Immersion Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Immersion licenses haptic technology and related intellectual property, primarily for mobility, gaming, and automotive applications. Financial amounts below are in millions of dollars unless noted.
Financial performance
| Metric | Q3 2022 | Q3 2021 | First 9 months 2022 | First 9 months 2021 |
|---|---|---|---|---|
| Revenue | $14.0 | $7.2 | $29.3 | $25.3 |
| Operating income | $10.9 | $3.7 | $18.6 | $12.0 |
| Net income | $7.7 | $3.8 | $11.0 | $11.1 |
| Diluted EPS | $0.23 | $0.12 | $0.32 | $0.36 |
| Operating margin | 78% | 51% | 64% | 47% |
- Q3 revenue rose 95%, driven mainly by fixed-fee license revenue, up $6.4 million to $7.7 million. Per-unit royalties increased 8% to $6.3 million.
- Nine-month revenue increased 16%. Fixed-fee license revenue rose 145% to $10.7 million, while per-unit royalties declined 11% to $18.4 million.
- Operating expenses fell 12% in Q3 and 20% for the first nine months. Lower sales and marketing and R&D costs, primarily associated with lower headcount and compensation, were partly offset by higher G&A costs.
- Interest and other income (loss) was a loss of $2.3 million in Q3 and $6.4 million for the first nine months, principally reflecting losses on marketable securities, partly offset by derivative gains and higher interest and dividend income. This weighed on net income despite stronger operating results.
Cash, liquidity, and capital
- At September 30, cash and cash equivalents were $36.8 million; current investments were $96.8 million and noncurrent investments $18.5 million. The company reported no borrowings in the balance sheet. Total liabilities were $28.1 million and stockholders’ equity was $143.2 million.
- Cash, cash equivalents, and current investments totaled $133.5 million, down $4.4 million from year-end 2021. The filing says approximately $30.0 million was held by foreign subsidiaries and could be subject to repatriation tax effects.
- Nine-month operating cash flow was $32.1 million, versus $10.7 million a year earlier. Investing activities used $35.6 million and financing activities used $11.2 million, including $11.3 million for treasury-stock purchases. Cash ended the period at $36.8 million, down from $51.5 million.
- The company repurchased 1.27 million shares for $7.0 million during the first nine months under a $30 million authorization; $23.0 million remained available at September 30. Management expected capital expenditures for the remainder of 2022 to be below $1.0 million.
Material changes, outlook, and risks
- Revenue mix shifted toward fixed-fee licenses in Q3. For the first nine months, lower mobility and automotive royalties were partly offset by growth in other royalties and fixed-fee mobility licenses. Management noted that fixed-fee revenue depends on the timing of new agreements and royalties fluctuate with licensees’ shipments.
- Management said it believed available capital was sufficient for working-capital needs for the next 12 months and beyond. The filing provides no specific revenue or earnings guidance.
- Samsung-related Korean tax litigation reached a Supreme Court decision in February 2022; Immersion received approximately $5.5 million in reimbursements from Samsung in March. The LGE Korean withholding-tax case remained pending, with a final hearing scheduled for November 24, 2022 and a decision then expected by year-end. The company says the ultimate outcome and potential liability cannot be predicted.
- Immersion’s patent-infringement suit against Meta concerning AR/VR products remained pending; Meta’s motion to transfer venue was also pending. The Marquardt arbitration was settled, with prepaid royalties and dismissal of the claims.
- Marketable equity securities and derivatives exposed results to fair-value fluctuations. The company reported $6.4 million in unrecognized tax benefits and related interest of $0.1 million, and maintained valuation allowances against certain deferred tax assets.
- After quarter-end, on November 14, 2022, the Board declared a quarterly dividend of $0.03 per share, payable January 30, 2023, subject to possible revocation. Future dividends require further Board approval.
Key facts for investors to verify
- Whether Q3’s sharp increase in fixed-fee license revenue is repeatable, and how licensee shipments affect per-unit royalties.
- The composition and valuation sensitivity of the investment portfolio, given the reported market losses and their effect on earnings and cash flows.
- The eventual outcome and financial implications of the LGE tax matter and the Meta patent litigation.
- How repurchases and the newly declared dividend affect cash resources and future capital allocation.