Good day and welcome to the Immersion Corporation Third Quarter 2016 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Jennifer Jarman of The Blueshirt Group. Please go ahead.

Thank you, Carina. Good afternoon and thank you for joining us today on Immersion’s third quarter 2016 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 is Vic Viegas, President and CEO; and Nancy Erba, CFO. During this call, we may make forward-looking statements, which may include projected financial results or operating metrics, business strategies, litigation, 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 most recent Form 10-Q filed with the SEC, as well as the factors identified in the press release we issued today after market closed. 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 today’s press release. With that said, I will now turn the call over to Chief Executive Officer, Vic Viegas. Vic?

Thank you, Jennifer, and thanks everyone for joining us this afternoon. I’d like to take this opportunity to introduce and welcome Nancy Erba to Immersion. Nancy joins us from Seagate Technology where she held executive positions in finance, corporate development and sales and business operations. During her ten years at Seagate, she served as the division CFO for two Seagete’s strategic businesses. Nancy brings with her broad financial experience the ability to work cross functionally across teams and a demonstrated commitment to driving profitable growth. Welcome Nancy. Third quarter financial results were generally in line with expectation and we exited the quarter with the strong balance sheet and positive momentum as we continue to expand our customer base. Haptics are being adopted more broadly than even across existing markets and into new and immerging spaces as well. Our business is built on a solid IP foundation which coupled with our innovative software solutions makes us uniquely position to lead in the market. We’ve remained confident in this leadership position and as importantly our customers and partners are experiencing the measurable benefits of having Immersion’s haptics in their phones, games, cars and mobile ads. I will provide a more detailed update on our business in a few minutes, but at this time, I will turn to call over Nancy to review our financial results and outlook. Nancy?

Thanks, Vic. And I’d like to take this opportunity to say how excited I am to be joining Immersion. I’ve enjoyed getting to another management team and have been very impressed with the strength of the finance organization. I have also had the chance to be on the road to meet some of our analysts and investors and I appreciate the depth in which you follow the company and understand the complexities and underlying fundamentals of our business model. To those I haven’t yet met, I look forward to speaking with you and meeting you over the coming weeks and months. I’d now like to turn to the results of the quarter. Revenues for the September quarter were $26.3 million of 84% from revenues of $14.3 million in the year ago period. This is primarily a result of the recognition of the $19 million non-recurring license fee from Samsung, which we detailed during our second quarter earnings call. We remained in the standstill period with Samsung which was negotiated as part of the wind-down agreement completed in July 2016. Revenues from royalties and licenses of $26 million were up 87% from $13.9 million in the third quarter of 2015. Of these amounts in the third quarter of 2016, variable royalties based on shipping volume and per unit prices totaled $5.2 million and fixed payments license fees totaled 20.8 million. This compares to variable royalties of $6.2 million and fixed license fees of $7.7 million in the prior year period. Gross profit was $26.3 million or 100% of revenue compared to gross profit of $14.2 million in the third quarter of 2015. While revenue mix per line of business is expected to fluctuate on a quarterly basis due to seasonality pattern. For the third quarter of 2016, a breakdown of line…

Thanks Nancy. We’re excited to see momentum build as we expand the scope of our offerings beyond software and tools sold through direct customer engagement to now include a streamline approach of licensing our know-how an intellectual property as we build out our IP business development function. This hybrid model allows us to broaden our customer base and participate in markets where we may not otherwise have a solution to offer and also allow us for deeper penetration at our solutions based customers. We have already begun to see the benefits of this model, which is evident in the growth in deferred revenue from new customer agreements entered into during the quarter. We’re engaging new customers to discuss licensing opportunities and we are already seeing synergies as our IP BD team partners with our sales force to create - to offer creative business solutions to our customers. This week, we announced our Haptic Ad Service, the industry's first comprehensive service that offers advertisers the ability to add touch feedback effects to their premium HTML mobile video ads. Based on touch sense design cloud and touch sense campaign manager, our cloud-based solution makes use of industry standards and allows advertisers to create engaging and immersive brand experiences. As part of this announcement, we shared quantifiable results regarding the benefits of haptic in mobile advertising and partnership with Teads, a global outstream video advertising network, a joint AB trial was conducted by research now, which revealed that video ads enhanced with haptics had an impressive increase and purchase intent and positive brand opinion. The results indicated that 71% of users in the study agreed that haptics made the ad more interesting and 72% wanted to feel haptics in other mobile video ads. Users experiencing video ads with haptics were also 51% more…

Thank you. [Operator Instructions] And we'll take our first question from Josh Nichols with B. Riley. Please go ahead.

Yes, hi. I was wondering - very nice cash balance at the end of the quarter. For the long term portion of the deferred revenue over what period of time do you expect that to flow through to income?

So Josh, as you know the deferred revenue there's a short term portion, which is recognized over - expected to be recognized over the next 12 months and then the long term is revenue that would be expected to be recognized beyond 12 months. So beyond that I would say at some period longer than one year.

Okay. And then looking here, anything you could say regarding when the standstill period was Samsung might end?

No, Samsung continues to be on license for the products that they've launched in 2016. There is a standstill on place as we said. We expect that we will eventually reach a license agreement whether it's through negotiations or through some form of enforcement, but nothing further on the timing of the standstill.

Okay, thank you.

Thanks, Josh.

And moving on we’ll take our next question from Charlie Anderson with Dougherty and Company.

Yes, thanks for taking my questions. I’ll just ask in the deferred revenue as well. I guess I’m wondering why you're unable to disclose where that came from. Any color you could give us that mobility just anything that would be helpful for us? Thanks.

Sure Charlie. As you know is part of our normal business to enter into license agreements where cash collected in advance of revenue yields deferred revenue. So it's happened multiple times in the past covering periods as short as a couple years or longer. During the quarter, we entered into a number of license agreements, as a result picked up a considerable amount of cash as you can see on the balance sheet and we're excited by the potential of these customers, these products. Not a lot we can say until we're allowed to. Usually we’re restricted in terms of announcing customers related to a product launches or some other limitation. So at this point, very excited, it shows good growth and momentum in the business, but just not able to give you any details. Hopefully, we'll be able to give you more detail in the next couple of quarters.

Could you maybe speak to about the interplay between what you saw there in that level of activity and then the full year guidance like was it contemplated in the earlier guidance or is this something new that have shown up just the interplay there be interesting?

Sure, I guess is, as I mentioned before I mean there's always some number of licensing engagements discussions that are ongoing. The timing of when you reach agreement and enter into a license arrangement is always up to a number of different variables. So in the quarter, obviously we're able to reach agreement with some new licensees and again the timing of when their products launch and when revenue recognition is triggered. At this stage, it's sitting in the first, because those events have not yet occurred, in terms of the interplay I mean you can see a big portion of the increase occurred in the deferred, long-term deferred. So it’s going to occur - revenue will recognize over a longer period in one year. There should be some impact in the near term. But it was always part of our expectation for the rest of the year.

Great. And then finally from me just on the Markman, I wonder if you could maybe just offer any comments on how you felt that went and then maybe sort of post Markman how that is influenced any other licensing discussions where there are people paying attention to the same just how the overall you know licensing program in light of the Markman? Thanks.

Yes. Sure. What I heard, I wasn’t there myself, but what I heard from my team was they felt very good about the day, the results of the hearing. The judge did not ask any questions. And so really our team presented our case. The other side presented their case. Most of that already we are aware of based on the paper submitted. Not a lot. That was gleaned from the event because again the judge didn’t ask any clarifying questions. We did hear that the judge expects to publish a ruling on the issue in January of next year. But other than that, I don’t think there was too much that you could derive from the day other than we obviously felt like our team did very well, we feel like we’ve got a strong case and we feel just as confident about our position as we ever have.

Great. Thanks so much.

Thanks, Charlie.

[Operator Instructions] We will take our next question from Mark Argento with Lake Street Capital Markets. Please go ahead.

Yeah. Good afternoon. And just wanted to change it up a little bit, maybe we could focus a little more on some of the others areas of potential deployment of your technology in revenue and particularly I know you guys continue to focus on opportunities and enhance content, maybe talk a little bit more about how you guys see this market playing out. When could you see some material revenue from some of the ad-based, some of the video games, I know you’ve been added for a little while and I know you continue to be excited about it, but maybe drill down a little bit on that, any new progress there?

Sure. Mark, as you know when we roll this out, we talked about it being a long-term investment. It would take a number of years. I think I’ve always talked about three years or longer. We are - we continue to show evidence that the haptics imbedded in ads makes a difference in retention and engagement metrics. The most recent study done around the Jason Bourne video trailer I think had about $8 million impressions. So it was a large scale study and the results were terrific as they have always been. Our own internal studies and now as we do bigger scale studies, they continue to show dramatic improvement in retention and engagement. That’s caught the attention of the marketing community. Teads is one of the larger ad networks and we’re pleased to be working with them. There are a number of others also conducting their own studies. I’m happy to say, we’re entering into commercial agreements with many of these companies. And so we’re generating revenue today. I’d expect it to continue to grow. I would expect next year to be $1 million or more. And it could ramp very quickly because of a lot of ad dollars being spent on a mobile platform and if you can show increased engagement then it is real dollars for a lot of people.

Okay. It’s helpful. And what - I know you bought all the stock back in the quarter, obviously you guys are generating and brought add a bunch of cash for the balance sheet here with the Samsung settlement. What - kind of when you guys talk internally, what some of the criteria think about when you decide if you’re going to buy back stock or not and is it makes sense at some point in time that I know you want to keep a healthy balance sheet especially just given the business here in but do something more aggressively like a tender offer or something like that for some shares?

Yeah. It is the balance. It’s - we take a look at the near term cash flow, we look at the stock price, we look at the enforcement actions and where we are in those efforts. And it’s a lot of factors go into establishing a buying program. During the quarter, stock price hit a point at which the plan triggered and some shares were bought back. Based on today’s decrease I hope we can buy some more here soon. But I think it will be opportunistic. It’s not our primary profit driver our investments in the business and forcing our IP are really the focus. So I will be opportunistic as it makes sense but we’ll also be cautious as we said we want to make sure that we have a strong balance sheet as we take these various enforcement actions to protect our business.

Yeah, I mean obviously you’re in a kind of unique environment just with the market not been overly kind of small, my small cap stocks right now and IP driven companies right now as well not getting to the love they normally do. So I would - hopefully you guys can take advantage here because I think it’s a little bit gift but good luck with everything and appreciate the time.

Thanks Mark.

And we’ll take our next questions from Mark McMahon with LPL Financial. Please go ahead.

Yeah. Good afternoon, Vic. I had a follow-up question regarding your mentioning the Google Pixel phone and their employment of haptics ending manufactured by HTC. In the last quarter, you guys had mentioned that you’re having some issues with Motorola, as a licensee and a little bit of dispute regarding the settlement you guys had a few years back. I was wondering if you taping in how that’s going with the launch of this phone with Google haven’t been a partner and HTC having recently settled for patent infringement. What’s our expectation with the Pixel phone and Motorola going forward?

Sure. Well I’m happy to say as they did in the prepared remarks that the Google products that Pixel phones, I think they use LRI Motors, they’re using haptic. So we are taking a look at those phones and determining the right action to take. In terms of the prior agreements, we did enter into an agreement with Google. This covered their Nexus phones that were sold quite some time ago. So the current products would not be covered by that old agreement. In terms of Motorola, we had an agreement in place. It had a life to it. It came to an end. We’ve continued to have discussions about renewing the agreement for their new phones and are optimistic that we can reach agreement. But today that agreement has expired and was not renewed. That would not have any impact at all on the Google phones. And then in terms of HTC, that was a result of litigation settlement and that license covers the HTC phones. It’s not clear that the HTC agreement, I doubt that it would have any impact of bearing at all on the Google phones as well. So this would most likely require a new license directly with Google for the sale of those phones.

Okay. So even though HTC is the exclusive manufacturer at this point and they are licensing, that does not translate into a phone that’s branded by Google?

I believe for the most part that’s true.

Okay. Alright, thank you.

Okay, Mark.

Yeah.

At this time, I would like to turn the conference back over to management for any additional or closing remarks.

Well, thank you again everyone for being on the call with us today. And we hope to see some of you shortly a scheduled road show we’re having here on the West Coast. Look forward seeing some of you and have a good day. Thank you.

Once again that does conclude today’s conference. Thank you for your participation. You may now disconnect.