Immersion Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Amounts are in U.S. dollars; financial statement figures are in millions unless otherwise noted. Immersion licenses haptic technology and related intellectual property, software, and support across mobile, gaming, automotive, and other markets. It reports one operating segment.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $7.074 | $7.308 |
| Operating income | $3.259 | $3.603 |
| Net income | $8.278 | $5.076 |
| Diluted EPS | $0.25 | $0.15 |
| Operating cash flow | $3.523 | $11.038 |
- Revenue was down 3%. Royalty and license revenue was $7.009 million: fixed-fee licenses fell 30% to $1.214 million, while per-unit royalties rose 6% to $5.795 million. Services and other revenue was $0.065 million.
- Operating expenses rose 3% to $3.815 million. Sales and marketing fell 80% and R&D fell 75%, primarily reflecting lower headcount and stock-based compensation; G&A increased 33% to $3.589 million, mainly from compensation, variable pay, and stock-based compensation.
- Operating margin was approximately 46%, compared with 49% a year earlier. Net margin was approximately 117%, versus 69%; net income included substantial investment and derivative gains, so it was not driven solely by operating performance.
- Interest and other income, net, was $6.526 million, versus $2.034 million. Management attributed the increase primarily to higher gains on marketable equity securities and derivatives and higher interest income.
- Cash and cash equivalents were $27.484 million at March 31, down from $48.820 million at year-end. Cash, cash equivalents, and current investments totaled $148.4 million, compared with $149.7 million at year-end; noncurrent investments were another $25.604 million. Approximately 30% of cash, cash equivalents, and short-term investments was held by foreign subsidiaries and may be subject to repatriation tax effects.
- Operating cash flow declined by $7.5 million year over year, primarily because of changes in operating assets and liabilities and noncash items, partly offset by higher net income. Investing cash flow was a $19.708 million outflow, largely reflecting purchases of securities; financing cash flow was a $5.151 million outflow, mainly dividends and shares withheld for payroll taxes.
- Total liabilities were $31.389 million, including $16.206 million of deferred revenue. The filing does not report outstanding borrowings or debt. Current assets were $159.065 million and current liabilities $19.604 million.
Changes, outlook, and notable items
- Per-unit royalty growth, led by gaming and other licensees, was offset by lower mobility royalties. Fixed-fee revenue declined mainly because of lower automotive license revenue. Asia represented 84% of Q1 revenue, up from 75% a year earlier.
- Management gave no formal revenue or earnings guidance. It expects royalty and license revenue to remain the principal revenue source, with results subject to license signing timing and customers’ unit shipments. It expects 2023 capital expenditures for property and equipment to be below $1.0 million and stated it believes capital resources are sufficient for working capital needs for the next twelve months and beyond.
- The Board declared a $0.03-per-share quarterly dividend in February, paid April 28, 2023. A further $0.03-per-share quarterly dividend was announced May 10, payable July 28 subject to revocation and shareholder approval requirements. Future dividends remain subject to Board review. The $50 million repurchase authorization remained available at quarter-end; no shares were repurchased in Q1.
- Investment and derivative gains materially increased reported income. Marketable equity securities had $9.065 million of unrealized losses at quarter-end, while debt securities had $0.624 million of unrealized gains and $0.169 million of unrealized losses.
- Legal and tax matters include patent infringement suits against Meta and Xiaomi Group companies. The filing does not quantify potential recoveries or liabilities. In the Korean withholding-tax matter, a previously paid approximately $5.0 million deposit remains exposed to the outcome of an appeal; after quarter-end, LGE requested reimbursement of approximately $2.3 million for a later tax assessment. Immersion was evaluating its obligations and had accrued $0.3 million for the later-period matter as of March 31.
- The company reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter. It added acquisition-related risks, including possible management distraction, expenses, integration challenges, and financing or dilution risks.
Important facts for investors to verify
- How sustainable royalty growth is, especially given lower mobility royalties and the high concentration of revenue in Asia.
- How much of earnings reflects recurring operations versus market-related securities and derivative gains or losses.
- The composition, liquidity, and market risk of the investment portfolio, including its equity exposure and unrealized losses.
- Developments and potential financial exposure in the Korean tax dispute and the Meta and Xiaomi patent cases.
- Future capital allocation decisions, including dividends, the unused share repurchase authorization, and any acquisition or investment plans.