Immersion Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; this annual filing does not provide standalone fourth-quarter results. Comparisons are with FY2021. Immersion licenses haptic technology and intellectual property, principally for mobile devices, gaming, and automotive products.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $38.5 million | $35.1 million | Up 9.6% |
| Operating expenses | $14.0 million | $17.3 million | Down 18.9% |
| Operating income | $24.4 million | $17.8 million | Up 37% |
| Net income | $30.7 million | $12.5 million | Up 145.6% |
| Diluted earnings per share | $0.92 | $0.39 | Up from $0.39 |
| Operating cash flow | $40.1 million | $17.4 million | Up $22.7 million |
Operating margin was approximately 63.5% and net margin approximately 79.7%. Net income benefited from a $3.7 million income tax benefit, compared with a $4.8 million tax provision in 2021; FY2022 pretax income was $27.0 million. The filing reports no interest-bearing debt on the balance sheet.
- Revenue mix: Royalty and license revenue was $38.2 million (99% of total). Fixed-fee license revenue rose 105% to $12.0 million, while per-unit royalties fell 9% to $26.2 million. Development, services, and other revenue was $0.3 million.
- Market mix: Mobile, wearables, and consumer products contributed 60% of revenue; gaming 21%; automotive 13%; and other markets 6%. Automotive’s share declined from 19% in 2021.
- Margins and costs: Operating expenses fell chiefly because sales and marketing declined 63% and R&D declined 67%, largely reflecting lower headcount and personnel-related costs. G&A increased 16%, mainly from higher compensation and stock-based compensation.
- Cash and liquidity: Cash, cash equivalents, and current investments totaled $149.7 million at year-end, up from $137.9 million. Current assets were $160.3 million and current liabilities $19.3 million. Cash and cash equivalents alone were $48.8 million.
- Cash flows: Investing activities used $29.4 million and financing activities used $13.4 million, primarily reflecting securities and derivative transactions and share repurchases, respectively.
Material changes and capital allocation
- International revenue was approximately 72% of total, with Asia at 62%, North America 28%, and Europe 10%. North America’s share rose from 12% in 2021, while Asia’s fell from 76%.
- Three customers accounted for 31%, 18%, and 13% of FY2022 revenue, respectively; Samsung was identified as a significant customer. This concentration makes renewals and licensee shipment levels important drivers.
- Marketable securities and derivatives contributed to investment volatility: the company reported $2.8 million of interest and other income, but also $3.1 million of net losses on marketable equity securities and derivatives in the relevant investment-gain disclosures.
- Immersion repurchased 1.64 million shares for $8.9 million in 2022. A new authorization of up to $50 million was approved on December 29, 2022; repurchases are discretionary and not assured.
- The company declared a $0.03-per-share quarterly dividend and a $0.10-per-share special dividend in late 2022; both were paid in January 2023. A further $0.03 quarterly dividend was declared in February 2023.
Outlook, risks, and unusual items
- Outlook: No quantified revenue or earnings guidance is provided. Management expects licensing revenue to remain the primary revenue source and to fluctuate with license execution timing and customers’ unit shipments. It stated that available capital should meet working-capital needs for the next 12 months and beyond. 2023 capital expenditures were expected to be less than $1 million.
- Business risks: Revenue depends heavily on renewing and securing licenses, a small number of customers, and customers’ product shipments. Component shortages, economic uncertainty, market adoption, patent enforcement, and long automotive development cycles could affect royalties. The current Microsoft agreement provides a royalty-free, perpetual license, so Immersion expects no further Microsoft royalties under that agreement.
- Litigation and tax matters: The Meta patent-infringement case involving AR/VR products remained pending. The Korean LGE withholding-tax appeal was unresolved; the company had provided a provisional deposit of approximately $5 million and stated it could not estimate any potential liability. In the Samsung matter, the company received approximately $5.5 million in reimbursements in 2022 following a Korean Supreme Court decision. The Marquardt arbitration was settled, with prepaid royalties under an amended license.
- Other financial risks: The company held a diversified securities portfolio and used options; investment values and reported income may be volatile. Unrecognized tax benefits were approximately $7.1 million, of which $1.4 million, plus about $0.1 million of interest and penalties, could be payable in cash. The company also noted possible limits on use of tax-loss carryforwards after an ownership change.
- Governance and audit: Management concluded internal control over financial reporting was effective at December 31, 2022. The financial statements received an unqualified audit opinion; the auditor identified fixed-fee license revenue allocation as a critical audit matter.
Key facts for investors to verify
- Renewal timing and terms for major customer licenses, including the identities and ongoing revenue contribution of the three largest customers.
- Whether fixed-fee license growth can offset the decline in per-unit royalties, and how customer shipments affect upcoming royalty revenue.
- The outcome and financial exposure of the LGE tax appeal and the status, costs, and potential recovery from the Meta litigation.
- Investment portfolio performance, including marketable equity and derivative exposure, and the implications for earnings and liquidity.
- Actual execution of the $50 million repurchase authorization and sustainability of the quarterly dividend.