Immersion Corporation — FY2020 Form 10-K
Business context and reporting period. Immersion is a haptics intellectual-property and technology licensing company. This annual report covers the fiscal year ended December 31, 2020; it does not provide a standalone Q4 income statement. Revenue primarily comes from patent and technology licenses and royalties. Mobile, wearables and consumer products represented 69% of revenue; gaming 15%; automotive 15%. Asia generated 76% of revenue, and one customer accounted for 40%.
Key financial results
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $30.5 million | $36.0 million |
| Operating income (loss) | $2.2 million | ($21.5 million) |
| Net income (loss) | $5.4 million | ($20.0 million) |
| Operating margin | 7.3% | (59.6%) |
| Net margin | 17.7% | (55.7%) |
| Cash from operating activities | $0.02 million | ($34.1 million) |
| Cash, cash equivalents and short-term investments, year-end | $59.5 million | $89.5 million |
| Total liabilities, year-end | $32.1 million | $41.1 million |
2020 revenue comprised $24.7 million of per-unit royalties, $5.5 million of fixed-fee licenses and $0.3 million of development, services and other revenue. The filing reports no borrowings on the balance sheet. Current assets were $74.4 million versus current liabilities of $8.8 million. Net income included a $2.2 million income tax benefit, primarily from releasing a valuation allowance for a foreign subsidiary.
Changes versus 2019
- Revenue declined 15% ($5.5 million), as fixed-fee license revenue fell $7.2 million, partly offset by a $1.7 million increase in per-unit royalties. Automotive royalties decreased with lower shipments, attributed largely to COVID-19; mobility royalties increased following agreements signed in 2019.
- Operating expenses declined $29.2 million, including a $24.9 million reduction in general and administrative costs, primarily from lower legal expenses after 2019 litigation activity. R&D expense decreased 36% to $5.0 million.
- The company returned to profitability, but operating cash flow was approximately breakeven. Cash and investments fell $30.0 million, mainly reflecting $30.6 million of share repurchases; 4.9 million shares were repurchased at an average $6.21 per share.
- Revenue mix shifted toward mobility and Asia: mobility rose from 63% to 69% of revenue, and Asia from 65% to 76%. Automotive fell from 21% to 15%.
Outlook, commentary and material risks
- Management provided no specific revenue or earnings guidance. It expects royalty and license revenue to remain the main revenue source and to fluctuate with licensee shipments and the timing of fixed-fee agreements. Expected 2021 capital expenditures were less than $1.0 million; management said available capital was sufficient for working-capital needs over the next 12 months as of March 5, 2021.
- COVID-19 prompted remote-work and travel restrictions and cost reductions, including executive and board compensation reductions, cancellation or reduction of bonus plans, and a temporary suspension of the 401(k) match. A $0.5 million Canadian wage subsidy reduced operating expenses. Management cited possible customer, shipment, negotiation and productivity impacts.
- CEO Ramzi Haidamus departed in November 2020; Jared Smith became interim CEO. The company also moved research and development and certain administrative functions from San Jose to Montreal and recorded a $0.5 million termination-benefit charge.
- Samsung and LG Electronics withholding-tax disputes remain significant contingencies. Long-term deposits totaled $12.6 million at year-end, including approximately $6.9 million related to Samsung and $5.0 million deposited with LGE. Recovery depends on pending Korean court appeals; the company could incur additional tax expense if unsuccessful. The filing says potential liability cannot be estimated.
- Key business risks include reliance on a limited number of licensees, patent enforcement and renewal outcomes, customer and product shipment volatility, COVID-19 effects, and lengthy automotive development cycles. Per-unit royalties are estimated before licensee reports arrive and are later adjusted, adding revenue-timing uncertainty.
- After year-end, the company established a shelf registration for up to $250 million of securities and an at-the-market common-stock program of up to $50 million. By March 3, 2021, it had sold 3.3 million shares and received approximately $36.3 million net proceeds, creating dilution. Management also disclosed that proceeds could potentially be invested in digital or alternative currencies.
Most important facts for investors to verify
- Whether the 40%-of-revenue customer concentration persists, and how Samsung’s contribution and license renewals develop.
- Progress and ultimate outcomes of the Samsung and LGE Korean tax appeals, including recoverability of the $12.6 million in deposits.
- Actual cash generation, revenue estimates and subsequent royalty true-ups, given near-zero 2020 operating cash flow and volatile license revenue.
- Shares sold and any further issuance under the ATM or shelf programs, including use of proceeds and resulting dilution.
- Whether cost reductions and the leadership transition affect R&D capacity, customer relationships and the company’s ability to return to consistent profitability.