Immersion Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Financial statements are unaudited. Immersion licenses haptic technology and related intellectual property, primarily for mobility, gaming, and automotive applications. It reported one operating segment.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $7.159 million | $6.257 million; up 14% |
| Royalty and license revenue | $7.068 million | $6.182 million; up 14% |
| Per-unit royalty revenue | $5.793 million | $4.895 million; up 18% |
| Operating expenses | $4.666 million | $10.805 million |
| Operating income (loss) | $2.493 million | $(4.548) million |
| Net income (loss) | $2.036 million | $(4.828) million |
| Diluted earnings (loss) per share | $0.07 | $(0.16) |
| Operating cash flow | $4.410 million | $(1.316) million |
| Cash and cash equivalents | $102.624 million at March 31 | $59.522 million at December 31, 2020 |
| Total liabilities | $31.110 million | $32.149 million at December 31, 2020 |
Gross profit was $7.130 million, or approximately 99.6% of revenue, based on reported revenue and cost of revenue. The filing reports no conventional borrowings; lease liabilities totaled $2.716 million. Current assets were $115.871 million and current liabilities were $9.218 million.
Material changes and drivers
- Revenue increased by $0.902 million, primarily from a $0.898 million increase in per-unit royalties, including approximately $0.7 million more from gaming licensees. Fixed-fee license revenue was broadly unchanged.
- Operating expenses fell by $6.139 million. General and administrative expense declined $5.132 million, primarily due to lower personnel, legal, professional-services, depreciation, and facilities costs. Sales and marketing and research and development expenses also decreased.
- Q1 2021 per-unit royalty revenue included a $0.5 million downward adjustment for prior-period estimates, compared with a $0.1 million downward adjustment in Q1 2020.
- Operating cash flow improved by $5.726 million year over year, mainly reflecting the swing to net income. Financing cash flow was $38.749 million, principally from a common-stock offering.
Liquidity, capital, and outlook
- Immersion sold approximately 3.3 million shares through its at-the-market offering in Q1, receiving $35.9 million net of approximately $1.2 million in commissions and other costs. The distribution agreement was terminated March 5, 2021. The share issuance increased cash and diluted existing holders.
- Management said available capital was sufficient for working-capital needs for the next 12 months. It anticipated 2021 capital expenditures of less than $1 million.
- No specific revenue or earnings guidance was provided. Management expected royalty and license revenue to remain a major revenue source, with fixed-fee revenue affected by the timing of new agreements and royalties varying with licensees’ unit shipments. It expected general and administrative costs to remain stable in the near term and planned targeted R&D investment.
- Approximately 85% of Q1 revenue was international. About $11.0 million of cash was held by foreign subsidiaries and may be subject to repatriation tax effects; management said it intended to permanently reinvest foreign earnings.
Risks, contingencies, and unusual items
- Korean withholding-tax disputes: Immersion had deposited approximately $6.9 million in connection with the Samsung matter and approximately $5.0 million provisionally with LG Electronics (LGE). These deposits are included in long-term deposits and could become income-tax expense if the appeals are unsuccessful. The Samsung court decision was expected May 28, 2021, subject to possible delay; an LGE hearing was scheduled for June 24, 2021. The filing says the company cannot predict the ultimate outcomes.
- Customer concentration: Samsung accounted for a significant portion of Q1 revenue; the filing does not provide a clear amount in the supplied text. Loss or nonrenewal of a major license could materially affect results.
- COVID-19 and supply conditions: Remote work and travel restrictions continued to affect operations and could delay customer orders. The company also warned that electronic-component shortages could reduce customers’ shipments and Immersion’s per-unit royalties.
- Other key risks: Licensing renewals and new agreements, patent enforcement and litigation, customer product adoption, international operations and tax matters, and retention of personnel. The company also disclosed possible future investment in digital or alternative currencies, but reported no such purchase in this filing.
- Management reported disclosure controls were effective as of March 31, 2021 and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much Q1 revenue depended on Samsung and other major licensees, and whether key licensing arrangements are renewed.
- Actual outcomes and recoverability of the Samsung and LGE deposits, including any subsequent court developments.
- Whether the growth in per-unit royalties persists, considering customer shipments, component shortages, and the $0.5 million royalty estimate adjustment.
- The extent of dilution from the 3.3 million-share offering and management’s use of the proceeds.
- Whether cash generation and profitability remain sustainable after the large year-over-year reduction in operating expenses.