Immersion CEO Discusses Q3 2011 Results - Earnings Calls Transcript

Immersion Corporation ( IMMR)

Q3 2011 Earnings Call

November 3, 2011 5:00 p.m. ET

Executives

Jennifer Jarman – Investor Relations, The Blueshirt Group

Victor Viegas – President and Chief Executive Officer

Sumanta Mukherjee – Chief Financial Officer

Analysts

Charlie Anderson – Dougherty & Co. LLC

Jeff Schreiner – Capstone Investments

Darice Lui – Brigantine Advisors

Robert Katz – Senvest International LLC

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Immersion Third Quarter 2011 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions). This conference is being recorded today, Thursday, November 3, 2011.

I would now like to turn the conference over to Jennifer Jarman of The Blueshirt Group. Please go ahead.

Jennifer Jarman

Thank you, Gilbert. Good afternoon, and thank you for joining us today on Immersion’s third quarter 2011 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 www.immersion.com. With me on today’s call are Vic Viegas, President and CEO; and Sum Mukherjee, 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-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 difference between the non-GAAP financial measure discussed, and the most directly comparable GAAP financial measure is available in the company’s press release issued today after market close.

With that said, I’ll turn the call over to Chief Executive Officer, Vic Viegas. Vic?

Victor Viegas

Thanks, Jennifer, and thanks, everyone, for joining us this afternoon. Our third quarter revenues were weaker than anticipated due to softness in the medical and automotive lines of business though licensing revenue continue to reflect double-digit growth over the prior year.

During the period, we added several new licensees across our various markets, along with numerous ecosystem partners, and we achieved an important milestone with the first MOTIV-based handset, and the first MOTIV-based tablet brought to market with the new mobile OEM.

We continue to make progress in our engagements with the Android developer community, as well as top tier mobile and tablet OEMs, while also further strengthening our IP and fundamental Haptics technologies.

In a few minutes, I will discuss recent developments and the new opportunities emerging for us, based on our growing patent portfolio. First, I ask Sum to provide a more detailed review of our financial results for the third quarter, as well as our updated outlook for the year.

Sumanta Mukherjee

Thanks, Vic. Revenue in the quarter were 6.5 million, flat with the third quarter of 2010, and reflecting softness in the medical and automotive lines of businesses as Vic mentioned.

Revenues from royalties and licenses were 5.9 million, up 14% from royalty revenues of 5.1 million in the third quarter of 2010, primarily reflecting strong demand in the gaming and mobility lines of business.

Revenues from the sale of products were 3.5 thousand, compared to 1.2 million in the same quarter last year. And revenues from development contracts were 275,000 compared to 189,000 in the year ago period while revenue mix per line of business is expected to fluctuate on a quarterly basis due to seasonality patterns.

In the third quarter of 2011, a break-down by line of business, as a percentage of total revenues is as follows; 46% from mobility, 31% from gaming, 12% from medical, 7% from auto, and 4% from chip and other.

For the sake of clarification these percentages are based on total revenues, including revenues from royalty and licensing, product sales and development contracts.

Cost of product sales in the third quarter of 2011 was 192,000 compared to 450,700 in the third quarter of 2010. Gross profit margin in the third quarter of 2011 was 6.3 million or 97% of revenues compared to gross profit margin of 6.1 million or 93% of revenues in the same period last year.

The increase in gross profit as a percentage of revenues this quarter, was primarily driven by the higher mix of revenues from royalties and licenses, which enjoy higher gross margins than gross margins from revenues related to product sale.

Excluding cost of product sales, total operating expenses were 7.3 million compared to 7 million in the third quarter of 2010. The operating expenses of 7.3 million include non-cash charges related to depreciation and amortization of 556,000, and stock-based compensation of 940,000.

Excluding these non-cash charges, OpEx was 5.8 million during the quarter, slightly below our near-term target range of 6 to 6.5 million. As we have indicated in the past, we continue to invest in sales, marketing, and R&D to drive our revenue and growth.

Non-operating, other income, and expenses, taxes, and discontinued operations were 370,000 in the third quarter of 2011 compared to 184,000 in the third quarter of 2010, primarily reflecting higher withholding taxes, resulting from higher royalty revenues from some Asian countries.

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