Q4 2020 Immersion Corp Earnings Call
Please standby we're about to begin.
Good day, ladies and gentlemen, and welcome to the immersion Corp, Q4, and 2020 earnings Conference call. Please note the.
Today's call is being recorded and.
At this time I would like to turn things over to Aaron increment of immersion as Chief Financial Officer. Please go ahead.
Good afternoon, and thank you for joining us today on immersion and <unk> fourth quarter, 2020 conference call.
This call is also being broadcast live over the web and can be accessed from the Investor Relations section of our website at IR of Dod immersion Dot com.
With me on today's call is Jared Smith, our interim CEO.
During this call we may make forward looking statements, which may include any expectations projections or other characterizations of future events or circumstances and include statements regarding the impact of COVID-19 on our business and the business of our customers and suppliers as well as on the economy in general.
And also include projected financial results or operating metrics business strategies, and litigation or absence of litigation anticipated future products future expense reductions anticipated tax expenses anticipated market demand or opportunities, our operating model and other forward.
And topics.
These statements are subject to risks uncertainties and assumptions.
Especially in light of the ongoing adverse effects of the COVID-19 global pandemic.
Many of these risks and uncertainties are beyond the control of the immersion.
For a more detailed discussion of these factors and other factors that could cause actual results to vary materially interested parties should review the risk factors listed in the press release, we issued today after market close the immersion and annual report on form 10-K for 2019 and its most recent quarterly report on.
Form 10-Q, which are on file with the U S Securities and exchange condition.
The forward looking statements mentioned on this call reflect the immersion and beliefs and predictions as of today, except as required by law immersion does not intend to update. These forward looking statements as the result of financial business or any other developments occurring after the date of this release.
What's the update the reasons actual results could differ materially and those anticipated and these forward looking statements, even if new information becomes available and the future except as required by law.
Additionally, please note that during this call we may discuss non-GAAP financial measures for each non-GAAP financial measure discussed the presentation of the most directly comparable GAAP financial measure and the reconciliation of the differences between the non-GAAP financial measure discussed and the most directly comparable GAAP financial measure is.
And today's press release with that said I'll turn the call over to Jared.
Thanks, Darren and thanks, everyone for joining us on the call today or listening via webcast.
This is an exciting time for immersion and we believe the 2021 is poised to be an inflection year, perhaps of technology adoption.
Capex is quickly emerging as one of the most innovative technologies for improved the user experiences and consumer products and content.
As and body and the Sony Playstation five dual signs of controller.
<unk> delivers the next level of gaming experience.
And smartphones market and your Samsung and Apple offer high definition, and haptics performance, which is driving demand for consistent and improved performance across the entire market not just and flagship models.
And VR advanced Haptics provides the critical sense of touch to fully immerse of the user in a virtual environment.
Consumer market growth is also being accelerated by continued improvement and the performance and cost of accelerators that enable these premium experiences the can.
Applications are not the only driver of as haptics market inflection Capex is well established and types of patents touchpad and displays and premium cars and automotive adoption is now poised to accelerate and the high volume mid range segment.
The new use cases are also growing in markets, such as industrial and medical equipment as well as household appliances.
Driven by growth and both consumer markets and and use cases and new markets.
Act research is forecasting the market, perhaps X technology to reach nearly $5 billion and 2025.
We are pleased to share our continued strong financial performance and the fourth quarter. We will profit we were profitable on both the GAAP and non-GAAP basis and generated positive free cash flow.
Our highest quarterly profitability and the last five years with the exception of Q1 2018. This result is due to the hard work across the organization and optimizing our operating structure and and continued fiscal discipline.
Next I'd like to provide and update on our progress and the automotive gaming and mobile market segments.
And automotive, we made strong progress last quarter driving industry adoption of our techniques.
Microchip technology TDK Boris.
Our product development kits make it easier for tier ones to adopt haptics and improved system performance.
Our kits provide design file software support and and underlying technology license.
Over the past months, we expanded this program by making touch screen hardware units based on our design available to select customers for HMA prototyping and technology evaluation of purchases.
We began shipping our first hardware units to customers.
We also expanded the footprint of licensed tier one customers integrating our technology.
I'm, especially excited about our recently announced commercial partnership with <unk>, one of the world's leading automotive technology companies.
Under our multi year license agreement, we are providing for visa access to our haptic technologies and solutions, including the product development materials I referenced earlier the <unk>.
Enable for each of the develop advanced interactive.
The user interfaces with our latest innovations.
In addition to Felicia, we also recently announced a multi year license agreement with the <unk> Industrial Company limited, a leading automotive component supplier and Korea. The agreement licenses our technologies for automotive touch screens.
Our continued technology innovations and new customer announcements favorably position us for continued growth as Oems the docs haptic interfaces throughout the vehicle, we look forward to keeping you updated on these partnerships.
And gaming, we're thrilled with the successful launch of the Sony Playstation five and its transformational dual sense controllers as previously shared Sony Interactive Entertainment is and immersion licensee and the Playstation five dual sense controllers utilize our technology.
Immersion collect the royalty for each controller and we expect more than one controller will ship per council overtime to support multi player gaming and to replace worn out controllers.
We received our first royalty report and revenue for the Playstation five dual of sense controller.
And Q4 it was in line with our expectations and we continue to expect the platform and controller to be very successful and the quarters and years ahead.
The positive market reception of the dual fence controller has catalyzed increased market interest and haptics, which we're seeing across the industry as well as and our customer and partner engagements.
And Q4, we executed a multi year renewal of our licensing agreement with <unk> and again peripheral Oems and offer sports feedback steering wheels and related racing and flight simulator equipment.
After the and utilizes advanced haptics to fully immerse, the gamer and recreate highly realistic driving dynamics of <unk>.
<unk> technology has also broad ravelin relevance and value to VR experiences and.
And I am excited to share two recent via our customer wins and.
We executed the multiyear technology license with sense arena of provider of VR products are athletes.
And to improve reaction time and performance.
Capex enabled sensor venous products to deliver highly realistic tactile feedback and opens up new training possibilities.
We also announced a multiyear technology license with Stryker, BR high and peripheral and platform OEM for VR and gaming experiences for upcoming consumer per of wells strike.
The Stryker, we are utilizing our technology to deliver fully immersive tactile effects, including realistic trigger capabilities.
It's peripheral will be available for use of popular VR platforms on the market.
We're excited about our opportunities and gaming and VR the.
Playstation Pride is off to a great start and our recent game and via our customer wins validate our beliefs.
We are well positioned for future growth.
Turning to mobile we continue to see signs of recovery and have a positive outlook for 2021 and beyond.
Samsung one of our largest licensees recently commented and as Q4 earnings call that it expects market demand for 2021 for its mobile business to recover to a pre COVID-19 levels.
Gardner the leading market research provider released an updated forecast earlier this month that predicts worldwide smartphone sales will grow 11% over 2020 the.
These perspectives reinforce our belief that the worst of Covid impact is behind US, we believe <unk> and new smartphone models will support strong shipments in the years ahead.
We're also pleased with our continued progress with our channel licensing program designed to address the China smartphone market.
This program enables our channel partners, including outweigh the.
The offer of license to emergence of patent portfolio in conjunction with select select haptic driver Ics.
Graham achieved its highest ever revenue in Q4.
As part of our long term strategy to support continued adoption of advanced haptics and mobile and adjacent markets. We are leading the development of industry standards last week, we announced the advanced television system Committee nominates ATSG.
Published emergence proposal as a recommended practice and haptics.
The three point out.
And the recommended practice enabled the addition of haptics and ATC three point of broadcast and broadband content streams on mobile devices capable of haptic feedback and.
Their efforts to provide haptic standard and pay this development strengthens the long term value of our IP portfolio and will support future growth through expanded licensing opportunities of our patents as well as implementations of our software products.
The emerging was recognized as the top 100 global innovator for the second year in a row and clarity a leader and providing trusted insights and analytics on research and the intellectual property.
Over the past year, we've optimized our research and patent prosecution process to maximize the return on our investments over the past quarter. We've.
We've had more patents issued related to our core initiatives, including the use of haptics and streaming media gaming and VR.
In summary, we are on a very positive trajectory and are excited about the opportunities ahead as haptics grows and the relevance and importance across our core markets and beyond.
And we've achieved sustained profitability and there are optimized operating structure.
As a result of all of these factors, we entered 2021 with momentum to deliver double digit percentage growth and revenue and profitability.
I'll now turn the call over to Erin for a review of our Q4 results before opening up the quality of your questions.
Thanks, Jared let.
And let me begin by referring you to this afternoon's press release for information regarding our Q4 2020 financial performance.
Total revenue of $10 9 million for Q4, 2020 was down 5% and total revenue of $11 5 million and the same quarter last year, but up over 40% sequentially.
Revenue from per unit royalty arrangements increased approximately zero point $4 million or 4% compared with the prior year quarter.
Revenue from fixed license fee arrangements was down 34% on a comparable basis, primarily due to a $1 1 million dollar fixed license fee.
<unk> customer recognized in the fourth quarter of 2019.
Recurring revenues represented 91% of revenues in Q4, 2020 versus 60% of revenues and the fourth quarter last year.
Our revenue mix for each line of business typically fluctuates quarterly due to seasonality patterns and for the fourth quarter of 2020, our breakdown by line of business as a percentage of total revenues was as follows 57% per mobility, 19% from gaming 24% from automotive.
Gross profit was $10 9 million compared to the gross profit of 11 $4 million and the same quarter of 2019.
Turning to operating expenses.
GAAP operating expenses of $5 7 million for the fourth quarter 2020 of them were down 48% or $5 $3 million from the comparable period last year.
The reduction and expenses for the quarter reflected our disciplined focus on costs through our various cost reduction initiatives, which resulted in $1 $7 million lower of litigation patents related and general legal costs, and one $3 million lower salaries and benefits expenses of <unk> $8 million lower per.
Professional service costs zero point $7 million, lower leasehold improvements and amortization as well as zero point $8 million or other expenses and the quarter.
Looking at our net results GAAP net income for the fourth quarter of 2020 was $8 1 million.
Or <unk> 30 per diluted share compared to GAAP net income of 1.0 million dollars' worth of <unk> per diluted share and the same quarter of 2019.
GAAP net income for the fourth quarter 2020 included a tax benefit of $2 2 million.
The resulting from the release of a valuation allowance on deferred tax assets of one of our foreign entities.
In addition to GAAP metrics, we use non-GAAP net income and non-GAAP net income per share to track our business performance.
As a reminder, we define non-GAAP net income as GAAP net income adjusted to reflect cash tax expense.
Stock based compensation depreciation and restructuring expenses.
On the non-GAAP basis, we had net income of $8 million or 29 cents per diluted share and.
And the fourth quarter compared to non-GAAP net income of $3 8 million or <unk> 12 per <unk>.
Diluted share and the same period last year.
And from a profitability standpoint, Q4, 2020 was the best quarter and the last five years, both the GAAP and non-GAAP basis with the exception of Q1 and 2018 and with.
The significant fixed license fee arrangement was reconciling the and recognize the.
And as Jared pointed out we expect to see double digit percentage growth and profit.
The profitability on the non-GAAP basis in fiscal 2021.
Let's move to the balance sheet overall.
Overall, our balance sheet remains strong with total cash and cash equivalents of $59 5 million after generating $3 million of cash flow from operations and the fourth quarter of 2020.
Cash declined by $30 million from the $89 5 million as of December 31, 2019.
Due to the share buyback program under which we used $36 million to repurchase $4 9 million shares and the first half of fiscal 2020 and.
And the provisional deposit of approximately $5 million needs.
Need to LG midyear for withholding taxes and LG.
He had to pay to the Korean tax authorities on <unk> behalf.
There had been no material updates and the South Korean tax cases, since our last conference call.
Before we open up the call for questions I'd like to note that given the circumstances Jarrett and I and the support team are all and separate locations. So please bear with us as we take a little extra time to process of your questions and deliver answers and real time we.
We appreciate your patience.
With that I will turn the call over to the operator to start the Q&A operator.
Thank you and ladies and gentlemen to ask a question and that is star one on your telephone keypad. Please note the Chinese speaker phone. Please pickup your handset or deep question. The function. So that we may hear your question.
And again that is star one to ask a question.
And we'll go first to Anthony Stoss of Craig Hallum.
Hey, Jared and nice quarter.
Couple of you rattled off several new auto wins during the quarter on this call.
And I'm curious if you can give us a sense or of cadence of when a lot of these designs will will come into play and I <unk>.
And you get and Ottawa and sometimes you have to wait three or four years for the production of that auto, but maybe just take us through kind of the cadence or what you expected growth rate for auto and then.
Secondly on Samsung do you know if you're completely penetrated across all product lines.
Understanding is in the past you guys, where more and the high Ed and is there a digital penetration you can do with Samsung.
And after those two I had one follow up.
Okay.
Great Great two great do you have the on the call.
In terms of of auto the.
You're right at the time the times of revenue can be.
A few years and some cases, if they are at the very front end of the of the design cycle, but that isn't always the case and with some of our newer licensees, we can be seeing revenue.
As soon as the <unk>.
And the following the year start and one of your timeframe, depending on where they are and their design cycle and when they're how they're working with us and when the licenses executed so that varies.
Somewhat so we do we do see continued growth and in automotive.
Particularly you'll see the acceleration.
Well actually you'll you'll see the benefit of the auto licensees and we have been signing.
This year and next year and then we will see an acceleration after that as adoption and picks up particularly in the mid range.
Area.
And then your second question was on Samsung.
Is that right. So so.
Without discussing the the.
All of the details of the agreement.
Essentially they are licensed across there's smartphone <unk> smartphone product line.
And so.
We arent and we aren't licensing and just one particular segment.
And our IP is used across.
And just and the market in general from low and close to high end zones.
Got it thanks for that and then as a follow up.
What I find most interesting was your comments related to the new markets.
The industrial medical I think you've talked about in the past, but household appliances. I think this is the first set of you guys of brought that up.
Can you give us use case scenarios I mean, it's I presume touched.
Touch buttons will be replaced with more of the haptic feedback, perhaps but maybe.
And maybe go in depth and talk about the Asps of the similar to mobile or just what you think you can do and the household appliance market.
So that's the.
And that's a great question and it's really very you mentioned touch buttons of being being replaced.
One of the one of the big trends that we're seeing is just generally touch.
Touch screen showing up on devices and in.
And interestingly, it's not just large refrigerators or washing machine and it can be printers or even smaller devices of the small screen on it and and so we're seeing interest in.
And getting the haptic feedback on the touch screen and where it may not exist today, just to kind of just to confirm to the to the user that they are actually getting a successful touch experience and so you'll see a lot of growth and specifically in the and the screens segment and screens.
Panels, and the screens get cheaper and cheaper of course, it's showing up on more and more of these devices and if you yourself have ever used. These you can tell sometimes that youre not sure whether you've actually got and the successful response of the touch screen and so it's adding haptics to that and if you recall of the comment that I made about.
And improved performance.
<unk> and cost and actuators that helps drive that market as well right and drive haptics and those applications as well.
In terms of Asps.
Yes.
And typically with those.
Larger screens, and particularly youre going to see higher asps and like we've talked about and motive of mobile and compare it to two and automotive as compared to mobile and.
It was also the depends on on the volume I don't want of course specific numbers, yet, but it generally would follow that trend as you go to those larger screens and the similar applications of the asp's it would be higher than mobile.
And then just as a follow up to that Samsung being your biggest customer and then the mobile side clearly there are one of the biggest the household appliance makers is it fair to assume that.
And there are likely potential customer here could you generate revenue this year and the household appliances and site and does it go beyond just Samsung perhaps for appliances.
So I can't comment on specific customers.
But.
There are there are there are basically appliances and and other products that are currently using haptics and and we have some licensees already.
And in certain types of product categories that would that could fit into that broader category.
In terms of.
New revenue I don't expect to see anything this year from the appliances, because it's not one of our core focus markets, it's more of a and other markets that.
We keep and I am and the net we engage with the customers.
When.
And when the need arises when we start seeing adoption of increase that would be my and the general answer of that question, we're really focused on automotive and gaming.
Gaming and mobile primarily but.
The reason, we mentioned that about these other markets and these new markets is to talk about the we still look at those opportunities when you think the day or any.
Testing and have a meaningful return.
Thanks for the color, Jerry I will jump back and the Hugh.
Thank you.
And our next question will come from Derek Soderberg from Clarus Securities.
Hi, guys. Thanks for taking my questions.
I'm just curious how are you feeling about the Playstation five deal overall do you think the royalty rate is sort of in line with the value of that it brings and going forward do you think new gaming controllers lots of similar content of that of the Playstation four and how do you think youre going to have more pricing power with new customers that I have a follow up.
Okay.
Okay.
So to answer your question I'm very happy about the the Sony license and and the and the.
The soap and the economics of the protect the potential of that that's certainly something that I'm feeling very good about.
And.
So and he has a strong secured with strong track record with their consoles and the ship over a long period of time on it and high volume and so I'm very excited about that.
In terms of I presume you mean other control of as you mean like other games and game controller manufacturers and presumably what you're talking about.
Yeah, Yeah the SBC.
Yes, the asp's area of that and it depends on.
On.
What exactly the peripheral is and the volumes they have but we capture of pretty good range of Asps and that market currently and I do I do see that particularly in those higher value per.
Referrals of which there are many different types, we would certainly see.
Higher asp's there.
Got it.
And then with that.
Our idea of a follow up unless you wanted to add something else.
No no go ahead.
Yeah, and then Erin.
I guess you guys of exiting the year with Opex around $3 5 million I'm. Just curious how we should think about opex levels, where they're at today and at these levels can you support some of the initiatives that you guys have laid out and gaming and mobile thanks.
Yes, so as we can.
We've said.
And that we can sustain the business at the Opex between non-GAAP Opex between 17, and 19, where we're currently.
A little bit below that but we continue to believe that that provides ample room.
To run the business and you know.
Increase the.
The spending in the disciplined way on particular.
Visiting customers and some additional marketing programs things of that nature.
Continue to believe that's the.
The sustainable level for us.
Got it thanks.
Okay.
And with that that does conclude our question and answer session I would like to turn the call back to our presenters for any additional or closing comments.
Thanks, operator, and thank you to all of you for joining us on this call today.
I'm very excited with our continued progress and our financial results. We are well positioned to drive continued adoption of haptics and our core markets and grow the company. We look forward to sharing updates on this effort and future calls.
And <unk> and goodbye.
And with that ladies and gentlemen that does conclude today's call we'd like to thank you again for your participation you may now disconnect.
[music].
And.
The.
Yeah.
[music].