Immersion Corporation

Please stand by. We are about to begin. Good day, ladies and gentlemen, and welcome to the Immersion Corporation Q4 and 2020 Earnings Conference Call. Please note that today's call is being recorded. And at this time, I would like to turn things over to Aaron Inkerman, Immersion's Chief Financial Officer. Please go ahead.

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 website at ir.immersion.com. With me on today's call is Jared Smith, our 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. 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 issue 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 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'll turn the call over to Jared.

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. Haptics is quickly emerging as one of the most innovative technologies for improved user experiences in consumer products and content, as embodied in the Sony PlayStation 5 DualSense controller, which delivers a next-level gaming experience. In smartphones, market leaders 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, touchpads, and displays in premium cars. and automotive adoption is now poised to accelerate in the high-volume mid-range segment. New use cases are also growing in markets such as industrial and medical equipment, as well as household appliances. Driven by growth in both consumer markets and in use cases in new markets, ID Tech X Research is forecasting the market for haptics technology to reach nearly $5 billion in 2025. We are pleased to share continued strong financial performance in the fourth quarter. We were profitable on both a GAAP and non-GAAP basis and generated positive free cash flow. We achieved our highest quarterly profitability in the last five years, with the exception of Q1 2018. This result is due to the hard work across the organization in optimizing our operating structure and in continued fiscal discipline. Next, I'd like to provide an update on our progress in the automotive, gaming, and mobile market segments. In automotive, we've made strong progress last quarter, driving industry adoption of our technology. Microchip technology, TDK, and VARAS. Our product development kits make it easier for Tier 1s to adopt haptics and improve system performance. Our kits provide design files, software, support, and an underlying technology license. Over the past month, we expanded this program by making touchscreen hardware units based on our design available to select customers for HMI prototyping and technology evaluation purposes. We've begun shipping our first hardware units to customers. We also expanded the footprint of licensed Tier 1 customers integrating our technology. I'm especially excited about our recently announced commercial partnership with Farisha, one of the world's leading automotive technology companies. Under our multi-year license agreement, we are providing Farisha access to our haptic technologies and solutions, including the product development materials I referenced earlier. The agreement enables Farisha to develop advanced interactive haptic user interfaces with our latest innovations. In addition to Farisha, we also recently announced a multi-year license agreement with Wubri Industrial Company Limited, a leading automotive component supplier in Korea. The agreement licenses our technologies for automotive touchscreens. Our continued technology innovations and new customer announcements favorably position us for continued growth as OEMs adopt haptic interfaces throughout the vehicle. We look forward to keeping you updated on these partnerships. In gaming, we're thrilled with the successful launch of the Sony PlayStation 5 and its transformational DualSense controllers. As previously shared, Sony Interactive Entertainment is an Immersion licensee, and the PlayStation 5 DualSense controllers utilize our technology. Immersion collects the 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. We received our first royalty report and revenue for the PlayStation 5 DualSense controllers in Q4. It was in line with our expectations, and we continue to expect the platform and controller to be very successful in the quarters and years ahead. The positive market reception of the DualSense controller has catalyzed increased market interest in haptics, which we are seeing across the industry, as well as in our customer and partner engagements. In Q4, we executed a multi-year renewal of our licensing agreement with Abtivan, a game peripheral OEM that offers force feedback steering wheels and related racing and flight simulator equipment. Abtivan utilizes advanced haptics to fully immerse the gamer and recreate highly realistic driving dynamics. Our gaming technology has also broad relevance and value to VR experiences, and I'm excited to share two recent VR customer wins. We executed a multi-year technology license with Sense Arena, a provider of VR products for athletes designed to improve reaction time and performance. Haptics enables Sense Arena's products to deliver highly realistic tactile feedback and opens up new training possibilities. We also announced a multi-year technology license with Striker VR, a high-end peripheral and platform OEM for VR and gaming experiences for upcoming consumer peripherals. Striker VR is utilizing our technology to deliver fully immersive tactile effects, including realistic trigger capabilities. Its peripheral will be available for use with popular VR platforms on the market. We're excited about our opportunities in gaming and VR. The PlayStation 5 is off to a great start, and our recent game and VR customer wins validate our belief that we are well-positioned for future growth. Turning to mobile, We continue to see signs of recovery and have a positive outlook for 2021 and beyond. Samsung, one of our largest licensees, recently commented in its Q4 earnings call that it expects market demand for 2021 for its mobile business to recover to a pre-COVID-19 level. Gartner, a leading market research provider, released an updated forecast earlier this month that predicts worldwide smartphone sales will grow 11% over 2020. These perspectives reinforce our belief that the worst of COVID's impact is behind us. We believe 5G and new smartphone models will support strong shipments in the years ahead. We're also pleased with our continued progress with our channel licensing program designed to address the China smartphone market. This program enables our channel partners, including Awanek, to offer a license to emergence patent portfolio in conjunction with select haptic driver ICs. This program achieved its highest ever revenue in Q4. As part of our long-term strategy to support continued adoption of advanced haptics in mobile and adjacent markets, we are leading the development of industry standards. Last week, we announced that the Advanced Television System Committee, known as ATSC, published an emergence proposal as a recommended practice on haptics for ATSC 3.0. The recommended practice enables the addition of haptics in ATSC 3.0 broadcast and broadband content streams on mobile devices capable of haptic feedback. In concert with our efforts to drive haptic standards in MPEG, this development strengthens the long-term value of our IP portfolio and will support future growth through expanded licensing opportunities of our patents as well as implementations of our software products. Immersion was recognized as a top 100 global innovator for the second year in a row by Clarivate, a leader in providing trusted insights and analytics on research and intellectual property. Over the past year, we've optimized our research and patent prosecution process to maximize the return on our investments. Over the past quarter, we've had more patents issued related to our core initiatives, including the use of haptics in streaming media, gaming, and VR. In summary, we are on a very positive trajectory and are excited about the opportunities ahead as haptics grows in relevance and importance across our core markets and beyond. We have achieved sustained profitability under our optimized operating structure. As a result of all these factors, we enter 2021 with momentum to deliver double-digit percentage growth in revenue and profitability. I'll now turn the call over to Aaron for a review of our Q4 results before opening up the call to your questions.