Q2 2021 Immersion Corp Earnings Call

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Good day, everyone and welcome to the immersion second quarter 2021 earnings call at this time I would like to turn the conference over to Aaron Akerman. Please go ahead.

Good afternoon, and thank you for joining us today on immersion second quarter 2021 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 Dot 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 litigation or absence of litigation anticipated future products future expense reductions anticipated tax expenses anticipated market demand or opportunity.

Our operating model and other forward looking topics.

These statements are subject to risks uncertainties and assumptions, especially in light of the ongoing adverse effects of the <unk>.

<unk> at 19 global pandemic.

Many of these risks and uncertainties are beyond the control of 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 immersion annual report on Form 10-K for 2020 and its most recent quarterly report on Form 10-Q, which are on file with the U S Securities and Exchange Commission.

The forward looking statements mentioned on this call reflect immersion beliefs and predictions as of today.

Immersion does not intend to update these forward looking statements as a result of financial business or any other developments occurring after the date of this release or to update the reasons actual results could differ materially from those anticipated in these forward looking statements, even if new information becomes available in the future except as required.

Feared by law.

Additionally, please note that during this call we may discuss non-GAAP financial measures for each non-GAAP financial measure discussed.

A presentation of the most directly comparable GAAP financial measure and a reconciliation of the differences between the non-GAAP financial measure discussed and the most directly comparable GAAP financial measure is available in today's press release with that said I'll turn the call over to Jarrett.

Thanks, Erin and thanks, everyone for joining us on the call today or listening via webcast.

The results that we're reporting today reflect the continued success of our customers and partners and developing and shipping high performance haptic products and solutions in our core markets of automotive gaming and mobile.

Our revenue grew 94% compared to the second quarter of 2020, and our GAAP net income was $5.3 million compared to a GAAP net loss of.

Zero point $7 million in the same quarter of last year.

We saw revenue growth in all of our core markets.

In automotive we remain on track for double digit percent revenue growth in fiscal 2021 compared to fiscal 2020.

In Q2, we expanded our license agreement with Stanley a leading provider of electronic components to cover automotive product.

Stanley now has access to our innovative haptic technology for touch based automotive products.

The addition of Stanley strengthens our position in the market as it builds on our existing tier one license fee base, including for Russia.

Alpine continental and many others.

We are engaged with several Oems and tier ones, who are evaluating our technology and haptics for new vehicles and interfaces interfaces. We continue to believe in the long term potential of haptics in Automotives and our ability to address this market.

In gaming, we're excited that Sony Interactive Entertainment recently announced the Playstation five surpassed 10 million units sold making.

Making it the fastest selling console and Sony history.

Immersion innovations are central to the Playstation five experience.

The dual sense controller has become the industry benchmark for performance and gamers are purchasing them to use on a range of platforms.

Sony also previously announced that many of the haptic innovations from the dual sense controller will be implemented in its forthcoming new VR controllers.

The success of our technology and Sony products, because it positions us nicely with the growing use of advanced haptics in gaming and VR.

We also remain on track to achieve double digit percent revenue growth in gaming and fiscal 2021 compared to fiscal 2020.

In mobile we continue to focus on driving revenue growth from the China market through our channel licensing program.

We recently announced a new channel partnership with tightened haptics, the Canadian based developer of advanced Haptic motors to make our haptic IP available to mobile phone and wearable Oems that incorporate its actuators.

Titan Haptics actuators are based on a new technology is developed to deliver compelling high definition experiences.

This partnership expands the footprint of component suppliers offering a channel license options servicing China and other global markets.

Haptics is essential to today's smartphone experiences, including mobile gaming.

Pleased to share that suits the company behind the powerful <unk> gaming smartphones executed a multiyear renewal license for its use of immersion touch sense software and technology and its mobile products.

Our mobile segment revenue remains on track to meet or exceed our 2020 segment revenue.

We also see interest in haptics from companies in adjacent markets or seeking to leverage tactile feedback to improve the user experience in their products.

I am pleased to share that peloton, a leading interactive fitness platform provider executed a technology license with immersion in Q2.

As part of the agreement we are also providing engineering services to support development of new products.

As part of our long term strategy to support continued adoption of advanced haptics in our target market segments, we are leading development of industry standards.

Last quarter, we reported that Mpeg approved call for proposals for coding of haptic effects.

Multiple companies have submitted candidate proposals, which are currently under evaluation.

We look forward to keeping you updated on this initiative.

These wins and developments demonstrate our continued progress driving adoption of our technology across the ecosystem.

I'll now turn the call over to Erin for a review of our Q2 results.

Thanks Jared.

Let me begin by referring you to this afternoon's press release for information regarding our Q2.2021 financial performance.

Revenue of $11 million.

For Q2, 2021 was up 94% from total revenue of $5.7 million in the same quarter last year Rev.

Revenue from per unit royalty arrangements increased approximately $4.8 million or 111% compared with the prior year quarter.

Primarily due to increased volume from both mobile mobility and gaming licensees.

Fixed fee license revenue increased zero point $5 million in the three months ended June 32021, compared to the same period in 2020, mainly due to fixed fee payments from new and existing automotive licensees.

Recurring revenues represented 91% of revenues in Q2, 2021 versus 98% of revenues in the second quarter last year.

Our revenue mix for each line of business typically fluctuates quarterly due to seasonality patterns and for the second quarter of 2021, a breakdown by line of business as a percentage of total revenues was as follows.

61% from mobility, 21% from gaming and 18% from automotive.

Gross profit was $11 million compared to gross profit of $5.6 million in the same quarter of 2020.

Turning to operating expenses.

GAAP operating expenses of $5.2 million for the second quarter of 2021 were down 23% or $1.5 million from the comparable period last year.

The reduction in <unk> expenses for the quarter reflected our disciplined focus on costs through our various cost reduction initiatives, which resulted in zero point $5 million.

Lower litigation patent related at general legal costs zero point $4 million lower professional service costs.

Zero point $4 million lower facilities expenses as well as <unk> 2 million lower other expenses in the quarter.

Looking at our net results GAAP net income for the second quarter of 2021 was $5.3 million or <unk> 17 per diluted share compared to GAAP net loss of <unk> 7 million or <unk> <unk> per diluted share in the same quarter of 2020.

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 less stock based compensation depreciation and restructuring expenses on a non-GAAP basis. We had net income of $7.2 million or <unk> 23 per diluted share in the second quarter compared to non-GAAP net.

Income of zero point $8 million or <unk> <unk> per diluted share in the same period last year.

Moving on to the balance sheet overall, we had total cash and cash equivalents of $107.3 million as of June 32021. This represents a $47.8 million an increase from the $59.5 million as of December 31, 2020.

Overall, our Q2 revenue performance was better than originally anticipated.

And as a result of the uncertainty caused by the recent delta variance and the potential impact that may have on our licensees businesses. We may not see continued increases in revenue on a quarterly basis off of this Q2s performance we.

We remain cautiously optimistic about our future performance, but at the same time also recognize that Q2 wasn't outstanding quarter, and we may face tougher headwinds from the impact of the resurfacing of Covid and supply chain issues on our licensees.

We remain confident in our ability to manage our cost structure and expect to remain profitable and to continue to generate positive free cash flow in the coming quarters, Despite the tough business environment.

Thanks Darrin.

We are very pleased with the significant improvement in our financial results compared to Q2.2020.

We generated 94% revenue growth, while reducing our operating expenses by over 20%.

And our balance sheet considerably in the same period.

We continue to achieve sustained profitability under our optimized operating structure and.

Im excited that we remain on track to deliver double digit percent year over year growth in revenue and profitability.

I look forward to keeping you updated on our progress.

Before we open up the call for questions I'd like to note that given the circumstances, Erin and I and support team are all in separate locations. So please bear with us as we take a little extra time to process your questions and deliver answers in real time, we appreciate your patience.

With that I will turn the call over to the operator to start Q&A operator.

Thank you if you'd like to ask a question. Please press star followed by the number one on your telephone keypad, if youre, calling from a speaker phone. Please make sure. Your mute function is off to ensure your signal can reach our equipment.

Again star one to ask a question and first we'll go to Anthony Stoss from Craig Hallum. Your line is open.

Hi, guys really nice quarter.

Easy one for you first Aaron on the Opex side of things do you expect it to remain relatively flat going forward or up or down a little bit and then.

I know youre not guiding for Q3, but typically and seasonally your September quarter would be up sequentially in a reasonably that that wouldn't be the case. This time and then maybe for Jared related to I guess tightened and just your penetration into the Chinese handset market place.

How much do you think title will help you with that Chinese smartphone space. Thanks.

Okay. Thanks for the question Toni So first on the Opex.

Previous guidance was that we expected to be sustainably within 17% to $19 million.

Non-GAAP Opex, we're running below that now and while we previously said.

That could go up once you start traveling more and doing more marketing activities certainly we're not anticipating doing a lot of that.

Next quarter, giving given the resurfacing of Covid and some of those other issues.

So.

I don't expect it to increase significantly but longer term it could be.

And the range of 17 to 19.

Success.

And with respect to the seasonality, while it's true that Q3 typically is a strong quarter for us.

Given the outstanding performance in Q2.

And how that was above our expectations.

And the resurfacing of Covid and supply chain issues and our licensees.

We.

You mean or.

We will continue to.

Beach.

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Q3 on a sequential basis compared to Q2.

Okay, I'm Gonna Jarrod.

Great.

Yes.

Again, where we're pleased with the with how things are going with our channel licensing.

With tightened its I'm.

I'm not able to actually estimate the specific impact.

This is coming at it from the angle of actuators in a new technology. It may it may take some time for that technology to be adopted.

But we see the potential to grow the overall, China licensing program with their participation.

Okay.

Okay, and then if I may two two quick follow ups I think in the past you've commented about you think the auto segment will likely be your fastest growing albeit smaller than the other two.

Curious if that's still the case.

And then I don't think you've disclosed in the past what you mentioned on this call about peloton and being a license how are they using it do you think there's other applications.

Or kind of consumer devices.

So on the first question with automotive.

We just just based on the.

Adoption and what the Oems are saying, we do consider it that it'll it'll keep growing and there is a longer lag time or a longer time to production in that market. So that's something that just grows.

Steadily over time.

So, but we still anticipate that over time that will continue to grow.

And then on your second question.

In regards to.

I can't talk too much about specifically, what we're what we're doing with them, but as far as.

Other markets, we do see the potential in other markets for haptics outside of our core markets.

In other consumer devices kind of outside of gaming and so there is some potential there. So that's something that we keep an eye on and we do talk to some customers about but there is there is some longer term potential for that definitely.

Thanks, Gerry appreciate it.

And again, if you'd like to ask a question. Please press star one at this time next we'll go to Derek Soderberg from call. Your Securities. Your line is open.

Hey, guys. Thanks for taking my questions My congrats as well on the strong results I wanted to start with automotive I was wondering if you guys can provide any more detail about what's sort of going on in there on the upside and I think in the past you guys have received upfront payments in that segment is.

Is that the reason at all for any of the upside and if you guys could sort of segment, where that revenue growth is coming from by application knows that primarily touch.

Touch screen infotainment systems, and how much of it is screens versus buttons on the steering wheel.

Anything there would be great.

That's all over so the first part of it part of your question I'll go ahead, there were yes.

There were there were a couple of upfront payments in the automotive sector, which I alluded to earlier in my comments part of part of those were fixed fee payments that we received from automotive licensees.

Yeah.

And then regarding wearing yes regarding the regarding the different applications.

It's actually it's where we're seeing we're seeing button applications and screen applications.

The different applications, whether the buttons are in the center council or on the Dash say so that continues.

And then.

And screens as it.

As screens become more prevalent than in cars.

Just at the high end range I don't have a specific distribution that that kind of changes over time, but I would say that the.

The applications are still.

Across those different those different modalities.

Got it got it and then just looking at your cash balance and operating model. I think you guys are gonna be generating cash from here.

You guys talked about sustained profitability.

I guess I was just curious if you can provide some reasons on why you guys are going out and raising money now it seems like to me it could be for an acquisition you guys. I'm just curious if you're more active in that space and M&A.

And then what sort of would be the area of interest for you guys in that case.

Would it be.

For more patents or hardware or both any detail there would be helpful. Thanks.

So we have no ongoing engagements with respect to M&A activities I mean did you.

Look at things from time to time and keep it keep our eyes open on what's out there.

There's nothing that we're in.

With it at the current time and with respect to you know.

Yeah.

The ATM in general just refer you to our public SEC public filings, which as you know completed information with them.

Got it and then where are you at with that.

That new offering how much have you.

It's sort of gone out in <unk>.

Hold so far and do you guys what sort of the timeline on you guys using that.

Any updated commentary on that would be helpful as well.

So.

Any of the information that we're able to disclose in our 10-Q filed this this afternoon as well as in our previous public filings.

Okay. Thanks.

And at this time I'll turn it back to Gerry Smith for closing remarks.

Thanks, operator.

Thanks to you all for joining us on the call today very excited with our continued progress and financial results were well positioned to drive continued adoption of haptics in our core markets and grow the company.

We look forward to sharing updates on this effort in future calls thank.

Thank you and goodbye.

Yeah.

And that does conclude our call for today. Thank you for your participation you may now disconnect.

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