IMMR

Business Context and Reporting Period

This Form 10-Q covers Immersion Corporation for the quarterly period ended January 31, 2026. Immersion operates in two segments: its legacy haptics technology business and Barnes & Noble Education (BNED), acquired in June 2024. The filing includes restated prior period financials due to material errors identified in BNED's accounting for digital cost of sales and leases. As of January 31, 2026, Immersion holds a 32.7% ownership interest in BNED, with the remaining 67.3% classified as noncontrolling interest.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 10% year-over-year for the quarter ($518.5M vs. $471.3M) and 15% for the nine-month period ($1,460.7M vs. $1,271.0M). This growth is primarily driven by BNED, which saw a 11% quarterly revenue increase due to higher comparable store sales and expansion of "BNC First Day" programs.
• Profitability Decline: Operating income dropped significantly to $5.0 million from $35.2 million in the prior year quarter. Net income attributable to Immersion stockholders turned negative at $(10.3) million compared to $24.1 million in the prior year. This decline is attributed to a sharp decrease in Immersion's royalty revenue (down 60% QoQ) and increased investigation costs at BNED.
• Investment Losses: "Interest income and other income (expense), net" swung from a $14.8 million gain in the prior year to a $4.4 million loss, driven by an $18.5 million unfavorable change in realized and unrealized gains/losses on marketable equity securities and derivatives.
• Tax Impact: The effective tax rate for the quarter was (196.5%) due to a $15.3 million income tax expense related to foreign withholding tax matters (Samsung and LG Electronics), including a $9.7 million reimbursement to Samsung and a $5.6 million write-down of LG deposits.

Outlook, Risks, and Contingencies

• Internal Control Weaknesses: Management concluded that disclosure controls and procedures were ineffective as of January 31, 2026, due to material weaknesses in BNED's control environment and Immersion's consolidation accounting. A remediation plan is underway.
• Legal Proceedings:
  • Valve Corporation: Litigation regarding haptic patent infringement remains stayed pending Inter Partes Review (IPR) decisions. Several patents have been ruled unpatentable by the PTAB, with appeals filed.
  • Korean Tax Matters: Immersion reimbursed Samsung $9.7 million for withholding taxes and wrote off $5.6 million in LG deposits after discontinuing related litigation.
  • Settlement: A subsequent event noted a settlement regarding interchange fees where proceeds were paid to Jefferies (a litigation funder) in March 2026.
• Debt Covenants: BNED maintains a $325 million asset-backed credit facility. As of January 31, 2026, the company was in compliance with all covenants, though it has obtained waivers regarding financial reporting deadlines due to the investigation.
• Dividends: The Board declared a quarterly dividend of $0.075 per share, payable May 1, 2026.

Investor Verification Checklist

• Restatement Impact: Verify the full quantitative impact of the restatement on prior periods as disclosed in the 10-K and Note 3.
• Internal Controls: Monitor the progress of the remediation plan for material weaknesses in BNED's financial reporting and consolidation processes.
• Tax Contingencies: Assess the final resolution of the Korean withholding tax matters and the potential for further tax liabilities or write-downs.
• Patent Litigation: Track the outcome of the appeals regarding the Valve IPR decisions, as these impact future royalty revenue streams.
• BNED Liquidity: Review BNED's working capital cycle, specifically the timing of cash collections from "BNC First Day" programs versus vendor payments.