Immersion Corporation Reports Fourth Quarter and Full Year 2018 Results

SAN JOSE, Calif.–(BUSINESS WIRE)–Immersion Corporation (NASDAQ: IMMR), the leading developer and licensor
of touch feedback technology, today reported financial results for the
fourth quarter and year ended December 31, 2018.

Effective January 1, 2018, the company adopted a new revenue recognition
standard (“ASC 606”), which impacted the company’s recognition of
revenue from certain of its fixed-fee and per-unit license agreements.
The company adopted ASC 606 using the modified retrospective method,
which means that the total amount of revenue reported for the fourth
quarter and fiscal year ended December 31, 2017 have not been restated
in the current financial statements. In the interest of comparability
during the transition year to ASC 606, the company has provided fourth
quarter and fiscal year 2018 revenue, net income (loss) and earnings
(loss) per share information in accordance with both ASC 606 and revenue
recognition rules in effect prior to the adoption of ASC 606 (“ASC 605”).

Results for the quarter ended December 31, 2018

Total revenues for the fourth quarter of 2018 were $10.9 million.
Royalty and license revenues for the fourth quarter of 2018 were $10.8
million.

Net loss for the fourth quarter of 2018 was $(3.1) million, or $(0.10)
per diluted share.

Non-GAAP net loss for the fourth quarter of 2018 was $(678) thousand, or
$(0.02) per share. (See attached table for a reconciliation of GAAP to
non-GAAP financial measures.)

Results for the year ended December 31, 2018

Revenues for 2018 were $111.0 million. Royalty and license revenues for
2018 totaled $110.6 million.

Net income for 2018 was $54.3 million, or $1.73 per diluted share.

Non-GAAP net income for 2018 was $63.2 million, or $2.01 per diluted
share. (See attached table for a reconciliation of GAAP to non-GAAP
financial measures.)

As of December 31, 2018, Immersion’s cash, cash equivalents and
short-term investments were $124.9 million, compared to $46.5 million as
of December 31, 2017.

Management Commentary and Business Outlook

“I am thrilled to be leading Immersion at this pivotal time for the
company. I have been extremely impressed with the talent, innovative
haptic solutions, product roadmap, and strength and depth of the
foundational intellectual property portfolio,” said Ramzi Haidamus,
Chief Executive Officer of Immersion. “We see a tremendous opportunity
for Immersion to capitalize on these assets and lead the widespread
adoption of touch feedback and related technologies in a much broader
array of products and markets. We will work diligently to refine our
strategic approach to prioritize and capitalize on the market growth in
front of us while paving a path towards sustainable profitability. Over
the next few quarters, we have modest expectations for our revenue as we
build a more robust and valuable business for the future.”

“We are pleased with the financial results that Immersion achieved in
2018, which demonstrate the value proposition that we bring to our
customers and the market amidst the expanding adoption of haptics, as
well as the shareholder value that can be generated through our business
model,” said Nancy Erba, Chief Financial Officer of Immersion. “Our
revenue outlook for 2019 is anticipated to be in the range of $24
million to $30 million, predominantly consisting of per unit royalties.
This range reflects our expectations regarding the timing and structure
of new customer agreements, and the related revenue treatment under ASC
606. We expect 2019 non-GAAP net loss to be between ($19) million and
($28) million.”

Recent Business Highlights

  • Signed a license agreement with Dongwoon Anatech Co Ltd. (Dongwoon) to
    make Immersion haptic patent licenses available to mobile phone and
    wearable OEMs through Dongwoon. Under the agreement, mobile phone and
    wearable OEMs that acquire certain Dongwoon haptic driver ICs will
    have seamless access to Immersion’s 25 years of haptic experience and
    portfolio.
  • Filed a patent infringement lawsuit on February 25, 2019 against
    Samsung Electronics GmbH in Mannheim District Court in Germany
    alleging that certain Samsung touchscreen phones infringe our newly
    issued German Patent 602008058897.1 (EP Patent 2463752), a counterpart
    of U.S. Patent No. 8,619,051, “Haptic Feedback System with Stored
    Effects,” which patent is being asserted against Samsung Electronics
    America, Inc. and Samsung Electronics Co., Ltd. and was previously
    asserted against Apple.
  • Announced the addition of 500 patents in the past eight months
    demonstrating the commitment to continuous innovation, and the
    achievement of a milestone highlighting the growing impact of haptics
    with 3,500 haptics patents issued or pending worldwide.
  • Signed a license agreement with Seoyon, a leading international
    supplier of automotive systems and products, providing access to
    Immersion’s patented haptic technology for use in Seoyon’s in-vehicle
    touch button panels, touch pads, and rotary switches.
  • Entered into a multi-year agreement with Google under which the
    companies will explore opportunities to collaborate on incorporating
    haptics in Google’s next-generation hardware products. The agreement
    also provides Google with a license to Immersion’s patent portfolio
    for Google’s Pixel line of phones and other Google hardware.

Conference Call Information

Immersion will host a conference call with company management on
Tuesday, February 26, 2019 at 2:00 p.m. Pacific time (5:00 p.m. Eastern
time) to discuss financial results for the fourth quarter and fiscal
year ended December 31, 2018. To participate on the live call, analysts
and investors should dial +1 877‐260‐1479 (conference ID: 2589877) at
least ten minutes prior to the start of the call. A live and archived
webcast of the conference call will also be available for 90 days within
the investor relations section of Immersion’s corporate Web site at www.immersion.com.

About Immersion

Immersion Corporation (NASDAQ:IMMR) is the leading innovator of touch
feedback technology, also known as haptics. The company provides
technology solutions for creating immersive and realistic experiences
that enhance digital interactions by engaging users’ sense of touch.
With more than 3,500 issued or pending patents, Immersion’s technology
has been adopted in more than 3 billion digital devices, and provides
haptics in mobile, automotive, advertising, gaming, medical and consumer
electronics products. Immersion is headquartered in San Jose,
California with offices worldwide. Learn more at www.immersion.com.

Use of Non-GAAP Financial Measures

Immersion reports all financial information required in accordance with
generally accepted accounting principles (GAAP), but it believes that
evaluating its ongoing operating results may be difficult to understand
if limited to reviewing only GAAP financial measures. Immersion
discloses this non-GAAP information, such as Non-GAAP net income (loss)
and Non-GAAP net income (loss) per share, because it is useful in
understanding the company’s performance as it excludes certain non-cash
expenses like stock-based compensation expense and other special
charges, such as deferred tax assets valuation allowance and
restructuring costs, that many investors feel may obscure the company’s
true operating performance. Likewise, management uses these non-GAAP
financial measures to manage and assess the profitability of its
business. Investors are encouraged to review the related GAAP financial
measures.

Forward-looking Statements

This press release contains “forward-looking statements” that involve
risks and uncertainties as well as assumptions that, if they never
materialize or prove incorrect, could cause the results of Immersion
Corporation and its consolidated subsidiaries to differ materially from
those expressed or implied by such forward-looking statements.

All statements, other than the statements of historical fact, are
statements that may be deemed forward-looking statements, including, but
not limited to, the company being uniquely positioned to continue to
innovate and lead in haptic technology, prioritizing and capitalizing on
the market growth in front of us which paving a path toward sustainable
profitability, demonstrating the value proposition that we bring to our
customers and the market amidst the expanding adoption of haptics, as
well as the shareholder value that can be generated through our business
model, our revenue outlook for 2019 anticipated to be in the range of
$24 to $30 million, predominantly consisting of per unit royalties,
reflecting our expectations regarding the timing and structure of new
customer agreements and related revenue treatment, and our expectation
that non-GAAP net loss will be between ($19) and ($28) million for 2019.
Immersion’s actual results might differ materially from those stated or
implied by such forward-looking statements due to risks and
uncertainties associated with Immersion’s business, which include, but
are not limited to, potential and actual claims and proceedings,
including litigation involving Immersion’s intellectual property; the
impact of litigation developments on existing and potential customers;
delay in or failure to achieve commercial demand for Immersion’s or its
licensees’ products; the impact of new accounting standards that will
affect key items such as revenue recognition and sales commissions;
unexpected difficulties in monetizing the patent portfolio; the
commercial success of applications or devices into which Immersion’s
technology is licensed; the continued popularity of mobile games and
wearables; potentially lengthy sales cycles and design processes;
unanticipated difficulties and challenges encountered in development
efforts; unexpected costs; the fact that certain target markets are
still relatively nascent; risks associated with doing business
internationally; litigation costs in any current or future litigation;
failure to retain key personnel; ability to retain personnel;
competition; the inherently uncertain nature of litigation which makes
future outcomes and timing difficult to predict; the impact of global
economic conditions and foreign currency exchange rates and other
factors. 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 Immersion’s Annual Report on Form 10-K
for 2017 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 in this press release reflect Immersion’s
beliefs and predictions as of the date of this release. Immersion
disclaims any obligation to update these forward-looking statements as a
result of financial, business, or any other developments occurring after
the date of this release.

Immersion, the Immersion logo and TouchSense are trademarks or
registered trademarks of Immersion Corporation in the United States and
other countries. All other trademarks are the property of their
respective owners.

The use of the word “partner” or “partnership” in this press release
does not mean a legal partner or legal partnership.

(IMMR – C)

 
Immersion Corporation
Condensed Consolidated Balance Sheets
(In thousands)
   
 
December 31,
2018 2017
(1) (1)
ASSETS
Cash and cash equivalents $ 110,988 $ 24,622
Short-term investments 13,930 21,916
Accounts and other receivables 1,051 806
Prepaid expenses and other current assets   9,856     736  
Total current assets 135,825 48,080
Property and equipment, net 2,343 3,150
Deferred income tax assets 295 401
Other assets   7,532     344  
TOTAL ASSETS $ 145,995   $ 51,975  
LIABILITIES
Accounts payable $ 3,612 $ 6,647
Accrued compensation 3,948 4,133
Other current liabilities 3,194 3,896
Deferred revenue   4,591     4,424  
Total current liabilities 15,345 19,100
Long-term deferred revenue 30,203 22,303
Other long-term liabilities   787     915  
TOTAL LIABILITIES 46,335 42,318
STOCKHOLDERS’ EQUITY   99,660     9,657  
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY $ 145,995   $ 51,975  
 
(1) Derived from Immersion’s annual audited consolidated financial
statements.
 
Immersion Corporation
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
       
 
Three Months Ended Year Ended
December 31, December 31,
2018 2017 2018 2017
(1) (1) (2) (2)
Revenues:
Royalty and license $ 10,768 $ 6,662 $ 110,557 $ 34,089
Development, services, and other   99     234     422     924  
Total revenues   10,867     6,896     110,979     35,013  
 
Costs and expenses:
Cost of revenues 28 39 218 197
Sales and marketing 1,664 3,374 6,118 13,516
Research and development 2,575 2,621 9,727 11,759
General and administrative 10,146 11,458 41,815 53,343
Restructuring Costs       1,620         1,620  
Total costs and expenses   14,413     19,112     57,878     80,435  
 
Operating income (loss) (3,546 ) (12,216 ) 53,101 (45,422 )
Interest and other income   483     107     1,634     611  
 
Income (loss) before provision for income taxes (3,063 ) (12,109 ) 54,735 (44,811 )
 
Provision for income taxes   (79 )   (185 )   (392 )   (480 )
 
Net income (loss) $ (3,142 ) $ (12,294 ) $ 54,343   $ (45,291 )
Basic net income (loss) per share $ (0.10 ) $ (0.42 ) $ 1.78   $ (1.55 )
Shares used in calculating basic net income (loss) per share   30,814     29,250     30,459     29,179  
Diluted net income (loss) per share $ (0.10 ) $ (0.42 ) $ 1.73   $ (1.55 )
Shares used in calculating diluted net income (loss) per share   30,814     29,250     31,407     29,179  
 
(1): Unaudited quarterly financial data
(2): Derived from Immersion’s annual audited consolidated financial
statements.
 
Immersion Corporation
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
       
 
Three Months Ended December 31,
2018 2017

As Reported
(ASC 606)

Adjustments* ASC 605*

As Reported
(ASC 605)

(1) (1) (1) (1)
Revenues:
Fixed fee license revenue $ 1,618 $ 2,315 $ 3,933 $ 1,419
Per-unit royalty revenue   9,150     (4,208 )   4,942     5,243  
Total royalty and license revenue 10,768 (1,893 ) 8,875 6,662
Development, services, and other   99         99     234  
Total revenues 10,867 (1,893 ) 8,974 6,896
Total costs and operating expenses   14,413         14,413     19,112  
Operating loss (3,546 ) (1,893 ) (5,439 ) (12,216 )
Interest and other income   483         483     107  
Loss before provision for income taxes (3,063 ) (1,893 ) (4,956 ) (12,109 )
Provisions for income taxes   (79 )       (79 )   (185 )
Net loss $ (3,142 ) $ (1,893 ) $ (5,035 ) $ (12,294 )
Basic net loss per share $ (0.10 ) $ (0.06 ) $ (0.16 ) $ (0.42 )
Diluted net loss per share $ (0.10 ) $ (0.06 ) $ (0.16 ) $ (0.42 )
 
 
Year Ended December 31,

2018

2017

As Reported
(ASC 606)

Adjustments* ASC 605*

As Reported
(ASC 605)

(2) (2) (2) (2)
Revenues:
Fixed fee license revenue $ 83,573 $ (68,094 ) $ 15,479 $ 12,575
Per-unit royalty revenue   26,984     (8,482 )   18,502     21,514  
Total royalty and license revenue 110,557 (76,576 ) 33,981 34,089
Development, services, and other   422         422     924  
Total revenues 110,979 (76,576 ) 34,403 35,013
Total costs and operating expenses   57,878         57,878     80,435  
Operating income (loss) 53,101 (76,576 ) (23,475 ) (45,422 )
Interest and other income   1,634         1,634     611  
Income (loss) before provision for income taxes 54,735 (76,576 ) (21,841 ) (44,811 )
Provisions for income taxes   (392 )       (392 )   (480 )
Net income (loss) $ 54,343   $ (76,576 ) $ (22,233 ) $ (45,291 )
Basic net income (loss) per share $ 1.78   $ (2.51 ) $ (0.73 ) $ (1.55 )
Diluted net income (loss) per share $ 1.73   $ (2.51 ) $ (0.73 ) $ (1.55 )
 
*The Company is presenting the ASC 606 results together with the
adjustments made to reconcile the ASC 606 presentation to the
results that would have been applicable under ASC 605. The ASC 605
information should be considered in addition to, not as a substitute
for, nor superior to or in isolation from, the financial information
prepared in accordance with ASC 606.
 
(1): Unaudited quarterly financial data
(2): Derived from Immersion’s annual audited consolidated financial
statements and notes.
 
Immersion Corporation
Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income
(Loss)
(In thousands, except per share amounts)
(Unaudited)
       
 
Three Months Ended Year Ended
December 31, December 31,
2018 2017 2018 2017
 
GAAP net income (loss) $ (3,142 ) $ (12,294 ) $ 54,343 $ (45,291 )
 
Add: Provision for income taxes 79 185 392 480
 
Less: Non-GAAP provision for income taxes (35 ) (71 ) (213 ) (268 )
 
Add: Restructure Costs 1,620 1,620
 
Add: Stock-based compensation   2,420     2,029     8,686     6,102  
 
Non-GAAP net income (loss) $ (678 ) $ (8,531 ) $ 63,208   $ (37,357 )
 
Non-GAAP net income (loss) per share $ (0.02 ) $ (0.29 ) $ 2.01   $ (1.28 )
 
Dilutive shares used in calculating Non-GAAP net income (loss) per
share
  30,814     29,250     31,407     29,179  
 
Immersion Corporation
Revenue by Line of Business
(Unaudited)
                   
 
Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 FY’17 FY’18
Mobility 32% 44% 71% 39% 90% 45% 66% 45% 48% 81%
 
Gaming 47% 25% 17% 37% 2% 27% 15% 14% 31% 5%
 
Automotive 12% 22% 9% 22% 8% 27% 17% 36% 15% 13%
 
Medical 9% 9% 3% 2% 0% 1% 2% 5% 6% 1%
 
Immersion Corporation
Reconciliation of GAAP Operating Expenses to Non-GAAP Operating
Expenses
(In thousand)
(Unaudited)
       
 
Three Months Ended Year Ended
December 31, December 31,
  2018       2017     2018       2017  
 
GAAP operating expenses $ 14,385 $ 19,073 $ 57,660 $ 80,238
 
Adjustments to non-GAAP operating expenses:
 
Stock-based compensation expense – S&M (271 ) (217 ) (946 ) (1,025 )
 
Stock-based compensation expense – R&D (566 ) (201 ) (1,948 ) (981 )
 
Stock-based compensation expense – G&A (1,583 ) (1,611 ) (5,792 ) (4,096 )
 
Depreciation and amortization expense   (208 )   (239 )   (855 )   (968 )
 
Non-GAAP operating expense $ 11,757   $ 16,805   $ 48,119   $ 73,168  

Contacts

Investor Contact:
The Blueshirt Group
Jennifer Jarman
+1
415.217.5866
jennifer@blueshirtgroup.com

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