Immersion Q3 2010 Earnings Call Transcript

Immersion (IMMR)

Q3 2010 Earnings Call

November 04, 2010 5:00 pm ET

Executives

Victor Viegas - Chief Executive Officer, President and Director

Alex Wellins - Co-Founder and Managing Director

Shum Mukherjee - Chief Financial Officer and Principal Accounting Officer

Analysts

Jeffrey Schreiner - Capstone Investments

Matt Bendixen - Craig-Hallum Capital

Charlie Anderson - Dougherty & Company LLC

Shawn Boyd - Westcliffe Capital

Presentation

Operator

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Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Immersion Corporation Third Quarter 2010 Earnings Conference Call. [Operator Instructions] I will turn the conference over to Alex Wellins of The Blueshirt Group. Please go ahead, sir.

Alex Wellins

Good afternoon, and thanks for joining us today on Immersion's Third Quarter 2010 Conference Call. This call is also being broadcast live over the web and can be accessed from the Investor Relations section of the company's website at immersion.com. With me on today's call are Vic Viegas, Immersion's President and CEO; and then Shum Mukherjee, the company's CFO.

During this call, we may make forward-looking statements, which may include projected financial results or operating metrics, business strategies, anticipated future products, anticipated market demand or opportunities and other forward-looking topics. These statements are subject to risks, uncertainties and assumptions. Accordingly, actual results could differ materially. For a listing of the risks that could cause this, please see our latest Form 10-K and Form 10-Q filed with the SEC, as well as the factors identified in today's press release.

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 the Investor Presentations section of the company's IR website at ir.immersion.com. With that said, I'll turn the call over to Chief Executive Officer, Vic Viegas. Vic?

Victor Viegas

Thanks, Alex, and thanks, everyone for joining us this afternoon. I'll start by providing a high-level summary of our performance for the third quarter, then I'll turn the call over to Shum for a more detailed review of our Q3 results. I'll then discuss recent developments and our thoughts on the current business environment before opening up the call to your questions.

Total revenues for the third quarter were $6.5 million. We achieved strong growth in revenues from royalties and licensing, which increased 81% year-over-year. Net loss for the third quarter was $1.1 million or $0.04 per share as compared to a net loss of $9 million or $0.32 per share in the same period last year. And we generated positive adjusted EBITDA of over $400,000 versus negative adjusted EBITDA of $4.6 million in the year ago period.

Immersion is making solid progress across our key initiatives as we continue to lay the foundation for future growth. During the third quarter, we continued to expand our product offering, saw our technology incorporated into additional high-profile design wins for multiple OEMs and posted our third consecutive quarter of adjusted EBITDA profitability. I will provide an update on our business in just a few minutes but first, let me turn the call over to Shum for a more detailed review of our financial results.

Shum Mukherjee

Thanks, Vic. Revenues in the third quarter of 2010 grew $6.5 million, roughly flat to the third quarter of 2009. Revenues from royalties and licenses were $5.1 million, up 81% from Q3 2009, reflecting strong demand in mobility, gaming and other lines of businesses. Revenues from the sale of products were $1.2 million, down 65% from Q3 2009, primarily reflecting the transition of certain medical products to CAE.

Revenue generated from development contracts were $189,000 in the third quarter of 2010, slightly below revenues of $285,000 in the year-ago quarter. Gross profit was $6.1 million in the third quarter of 2010 or 93% of revenues compared to gross profit of $3.3 million or 50% of revenues in the third quarter of 2009. The increase in gross profit reflects the shift in business mix to primarily licensing revenues, which accounted for 79% of total revenues in the third quarter of 2010 compared to 43% of total revenues in the same period last year. As we look at our long-term model, we expect licensing revenues to grow as a percentage of our overall mix, driving gross margins higher.

Cost of product sales in the third quarter of 2010 were $457,000 compared to $3.3 million in the third quarter of 2009. Excluding cost of product sales, total operating expenses were $7 million in the third quarter of 2010 compared to $12.4 million in the third quarter of 2009, primarily reflecting the license and transfer of certain medical product lines, reduction of headcount from 141 employees to 93 employees and other cost saving actions.

The operating expenses of $7 million include non-cash charges related to depreciation of $260,000, amortization of $211,000 and stock-based compensation of $896,000. Excluding these non-cash charges, operating expenses were $5.7 million during the quarter, and is expected to trend in the $5.5 million to $6.5 million range over the near term. We have lowered our expenses related to corporate, admin and legal, but plan to continue to invest in sales, marketing and R&D to fuel our revenue growth.

Net loss in the third quarter of 2010 was $1.1 million or $0.04 a share compared to a net loss of $9 million or $0.32 a share in the third quarter of 2009. As you know, in addition to normal GAAP metrics, we use a metric called adjusted EBITDA to track our business. We define adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, less share-based compensation, and other nonrecurring items such as internal investigation and restatement costs, restructuring costs and discontinued operations. In 2009, adjusted EBITDA also excluded change in fair value of warrant liability. Adjusted EBITDA in the third quarter of 2010 was $428,000 compared to negative adjusted EBITDA of $4.6 million in the third quarter of 2009.

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