Immersion Corporation (IMMR) Q4 2020 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Immersion Corporation Q4 and 2020 Earnings Call. Please note that today's call is being recorded. And at this time, I would like to turn things over to Mr. Aaron Akerman, Immersion's Chief Financial Officer. Please go ahead, sir.

Good afternoon and thank you for joining us today on Immersion's fourth quarter 2020 conference call. This call is also being broadcast live over the web and can be accessed from the Investor Relations section of our Web site at ir.immersion.com. With me on today's call is Jared Smith, our new Interim CEO. During this call, we may make forward-looking statements, which may include any expectations, projections or other characterizations of future events or circumstances and include statements regarding the impact of COVID-19 on our business and the business of our customers and suppliers as well as on the economy in general and also include projected financial results or operating metrics, business strategies, litigation or absence of litigation, anticipated future products, future expense reductions, anticipated tax expenses, anticipated market demand or opportunities, our operating model and other forward-looking topics. These statements are subject to risks, uncertainties and assumptions, especially in light of the ongoing adverse effects of the COVID-19 global pandemic. Many of these risks and uncertainties are beyond the control of Immersion.

Thanks, Aaron. And thanks everyone for joining us on the call today or listening via webcast. It's an exciting time for Immersion. And we believe that 2021 is poised to be an inflection year for Haptic technology adoption. Haptic is quickly emerging as one of the most innovative technologies for improved user experiences and consumer products and content, as embodied in the Sony PlayStation 5 DualSense controller, which delivers the next level gaming experience. In smartphones market leader Samsung and Apple offer high-definition haptics performance, which is driving demand for consistent and improved performance across the entire market not just in flagship models. In VR, advanced haptics provides the critical sense of touch to fully immerse the user in a virtual environment. Consumer market growth is also being accelerated by continued improvement in the performance and cost of actuators that enable these premium experiences. But consumer applications are not the only driver of this haptics market inflection. Haptics is well established in touch buttons, touch pads and displays in premium cars and automotive adoption is now poised to accelerate in the high volume mid-range segment.

Thanks, Jared. Let me begin by referring you to this afternoon's press release for information regarding our Q4 2020 financial performance. Total Revenue of $10.9 million for Q4 2020 was down to 5% from total revenue of $11.5 million in the same quarter last year, but up over 40% sequentially. Revenue from per unit royalty arrangements increased approximately 0.4 million or 4% compared with the prior year quarter. Revenue from fixed license fee arrangements was down 34% on a comparable basis, primarily due to a $1.1 million fixed license fee from a mobility customer recognized in the fourth quarter of 2019. Recurring revenues represented 91% of revenues in Q4 2020 versus 60% of revenues in the fourth quarter last year. Our revenue mix for each line of business typically fluctuates quarterly due to seasonality patterns and for the fourth quarter of 2020, a breakdown by line of business as a percentage of total revenues was as follows; 57% for mobility, 19% from gaming, 24% from automotive.

Thank you. And we'll go first to Anthony Stoss of Craig-Hallum.

Nice quarter. You rattle-off several new auto wins during the quarter on this call, I'm curious if you can give us a sense or a cadence of when a lot of these designs will come into play. And I understand, you get an auto win, sometimes you have to wait three or four years for the production of that auto. But maybe just take us through kind of a cadence or what you expect to growth rate for auto. And then, secondly, on Samsung, do you know if you're completely penetrated across all product lines? My understanding is in the past you guys were more on the high-end. And is there additional penetration you can do with Samsung? Then after those two, I had one follow-up.

So in terms of auto, you're right the time to revenue can be a few years in some cases, if they're at the very front-end of the design cycle, but that isn't always the case. And with some of our newer licensees, we can be seeing revenue as soon as in the following year, or in one year timeframe depending on where they are in their design cycle and when they -- how they're working with us and when the license is executed. So that varies about somewhat. So we do see continued growth in automotive, particularly you'll see the acceleration -- will actually you'll see the benefit of the auto licensees that we have been signing this year and next year and then we'll see an acceleration after that as adoption picks up particularly in the mid range area. And then your second question was on Samsung. Without discussing all the details of the agreement, essentially they are licensed across their smartphone product line. And so we aren't licensing in just one particular segment. And our IP is used across just in the market in general from low-end cost to high-end cost.

And then, as a follow up, what I found most interesting was your comments related to the new markets, industrial medical, I think you've talked about in the past but household appliances, I think this is the first time you guys are brought that up. Can you give us use case scenarios? I mean, I presume, touch buttons will be replaced with more of a haptic feedback, perhaps, but maybe go in depth and talk about the ASPs of the similar to mobile or just what you think you can do in the household appliance market?

So that's a great question. And it's early you mentioned touch buttons being replaced. One of the big trends that we're seeing is just generally, touchscreen, showing up on devices. And interestingly, it's not just large refrigerators, or washing machine, it can be printers, or even smaller devices with a small screen on it. And so we're seeing interest in getting the haptic feedback on those touch screens where it may not exist today, just to confirm to the user that they're actually getting a successful touch experience. And so you'll see a lot of growth in specifically in the screens segment, as screens -- these panels and screens get cheaper and cheaper, of course, they're showing up on more and more of these devices. And if you yourself have ever used these, you can tell sometimes that you're not sure whether you've actually gotten a successful response with the touchscreen. And so it's adding haptics to that. And if you recall the comments that I made about improved performance in cost and actuators that helps drive that market as well. It drives haptics in those applications, as well. In terms of ASPs, typically, with those, with larger screens, in particular, you're going to see higher ASPs like we have talked about in mobile and compared to in automotive as compared to mobile and it also depends on the volume. I don't want to quote specific numbers yet. But it generally would follow that trend as you go to those larger screens and those similar applications, the ASPs would be higher than mobile.

Just as a follow up to that, is Samsung being your biggest customer and in the mobile side, clearly, they're one of the biggest household appliance makers. Is it fair to assume that, they're likely potential customer here? Could you generate revenue this year in the household appliance side and just go beyond just Samsung, perhaps for appliances?

So, I can't comment on specific customers. But there are basically appliances and other products that are currently using haptics and we have some licensees already, in certain types of product categories that would could fit into that broader category. In terms of new revenue, I don't expect to see anything this year from the clients because it's not one of our core focus markets. It's more of other market that we keep an eye on and then that we engage with the customers when the need arises or when we start seeing adoption increase. That would be my general answer to that question. We're really focused on automotive, gaming and mobile primarily. But the reason we mentioned that about these other markets or these new markets, is to talk about that we still look at those opportunities when we think that they are interesting to have a meaningful return.

And our next question will come from Derek Soderberg from Collier Securities.

Jared, I'm just curious, how you feeling about the PlayStation 5 deal, overall, you think the royalty rate is sort of in line with the value that it brings? And going forward, do you think, new gaming controllers a lot similar content to that of the PlayStation? Or do you think that you're going to have more pricing power with new customers, then I have a follow up.

Okay. So to answer your question, I'm very happy about the Sony license and the scope and the economics and the potential that's certainly something that I'm feeling very good about. And Sony has a strong track record with their consoles. And they shipped over a long period of time in high volume. So I'm very excited about that. In terms of, I presume, you mean other controllers, you mean like other game Controller manufacturers, I presume that's what you're talking about. ASPs vary in that and it depends on what exactly the peripheral is and the volumes they have. But we capture a pretty good range of ASPs in that market currently. And I do see that, particularly in those higher value peripherals of which there are many different types, we would certainly see higher ASPs there.

I do have a follow-up unless you wanted to add something else?

No, no, go ahead.

Okay. Yes. And then, Aaron, I guess you guys are exiting the year with, OpEx around 3.5 million. Just curious how we should think about OpEx levels, where they're at today and at these levels, can you support some of the initiatives that you guys have laid out in gaming and mobile? Thanks.

Yes. So as we've previously said, we feel that we can sustain the business at OpEx between non-GAAP OpEx between 17 and 19. We're currently a little bit below that. But we continue to believe, that provides for ample room to run the business and increase spending in a disciplined way on particular visiting customers, some additional marketing programs, things of that nature. So we continue to believe that's the sustainable level for us.

And with that, that does conclude our question-and-answer session. I would like to turn the call back to our presenters for any additional or closing comments.

Thanks, operator, and thank you to all of you for joining us on this call today. I'm very excited with our continued progress and our financial results. We're well positioned to drive continued adoption of haptics in our core markets, and grow the company. We look forward to sharing updates on this effort in future calls. Thank you and goodbye.

And with that, ladies and gentlemen, that does conclude today's call. We'd like to thank you again for your participation. You may now disconnect.