Immersion Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Immersion licenses haptic technology and related intellectual property, primarily for mobility, gaming, and automotive applications. Figures below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $8.0 million | $11.0 million | $15.3 million | $18.2 million |
| Operating income | $4.1 million | $5.8 million | $7.7 million | $8.3 million |
| Net income (loss) | $(1.8) million | $5.3 million | $3.3 million | $7.4 million |
| Diluted earnings (loss) per share | $(0.05) | $0.17 | $0.10 | $0.24 |
| Operating cash flow | Not separately stated | Not separately stated | $18.6 million | $9.1 million |
- Revenue and margins: Q2 revenue fell 27% year over year, with royalty and license revenue down 27%. Per-unit royalties declined 26%, mainly from mobility, automotive, and gaming licensees; fixed-fee license revenue decreased 32%, primarily in automotive. Six-month revenue declined 16%. Operating margin was approximately 51% in Q2 versus 53% a year earlier, and approximately 50% for the first half versus 46%.
- Profit and unusual items: Operating income remained positive, but Q2 net loss reflected a $6.1 million net loss in interest and other income, primarily marketable-security and derivative losses. The filing reports $7.1 million of net losses on marketable securities and derivatives for Q2. First-half interest and other loss was $4.1 million; net losses on those investments were $6.4 million.
- Expenses: Q2 sales and marketing and R&D expenses each fell about $1.0 million, mainly due to lower headcount-related costs and stock compensation. G&A rose $0.7 million, primarily from compensation and personnel costs. First-half total costs and expenses declined 23% to $7.6 million.
- Cash flow: First-half operating cash flow was $18.6 million, up from $9.1 million. Investing used $6.7 million and financing used $6.0 million, the latter primarily reflecting share repurchases. Cash and cash equivalents increased to $57.4 million from $51.5 million at year-end.
- Liquidity and debt: Management reported $136.9 million of cash, cash equivalents, and marketable equity securities at June 30, compared with $137.9 million at December 31. The balance sheet also lists $17.1 million of long-term marketable debt securities; cash plus all marketable securities therefore totaled about $154.0 million. Total liabilities were $34.3 million, including deferred revenue and lease obligations; no borrowings are reported. Management said it expects sufficient capital resources for working-capital needs for the next 12 months and beyond.
Material changes and outlook
- Lower mobility and automotive royalties were the main disclosed drivers of the revenue decline; management expects royalty revenue to fluctuate with licensees’ unit shipments and fixed-fee revenue with the timing of new agreements.
- The filing provides no specific revenue or earnings guidance. Management anticipated less than $1.0 million of property and equipment capital expenditures for the remainder of 2022.
- The board authorized a stock repurchase program of up to $30 million for up to 12 months. The company repurchased 316,047 shares for $1.7 million in the first half; $28.3 million remained authorized at June 30. The program does not require further repurchases.
- Revenue expected from fixed-fee license obligations satisfied over time was $19.0 million, including $11.7 million expected over one to three years and $7.3 million over more than three years.
Risks, contingencies, and other developments
- Korean tax matters: The Korea Supreme Court affirmed the Samsung tax ruling in February 2022. Immersion received approximately $5.5 million in reimbursements in March. The LGE withholding-tax appeal remained pending; Immersion had placed approximately $5.0 million on deposit, and a court decision was expected by December 31, 2022. The company says the ultimate outcome cannot be predicted and potential liability cannot be estimated.
- IP litigation: Immersion sued Meta in May 2022, alleging infringement of six patents by AR/VR products including Meta Quest 2 and seeking an injunction and royalties. Meta responded on August 1, 2022. The filing does not state a potential recovery value.
- Marquardt: The automotive-licensee arbitration was dismissed with prejudice after a settlement under which Marquardt agreed to prepay certain royalties; the amount is not stated.
- Marketable securities and derivatives exposed earnings to fair-value movements. The company also disclosed uncertain tax positions, a full valuation allowance on specified deferred tax assets, and continuing exposure to IP and contractual disputes. Management reported no material changes to the risk factors in its 2021 Form 10-K.
- Disclosure controls were assessed as effective at June 30, 2022; no material change in internal control over financial reporting was reported during the quarter.
Investor facts to verify
- Whether royalty declines, especially in mobility and automotive, persist and how licensee shipments affect future revenue.
- Future investment and derivative fair-value changes, which materially affected Q2 earnings.
- The outcome and financial effect of the pending LGE tax appeal and the Meta patent litigation.
- Actual use of the remaining repurchase authorization and the effect on cash and share count.
- The composition and liquidity of the investment portfolio, including the separately reported long-term debt securities.