Immersion Corporation

Good day, ladies and gentlemen, and welcome to the Immersion Corporation Q3 2020 earnings call. This conference is being recorded. At this time, I would like to hand the conference over to Mr. Aaron Ackerman. Please go ahead, sir.

Good afternoon, and thank you for joining us today on Immersion's third 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 website 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 immersed For a more detailed discussion of these factors and other factors that could cause actual results to vary materially, interested parties should review the risk factors listed in the press release we issued today after market close, Immersion's annual report on Form 10-K for 2019, and its most recent quarterly report on Form 10-Q, which are on file with the U.S. Securities and Exchange Commission. The forward-looking statements mentioned on this call reflect immersion's beliefs and predictions as of today. Except as required by law, immersion does not intend to update these forward-looking statements as a result of financial, business, or any other developments occurring after the date of this release or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future, except as required by law. 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 the 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'll turn the call over to Jared.

Thanks, Erin, and thanks, everyone, for joining us on the call today or listening via webcast. As we announced earlier today, Ramsey Heidemann has left Emergent, and I have been appointed as interim CEO. I'm excited to take on this role, and I thank the board of directors for their support and confidence during this important transition for the company. I joined Emergent in June of 2019 as vice president of worldwide sales, because I recognize immersion's central role in the development of haptic technologies and the adoption of these technologies across diverse markets. Haptic feedback is becoming essential to our interaction with the digital world, and its adoption is set to grow strongly in the coming years. Immersion innovations, such as the Adaptive Trigger and the Sony PlayStation 5 DualSense Controller, which we will discuss here, demonstrate how immersion continues to enhance the haptic experience. Innovations like this and our active sensing technology are essential to growing our revenue and our target markets. We have done a lot of hard work this year in optimizing our operating structure, and my focus going forward will be on maintaining this operational discipline while driving revenue growth in the coming quarters as well as longer term through increased adoption of our innovations and attracting new customers and partners to the emerging ecosystems. We are pleased to share our strong financial performance in the third quarter, during which we were profitable on both a GAAP and non-GAAP basis, and generated positive free cash flow. With the improvements in our operating model, we expect to grow our profitability and free cash flow in the coming quarters. Next, I'd like to provide an update on our progress in the automotive, mobile, and gaming market segments. In automotive, we are seeing signs of market recovery from COVID-19. This is reflected in strong royalty reports from our Tier 1 licensees and an increased level of customer and OEM engagement on new opportunities throughout the quarter. We're pleased to share that additional vehicle designs, including the forthcoming Deep Wagoneer, will feature haptic interfaces. As we highlighted last quarter, increased automotive OEM adoption of haptic systems delivers revenue growth from our existing licensee base, both in the near and the long term. We continue to invest in product and technology innovation for automotive. In Q3, we developed an updated touchscreen reference solution, utilizing our active sensing technology firmware and automotive grade components in collaboration with our partners, Data Module, Microchip Technology, TDK, and Vareas. Our solutions are designed to make it easier for Tier 1s to adopt advanced haptics and improve system performance. We're also seeing signs of recovery in the mobile market and believe the worst impact of COVID on this market is now behind us. Our revenue continues to track our expectations. In Q3, we executed a multi-year renewal with LG Electronics for continued use of our TouchSense software and HEPIC technology in its mobile devices. We also continue to address the China market through our Channel Partner Program and continue to see revenue growth this quarter. In games, we remain excited about the PlayStation 5 launch on November 12th. As previously announced, Sony Interactive Entertainment has a license, and the PlayStation 5 DualSense controllers utilize Emerging technology. Emerging collects a royalty from each controller, and we expect more than one controller will ship per console over time to support multiplayer gaming and to replace worn-out controllers. The DualSense controllers are already available at retail ahead of the PlayStation 5 console launch. Sony is prominently highlighting the DualSense's haptic feedback capabilities and its dynamic adaptive triggers. These features deliver a more immersive experience and open up new creative gameplay possibilities. Consumers will be able to experience these new capabilities in a variety of PlayStation 5 titles. Marvel's Spider-Man will let players feel webs on their fingertips with the adaptive triggers. Gran Turismo 7, a racing simulator, will signal brake and accelerator pedal weight and dynamics in the adaptive triggers. In NBA 2K21, players will feel increasing resistance on the triggers as their basketball player fatigues. These are but a few of the many new experiences made possible through advanced haptics. The haptic capabilities in the DualSense controllers are receiving rave reviews from the media outlets. Tom Warren from The Verge, a popular technology news website, stated he, quote, was blown away by the haptic feedback and adaptive triggers, unquote. The positive developer reception, consumer excitement for the PlayStation 5 reinforces our belief that the gaming and VR industry at large will continue to seek innovative haptic technology. In Q3, Guimo Corporation, a designer of interactive entertainment hardware and accessories, renewed its license with immersion for use of haptic technology in its gaming peripherals and products under the Thrustmaster brand. While the terms of the license are confidential, it is a multi-year term and is based on typical immersion per unit royalty rates. Hemo is an innovator in game pads and specialized controllers, which is for feedback steering wheels. We're excited to renew our commercial partnership and look forward to continued collaboration in bringing haptic gaming products to market. Finally, I'd like to update you on progress in our effort to lead development of industry standards. We recently presented additional proposals and information at the MPEG-132 meeting in October. We moved to the next stage of the process to establish haptics as a first-order media type. Standards will support continued growth for immersion through expanded licensing opportunities of our patents, as well as implementation in our software products. In summary, I'm pleased to share that we're already seeing signs of recovery from COVID across our business. We are excited about our opportunities in automotive, mobile, gaming, and development of industry standards. We are proud to have achieved profitability in the third quarter and look forward to continued growth in profitability and cash flow in the coming quarters. With that, I'll now turn the call over to Aaron for a review of our Q3 results before opening up the call to your questions.