Immersion(IMMR) - 2019 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents Immersion Corporation's Q1 2019 financial statements, management's analysis, market risk, and internal controls Financial Statements Immersion Corporation reported a significant Q1 2019 financial decline with plummeting revenues, a net loss, and negative operating cash flow Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $102,654 | $110,988 | | Total current assets | $127,892 | $135,825 | | Total assets | $148,481 | $145,995 | | Total current liabilities | $24,865 | $15,345 | | Total liabilities | $57,548 | $46,335 | | Total stockholders' equity | $90,933 | $99,660 | Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Total revenues | $5,122 | $85,416 | | Operating income (loss) | $(11,499) | $70,105 | | Net income (loss) | $(11,016) | $69,883 | | Diluted net income (loss) per share | $(0.35) | $2.29 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(7,578) | $86,203 | | Net cash provided by (used in) investing activities | $(936) | $2,133 | | Net cash provided by financing activities | $180 | $6,170 | | Net increase (decrease) in cash and cash equivalents | $(8,334) | $94,506 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue recognition, fair value, stock compensation, and legal contingencies with Samsung and LG - The company adopted ASC 842 (Leases) on January 1, 2019, recognizing right-of-use (ROU) assets of $4.0 million and lease liabilities of $4.9 million on the balance sheet[30][84] Disaggregated Revenue (in thousands) | Revenue Type | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Fixed fee license revenue | $1,740 | $75,756 | | Per-Unit royalty revenue | $3,307 | $9,579 | | Total royalty and license revenue | $5,047 | $85,335 | - The company recorded a $6.9 million deposit related to pending litigation with Samsung, paid in April 2019 following an arbitration award, with expected reimbursement upon appeal success[58][92][93] - An ongoing legal dispute with LG Electronics (LGE) concerns withholding taxes imposed by Korean tax authorities, with the company appealing a ruling and believing LGE's claims lack merit[94] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2019 revenue decline to lower fixed-fee and per-unit royalties, increased legal expenses, and negative operating cash flow Revenue Comparison (in thousands) | Revenue Type | Q1 2019 | Q1 2018 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Fixed fee license revenue | $1,740 | $75,756 | $(74,016) | (98)% | | Per-unit royalty revenue | $3,307 | $9,579 | $(6,272) | (65)% | | Total revenues | $5,122 | $85,416 | $(80,294) | (94)% | - The decrease in fixed fee license revenue was primarily due to material license agreements with mobility customers in Q1 2018[108] - Per-unit royalty revenue decreased mainly due to a $5.1 million decline in automotive royalties, as certain 2018 agreements recognized minimum royalty provisions upfront[107] - General and administrative expenses increased by $1.5 million (13%), primarily due to a $1.2 million rise in legal expenses for IP portfolio protection[114] - Cash, cash equivalents, and short-term investments totaled $117.6 million at March 31, 2019, a $7.3 million decrease from year-end 2018, driven by a $93.8 million negative swing in operating cash flow[123][125] Quantitative and Qualitative Disclosures about Market Risk The company faces interest rate risk on investments, while foreign currency risk is immaterial due to U.S. dollar-denominated transactions - The company's $117.6 million in cash equivalents and short-term investments are subject to interest rate fluctuations, where a 100 basis point increase would decrease fair value by approximately $72,000[132] - Foreign currency exchange rate risk is limited as most international revenues and expenses are denominated in U.S. dollars, and the company does not use hedging instruments[134] Controls and Procedures Management confirmed effective disclosure controls as of March 31, 2019, with no material changes to internal financial reporting controls - Management concluded that disclosure controls and procedures were effective as of March 31, 2019, ensuring timely recording, processing, and reporting of required information[136] - No material changes to internal controls over financial reporting occurred during the quarter[137] PART II OTHER INFORMATION This section covers Immersion Corporation's legal proceedings, key business risk factors, and required exhibits Legal Proceedings The company is engaged in costly patent infringement lawsuits against Samsung and Motorola, facing IPR challenges and a Korean tax dispute - Immersion is actively litigating patent infringement against Samsung in the U.S. District Court for the Eastern District of Texas and in Mannheim, Germany, regarding haptic feedback technology in touchscreen phones[141][168] - Samsung has filed multiple petitions for Inter Partes Review (IPR) with the USPTO, challenging the validity of several Immersion patents asserted in litigation, with institution granted for review on a number of these patents[145][146][147][148][149][150] - A separate patent infringement lawsuit is ongoing against Motorola in the U.S. District Court for the District of Delaware, with Motorola also filing IPR petitions and seeking to join Samsung's existing IPR proceedings[152][157] - An arbitration panel ordered Immersion to pay Samsung approximately $6.9 million plus costs in a Korean withholding tax dispute, which was paid in April 2019, but Immersion is appealing the underlying tax assessment and expects reimbursement if successful[164][165] Risk Factors Key risks include licensing dependence, revenue concentration, costly IP litigation, international tax challenges, and potential for continued operating losses - Revenue growth is highly dependent on securing new and renewed licensing arrangements, with ASC 606 adoption making fixed license fee revenue less predictable[173] - Revenue is concentrated, with two customers accounting for 20% and 13% of total revenues for the three months ended March 31, 2019, making the loss of a major customer a significant risk[174] - Ongoing litigation against companies like Samsung and Motorola is expensive, disruptive, and time-consuming, diverting management attention and consuming significant cash resources without guaranteed success[177] - The company faces risks related to its international corporate structure and tax positions, exemplified by the $6.9 million payment to Samsung following an arbitration award in a Korean tax dispute[192] - The company had an accumulated deficit of $109.5 million as of March 31, 2019, and may not return to consistent profitability due to ongoing expenses in R&D, sales & marketing, and IP enforcement[187] Exhibits This section lists filed exhibits, including CEO and CFO Sarbanes-Oxley certifications and XBRL interactive data files - The report includes certifications from CEO Ramzi Haidamus and Interim CFO Anne Marie Peters, as required by the Sarbanes-Oxley Act[233] - Interactive Data Files (XBRL documents) are filed herewith, providing structured financial data[233]