IMMERSION CORPORATION — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2019. Immersion develops and licenses haptic technology, software, and related intellectual property, primarily for mobility, gaming, automotive, medical, and wearable applications. The company reported as one operating segment.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $8.7 million | $6.1 million | $13.9 million | $91.6 million |
| Operating income (loss) | $(9.2) million | $(8.3) million | $(20.7) million | $61.8 million |
| Net income (loss) | $(8.6) million | $(7.8) million | $(19.6) million | $62.1 million |
| Basic and diluted EPS | $(0.27) | $(0.25) | $(0.63) | $2.06 basic; $2.00 diluted |
| Operating cash flow | Not separately provided | Not separately provided | $(23.9) million | $82.0 million |
- Q2 revenue increased 42% year over year: fixed-fee license revenue rose 126% to $4.3 million and per-unit royalties rose 7% to $4.4 million. Development and services revenue was $75,000.
- First-half revenue fell 85%. Fixed-fee license revenue declined to $6.0 million from $77.6 million, largely because a material mobility license agreement drove first-half 2018 revenue. Per-unit royalties decreased 44% to $7.7 million, principally reflecting lower automotive and gaming revenue and the prior-year recognition of automotive minimum royalties.
- Q2 general and administrative expense rose 37% to $14.4 million, primarily due to higher legal and professional fees. First-half G&A rose 25% to $27.1 million. Management attributed the increase mainly to legal and consulting costs.
- At June 30, cash and cash equivalents were $92.6 million and short-term investments were $9.0 million, totaling $101.6 million, down $23.3 million from December 31, 2018. Current assets were $114.8 million and current liabilities $20.0 million. No debt balance is reported on the balance sheet.
- Total assets were $135.0 million; total liabilities were $51.3 million and stockholders’ equity was $83.7 million. Accumulated deficit was $118.2 million. Shares outstanding were 31.7 million at June 30, compared with 30.8 million at year-end.
Material changes, outlook, and risks
- The sharply lower first-half comparison reflects the timing and size of fixed-fee license agreements, including the material 2018 mobility deal. The company notes ASC 606 can make fixed-fee revenue timing less predictable; per-unit royalties are estimated in the quarter of underlying sales and later trued up.
- Management expects royalties and licenses to remain the principal revenue sources. Revenue may fluctuate with license signings, customer shipments, and seasonality; gaming and mobility royalties have historically been seasonally stronger, with the expected effect now shifting to Q4 following ASC 606 adoption.
- Management expects G&A expense to decrease as certain litigation matters are completed and consulting costs are reduced. It plans targeted R&D investment and expects 2019 capital expenditures below $1 million. The company stated its cash, cash equivalents, and short-term investments should cover working-capital needs for at least 12 months. No specific revenue or earnings guidance was provided.
- Operating leases were brought onto the balance sheet upon adoption of ASC 842 on January 1, 2019: initial operating lease liabilities were $4.9 million and right-of-use assets $4.0 million. Lease liabilities were $4.4 million at June 30.
- Legal matters remain important. Immersion paid Samsung approximately $6.9 million under a Korean withholding-tax arbitration award, plus approximately $871,000 of arbitration costs; it is appealing the underlying Korean tax assessment and expects reimbursement if successful. The separate U.S. Samsung patent litigation was settled in May 2019. A Korean tax-related claim from LG Electronics is under appeal; management said a material charge was remote. Motorola entered a patent settlement and license agreement on July 31, 2019, after quarter-end.
- Key risks include dependence on licensing renewals and a limited number of customers (three customers contributed 22%, 14%, and 13% of first-half revenue), patent validity and enforcement outcomes, legal costs, customer shipment volumes, and volatile revenue recognition. The company also reported recent senior-management turnover. Disclosure controls were deemed effective as of June 30, 2019.
Important facts for investors to verify
- Whether new and renewed licensing agreements can sustain revenue after the unusually large 2018 fixed-fee license contribution.
- Customer concentration, licensee shipment trends, and the size and timing of estimated royalty true-ups.
- Cash burn and legal spending, including the outcome of the Korean tax appeals and any recovery of the Samsung payment.
- Completion and terms of the Motorola settlement and any implications for future licensing revenue.
- Whether management’s expectation of lower G&A costs and at least 12 months of liquidity remains supportable.