Immersion(IMMR) - 2021 Q3 - Quarterly Report

PART I: FINANCIAL INFORMATION This section provides Immersion Corporation's unaudited financial statements, management's discussion, and internal control assessments Financial Statements Presents Immersion Corporation's unaudited condensed consolidated financial statements and accompanying notes for Q3 and 9M 2021 Condensed Consolidated Financial Statements Presents core unaudited financial tables, showing increased assets, a shift to net income, and positive operating cash flow Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $90,601 | $59,522 | | Marketable securities | $28,028 | $— | | Total current assets | $134,539 | $74,350 | | Total assets | $160,523 | $96,130 | | Total liabilities | $29,734 | $32,149 | | Total stockholders' equity | $130,789 | $63,981 | Condensed Consolidated Statements of Operations (in thousands) | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $7,173 | $7,596 | $25,342 | $19,521 | | Operating income (loss) | $3,673 | $2,585 | $11,973 | $(3,022) | | Net income (loss) | $3,771 | $2,855 | $11,148 | $(2,685) | | Diluted net income (loss) per share | $0.12 | $0.11 | $0.36 | $(0.09) | Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $10,722 | $(2,988) | | Net cash provided by (used in) investing activities | $(32,775) | $2,960 | | Net cash provided by (used in) financing activities | $53,132 | $(30,489) | | Net increase (decrease) in cash | $31,079 | $(30,517) | Notes to Condensed Consolidated Financial Statements Details accounting policies, revenue, investments, legal contingencies, and equity plans, highlighting haptic technology licensing and tax disputes - The company's business model focuses on the creation, design, development, and licensing of haptic technologies[27] Disaggregated Revenue (in thousands) | Revenue Type | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | :--- | :--- | | Fixed fee license revenue | $1,247 | $1,243 | $4,346 | $3,821 | | Per-unit royalty revenue | $5,821 | $6,288 | $20,671 | $15,485 | | Total royalty and license revenue | $7,068 | $7,531 | $25,017 | $19,306 | - The company has ongoing legal contingencies with Samsung and LGE regarding withholding taxes in Korea, with provisional deposits of approximately $6.9 million (Samsung) and $5.0 million (LGE) recorded as long-term deposits[67][68][69] - An arbitration demand was filed against automotive licensee Marquardt GmbH for breach of contract and unpaid royalties, with last reported unpaid royalties of approximately $0.5 million for Q3 2020[72] - The company conducted two "at the market" stock offerings in 2021, raising net proceeds of $35.9 million (February) and approximately $14.2 million (July)[88][90] - The company's 2011 Equity Incentive Plan expired on April 5, 2021, and as of September 30, 2021, no active equity incentive plan exists[75] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Analyzes financial performance, highlighting 30% revenue growth, reduced operating expenses, and improved liquidity from stock offerings Results of Operations Analyzes Q3 and 9M 2021 financial results, showing 30% revenue growth driven by royalties and significant operating expense reductions Revenue Comparison - 9 Months Ended Sep 30 (in thousands) | Revenue Type | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Fixed fee license | $4,346 | $3,821 | $525 | 14% | | Per-unit royalty | $20,671 | $15,485 | $5,186 | 33% | | Total royalty and license | $25,017 | $19,306 | $5,711 | 30% | | Total revenues | $25,342 | $19,521 | $5,821 | 30% | - The $5.2 million (33%) increase in per-unit royalty revenue for the first nine months of 2021 was driven by increases from gaming licensees ($3.3 million), mobility licensees ($1.1 million), and automotive licensees ($0.9 million)[131] Operating Expenses Comparison - 9 Months Ended Sep 30 (in thousands) | Expense Category | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Sales and marketing | $2,743 | $4,067 | $(1,324) | (33)% | | Research and development | $3,442 | $3,932 | $(490) | (12)% | | General and administrative | $7,106 | $14,406 | $(7,300) | (51)% | - General and administrative expenses decreased by $7.3 million (51%) in the first nine months of 2021, primarily due to reduced compensation costs ($3.2 million), legal costs ($1.8 million), and consulting fees ($1.0 million)[146][147] Liquidity and Capital Resources Details the company's liquidity, highlighting a significant increase in cash and investments driven by stock offerings and positive operating cash flow - Cash, cash equivalents, and short-term investments totaled $118.6 million as of September 30, 2021, an increase of $59.1 million from December 31, 2020[159] Cash Flow Summary - 9 Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash from operating activities | $10,722 | $(2,988) | | Net cash from investing activities | $(32,775) | $2,960 | | Net cash from financing activities | $53,132 | $(30,489) | - Net cash from financing activities was $53.1 million for the nine months ended September 30, 2021, primarily from $50.1 million in net proceeds from common stock issuances and $2.9 million from stock option exercises[165] - The company anticipates capital expenditures for the year ending December 31, 2021, will be less than $1 million[174] Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2021, with no material changes to internal controls during the quarter - Management concluded that disclosure controls and procedures were effective as of September 30, 2021[179] - No material changes to internal controls over financial reporting occurred during the quarter ended September 30, 2021[180] PART II: OTHER INFORMATION This section covers legal proceedings, risk factors, and exhibits related to the company's operations and financial reporting Legal Proceedings Details ongoing legal matters, including tax disputes with Samsung and LGE, and an arbitration demand against Marquardt for unpaid royalties - Immersion is appealing a Korean High Court ruling on Samsung withholding taxes, where ~$5.2 million for 2012-2014 was cancelled but ~$1.4 million for 2015-2016 was upheld, with both parties appealing to the Supreme Court[185] - Immersion is appealing a Korean tax assessment on behalf of LGE for 2012-2014 royalty payments, with a provisional deposit of ~$5.0 million made and a decision expected by February 2022[190][191] - An arbitration demand was filed against automotive licensee Marquardt for breach of contract and unpaid royalties, with approximately $0.5 million in royalties for Q3 2020 last reported but unpaid[194] Risk Factors Outlines key business risks, including customer concentration, licensing challenges, IP litigation, supply chain issues, and management turnover - A significant portion of revenue is derived from a limited number of customers, such as Samsung, posing a material risk if a major customer is lost[208] - The business depends on renewing existing and entering new licensing agreements on favorable terms, an uncertain and resource-intensive process[203][204] - The company may face expensive and time-consuming litigation to enforce its IP rights, potentially diverting resources and adversely affecting the business[216] - Global shortages of electronic components, such as semiconductors, could decrease customer product production, leading to lower royalty payments to Immersion[214][215] - Significant senior management turnover, including the CEO and General Counsel in 2021, could hinder strategy execution and create inefficiencies[231] - The company may purchase highly volatile digital or alternative currencies, potentially leading to material financial impacts through impairment charges[294] Exhibits Lists exhibits filed with the Form 10-Q, including governance documents, equity agreements, and CEO/CFO certifications - The Exhibit Index lists all documents filed or incorporated by reference, including governance documents, the July 2021 Equity Distribution Agreement, and CEO/CFO certifications[306]