,XXX loss diluted for was operating per a GAAP income substantially million share. loss $X.XX $X.XX generated federal or XXXX XX, of $X.X Non-GAAP share. GAAP the income $XX.X as for XXXX. million net quarter year utilized loss diluted result per December net December or were or ended income year quarter of fourth all year, $XX.X the carryforwards XXXX of our per was of or $X.XX XXst per was was the

balance Looking sheet. to the

pleased we exit our position balance as the with are We year. sheet

on cash and remain the as of XX, million including $XX.X to generated $XXX.X end portfolio cash at Our from from short-term operations. We million XXXX, XXXX, investments vigilant cash up and was update cash of is due initiatives. primarily XXXX. December utilization an ensure key I'd on to and our discretionary spend like for cash focused other closely guidance strategic of monitor with management to are now continue to aligned provide

currently market mentioned, updating the Ramzi approach of opportunity customer we As in to of are in process the our us. projections front and

quarters, for few robust we future. business more expectations we next as a the revenue our build for modest Over and the have valuable

to will outcomes. The we majority This on $XX build $XX XXXX, This account revenue toward revenue the in due anticipate expect this of of the revenue intended revenue For unit contracts, is occur range our be seasonal structure range will take reflects structured more heavily based unit timing customer customer’s regarding revenue QX time. we shipments a may range our to such variability related manner litigation per base and into treatment as that million, the to which million under agreements QX and our to the enable possible us in backend over to loaded new and expectations trends. predictable fluctuations and XXX. of be as excluding is royalty in our ASC

natural our demand home feature growth potential at calendar conditions outside and IoT the litigation from many This those and peers global haptics look XXXX, impact and trade additional consumer of follow could appliances. come overall products ecosystem industry note as channel we carefully by the mobile like we regarding through markets monitoring issues. wearables of As that who continued environment, our notwithstanding, are would opportunities I of of and upside the through the as printers becomes commercial our presence such automotive IoT of customers strategy the addressing a in the and

expect now $XX we between XXXX, $XX is expense non-cash we compensation continue $X and million million the of and $XX number Included litigation between stock-based to this in we and million $XX for Due are expense outlook for allowance, for expense expenses million and $XXX,XXX. full year. the our expense the be operating GAAP million. of between Regarding carry million year approximately cash tax valuation $X to to forecasting

income GAAP adjusted net a As reflect define income to we cash restructuring stock-based non-GAAP less and reminder, compensation as tax expenses.

between million. non-GAAP and million be $XX expect net We XXXX to $XX loss

in the see added the adoption results exit year, time, the the trends we'd pedigree and continuing our we pleased call XXXX, of to pipeline, haptics. financial in with the like the demonstrates questions. positive Brad? further As which we achieved this the for I year, of am during customers new we I up expanded open At

Thank Instructions] Dougherty our Company. And from you. comes & [Operator Charlie question with Anderson first

curious would interesting? from from and you there And Yeah, if you're Nokia start I here, your wonder got want your table market of at like why before. if could also the Maybe if Immersion, And you prior thank a to view Maybe joined Dolby your day. welcome Ramzi. Immersion bit terms practices saw at Ramzi. that to employed maybe little experience what a looks you the just that you for you that taking all a I'm end I in give this the size follow-up and Nancy. my there's you there they borrowing see the then bringing from could doing for the us perspective of weren't side of then of of successful be some questions what have

Sure. wasn't XX-plus surround in the and immersed because attraction get passion my immersive I from Thank that in. I of in technologies. my love audio, exciting excitement expertise to the there you're the I technologies at the sound, difference and demonstrations importantly that movies personal equally Immersion of technologies. my lot you. the for When property the licensing, whole technology, My and Dolby Immersion comes know from more technology demos intellectual and that and the experience for I before it. which a joined years in you my immersive later with consumers reality in on and -- some high-definition the And for Dolby experienced example around followed excitement AR history are say Nokia here, launched I that which demos relative you program, video include with like seen experienced on at anything the will outstanding centered with virtual when never up I truly as and that gaming could and of VR. I Later mine to voice. played around have we investments have with interest looked then I

pipeline to be market we these are So all the future. bring technologies in hope that will the that in the to

personal as So interest. my that's as far

in where significant I feedback feedback the me automotive, of significant is and Now wheels, in terms to table, for haptics and tactile broadly is at equally. can Immersion what's it's to are visual important screens, whether for of the my feedback. market the clear is is experience equally of measures play to safety Immersion and that bring the what cusp a adoption growth companies steering in a This automotive pads that realizing and

mobile can the experience but immersive. used that of far far in high-definition experience more attractive very So are and business, be much in smarter far and haptics haptics mobile we more rudimentary make to type so there we to a the could

today, at we're opens wearables, the that whether appliances we're a it's the opportunities in market its some of IoT quite beyond on bit commercial haptics home and market market and depending up opportunities, printers, applicability. including significant of the home Beyond use looking

no have to In and growth, the might challenges others to a be our but fact play high limited high it's to of have right say for any the if I on haptics areas now, resources profitability going focus that company. not have significant

of you what us. that see front how I So I joined gives a and in of feel

practices the the bring the applying companies of is marketplace key of that Dolby, technology to the of alongside from some one patent Immersion like best In certainly terms portfolio. can values the

from record -- would equal buy to a bring our customers in that had, develop help or track own should like and technology bringing in an it they otherwise experience put I see licensing success than a more patents. much significant shown their effort technologies, have it so source. in We we haptic would on they our another immersive

R&D a effort bring to to marketplace. the value is can we there do So that

no value-creation the So but game, marketplace. it's game patent-assertion also a longer a it's into

then, -- that that you predominantly going Nancy, you per guidance, you so million think, be and at mentioned $XX the it's Thank mentioned on the the much for color. unit. midpoint And it's I Great. to

You in million unit per effectively did dot XXXX. almost the $XX on

is sort anything there's XXXX? also did that per for guess, And you're for are I the the zero snapshot mentioning? assuming I then, we are versus assumption is that of unit? effectively get think XXXX if underlying the wonder the different a seasonality, there's seasonality in So, about different line that per and worth here just per that of things be to unit Thanks. unit on to flat Or of XXXX, going about XXXX on

Sure.

in in as we per as components. talked adoption seeing and we certain unit in the haptics markets had XXXX, about So commitment past, were of our adoption actually of agreements, some driving minimum

As finding our we're with certain some evolving seeing discussions and those the us, move in from of adoption that to cases, benefits away both become more of it minimums. customers mainstream are we're

XXXX in you're we So a may that the There still markets minimum XXXX, see sustainable less per we commitments. is referring in of is that you to saw and adoption, line In customer certain today, of those impact be royalty and types believe but it and us minimum that the to. agreements expect that certain of unit rate predictable going agree provides revenue. certainly we the appropriate, ongoing a more where that the

then, And Okay. on seasonality?

going think we QX weighted will in the be they and and at much each consistently, QX more customer we as look and that be units we're of number we base And again, QX On markets year. heavily definitely estimating play, more quarter are heavily that, our the ship. to expect which QX think, customers And weighted. seasonality, this fairly to XXX the I with

you Thank so Perfect. much.

with from Stoss Craig-Hallum. comes question Anthony next Our

Nancy. and be to or far? Ramzi smartphone of going Chinese through, is makers down? driver expect comparable you I lack in this on that. so a down, guys. think what deal, multiple Maybe category can then just more going the expect after do to basis or be you If then, has What to down? XXX, take curious were a one you I in I'm down? if down of way auto's on And miscellaneous through bring us China-handset follow-up attempts Hey, gaming to year-over-year the basis IC grow, factoring what going be the Nancy, on know, a sign try you to to the to now And to led ability CEOs handset several have grow

take the I'll first Ramzi I'll about Okay let and then China. and go talk

saw So mobile market the an to heavily any come expect a may litigations excluding agreement that that caveating weighted adoption comparable to that down and am bit, today by with a to signed needing you signed I basis. we the we mobile how QX grows. agreement Dongwoon very market, XXXX certainly because Apple. in to are see going we quickly flat to signed agreement market with in that would through, on we down certainly little was I and but be that be watch that the others to

a little trying market hopefully be we as nascent we're watching, more mentioned, VR aware, percentage So are and refreshes But then all continues excited we tiered I'm bring to flattish for technology that the drive, controller had adopted would of to today basis, market at tends from we historically. there. gaming more market level we we us, to a to as have about to out about. in a going likely a are to new supplier understand will you're to seen if extremely evolve. On we forward path that that continue remain which that find the lot a slowly we're we do great we until until mobile than the going controller really set licensed. Automotive, platforms Ramzi on to same and those I is gaming, say, that VR, in bit contracts on as be say going market, are see how coming be one

where you're cars. in believe we seeing majority haptics or licensed, adopted of majority the the vast today have altered We suppliers

market along will join looking adoption We additional pipeline do to customers forces of and that with. grows it. As we grows, as a we're that grow with have good

about And I final So to Ramzi we're as is is to would and continue automotive IoT. the mentioned, to look grow. watch market say think, I one that excited

difficulty you're far when have in historically, saying pretty a to pure technology at goes that, play is companies patents that it you or patent level the attempted China, It different China actual have license want the well to it the As as when and think, into met I have solutions with. are But reasons in as quite into need licensing differentiate becomes their some without play, known another. marketplace. one most OEM for that challenging with bringing

an Our It the IC do time experiment. first channel this. we strategy is is

through I In could for to Chinese fact, out must try partners, available with have congratulate here the this before anyway. done very point and Immersion our goal companies the so I is have channel to interact to OEMs make few this the very convenient license The whom IC success. patent and team at

a a us, cost force after here we each to of going so sales create measure there's one these savings have OEMs. So don't for

pre-negotiated parallel by throughput going the have see fast convenient attitude. partner works. OEM pre-negotiated in a term a of we rate convenient. this acquisition to very having yields meantime, have hope we the channel and at We a the and a the the This that Second, strategy license and that very an results do have is makes it license provides to We're experiment. the In wait want.

of along this is cost we our Chinese that customers, our bringing or save the go value-add of As to go licenses. competitive creating is adding and innovative something and it technologies to to started the to differentiable be we're developing investing technologies the back otherwise, whether being would like how patent the company we'd to going Immersion. there's with roots themselves, patent in that to mentioned, licenses from This so -- tech be

in does follow-up. a willingness to and And then up. can now demand in just or that form without from shape in you a willing whether way You minimums, waning for Apple? not XXXX give And confirm if indicate Ramzi, or any your that suggest get enter able as the or that haptics? were agreements to to you have guide before anything you're then, Nancy, Great.

with both win-win I our minimum us customers. deal for no a and as see unit per the

For us deals paid in for with provide our The all revenue we XXX, especially recognizing recognizing it advance, minimum want term lumpiness, a where to have predictable revenue long-term shareholders revenue you're been in the very until short significant provide increase. up. very you're the lumpy minimums unpredictable with provides and it and

As a our long Remember, where for no-minimums. not for isn't channel for marketing a been a it it license. patent This reason than would be is to very there's marketing would've issue, a significant what as element is it cash a these a this license. push us it not license less a which our is license. today was technology little technology. is This for here had is tool different been Therefore, it technology us, dynamic. If strict patent the

decision it our the back shareholders it view a strictly profile to well. long-term that royalty take that revenue fits finance a being desired comes fits with as So on business to with our long-term profile

that are to both. preference, our in customers to with a has choose unit taken Others per one no minimum. to, frankly to any customers minimum highlight is we're with a anyone we have not and Our if putting are direction. open royalty agree and We just our Dongwoon not to royalty. want flexible deal

Nancy? Yes.

ongoing And our for yes, Apple, revenue then yes. Apple, -- XXXX on AOP from is there in

you. Thank

from Thank you. next [Operator Riley Instructions] question with Josh Nichols FBR. comes Our B.

of guide double consistently auto kind need the little bit. gaming wanted to Yes. to excluding and of get more time little probably nearly needle revenue the about be be breakeven talked consistent you level mover release a How know litigation the basis of profitability. towards ask a bit about a Thanks revenue large -- really I you for taking a where over my in any much on to question. moving settlements? given I can the to

is space Let and take Nancy. me take for reasons. automotive it exciting over multiple that I'll us to for The

than same is First, is about but the it's mobile unit to per ASP a the important that significantly which on highlight was it. higher --

mobile So, curve be going significantly the on per is unit weighted more automotive on basis. than a the growth to

So, about we're excited this.

Second, we mentioned the the the for -- we license which up -- and mobile revenue should earlier Nancy into topline. several add into have provides are of automotive XX% in the to channel. script, providers over well as over we next This a coming -- quarters over the our

not is -- Thereby having Thirdly, licenses automotive will is a bring come patent focused mobile value providing future. the the accompany solutions and technology license. our not that R&D team in the and excites us the company That on solutions. consumers a -- companies just is to patent just for

say gaming So further the that's really our out. would is a I bit strategy there for -- with automotive. the

developed is term. technology here but the a bit in have longer We developing cycle and gaming, are

With stated console ticker. years, the the launch a to us with few next have As console But it for these gaming companies. want And have from need our exciting we Nancy. to technology provide will competitive developed what so to be I'll that we you every differentiate technology. at it going for they're believe that, to we over know might very otherwise launch that us wait we turn

I think great. anything-- you Josh covered it

the side given the is that's opposed a a is as color Yes, want and to more to answers approaching trial in May that Yes. than going weighted probably gave litigation good to front-half for the -- little the regarding bit But ask should of so question. highest side cadence expense we spend? XXXX. my that I you the maybe be revenue portion more revenue of that expect did

definitely spend great the of to half that front year because comp litigation with And will although a Samsung. of a noncash have charge. stock-based then of The the that's loaded May the point. QX tends Yes, be trial the majority is to

to last a provide then as for go in just commentary high-level as also looks trial? to the opposed upcoming new after well could German question the me. pursuit expanding you patent And as Any as U.S. like far given That the the rationale

Sure.

Our feel each. the cases position continue and portfolio strength track our on remain and in in of our to confident we

to you a It the U.S. U.S. next that issued a scheduled Samsung. Apple with is discussion newly to the know counterpart is we 'XXX in one newly XX is the litigation Furthermore, the and As to the regarding course, the patent German the case. patent this mediation action would strategy. a and for we is Germany this overall is matter, March case of added in patent used

we to the our in We XXXX. continue begin feel were is jury position -- to reach and selection unable May confident an in we're to and -- agreement if if prior scheduled

you. Thank

you. this no Thank management I now at closing time. have any we would the further back to our turn conference to questions remarks. like And for

everybody with thank near you. on webcast. Thanks future. call us look the the to via I Thank joining today opportunity or forward live to again. having many you And meet this you whether for in of

and this today's Ladies concludes gentlemen, conference.

may You now disconnect.