Immersion Corp (IMMR) 2007 Q2 法說會逐字稿

And good afternoon. My name is Janetta, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Quarterly Results Conference Call.

(OPERATOR INSTRUCTIONS.)

Thank you. Mr. Viegas, you may begin your conference.

Thank you, [Janetta].

Good afternoon, and thank you for joining us today. I am pleased to welcome you to this discussion of Immersion's results for the second quarter of 2007. With me today is Steven Ambler, CFO and Vice President of Finance.

By now you may have seen this quarter's earnings release that was distributed following the close of market today. If you have not, it is available on our website at www.immersion.com. Instructions on how to replay this call are also included in the release.

During the course of our comments today, we will be making forward-looking statements. These forward-looking statements include management's current analysis of certain aspects of Immersion's future business. Forward-looking statements are based on current information that is by its nature dynamic and subject to rapid, and even abrupt, changes.

Our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied in our statements. Factors that could cause actual results or developments to differ include the risk factors mentioned in today's news release and Immersion's SEC filing, and in our annual report to shareholders, as well as any factors mentioned during our discussions today.

During today's call, I will provide a summary of Immersion's second quarter results and a business update. Steven will then cover our second quarter financial results in more detail and give a brief legal update. I will end by giving you an update on our strategic review and evaluation of various business opportunities.

Through focus and execution, Immersion is rapidly approaching its prime objective - that is widespread mainstream adoption of our haptic technology leading to significant revenue growth and profitability. In my letter to shareholders in our 2006 annual report, I outline four specific goals for 2007 that would help us to meet this objective. I am very pleased to report on the significant progress we made toward achieving these goals during the second quarter.

The first goal is to achieve profitability. Revenue for the quarter grew to $8.6 million, an increase of 29% over the second quarter of 2006. Our net income for the quarter was $0.01 of earnings per diluted share compared to a loss of $0.10 per share in the second quarter of 2006. This makes two profitable quarters in a row for Immersion.

The second goal is to continue expanding our medical product line, international sales and industry alliances. During the second quarter we launched one new product platform, the laparoscopy VR training simulator, and increased international sales.

The third goal is to substantially increase the number of haptic-enabled mobile devices. At the end of the second quarter, Nokia, the world's number one maker of mobile devices, licensed our technology, creating the potential for a significant increase in the number of VibeTonz-enabled mobile phones.

The fourth goal is to launch our TouchSense technology for touchscreen-based equipment into multiple markets. We continued to work closely with 3M Touch Systems in the casino gaming market. I will elaborate more on our progress in the business update.

In addition, as part of our financial strategy, on July 27, 2007 we gave notice to holders of Immersion debentures that we will redeem their debentures within 30 days of the notice date. Our debenture agreement allows us to mandate this redemption if the bid price of our stock closes above 200% of the conversion price of the debentures for 20 consecutive trading days. Prior to the end of the 30-day notice period, the holders of the debentures may elect to convert the outstanding principal and accrued interest under the debentures into shares of Immersion's common stock at a conversion price of $7.265 per share.

If all debentures are converted, the company will issue just over 2.8 million new shares of common stock and extinguish our debenture liability. Under the terms of the debenture agreement from July 27, 2007, the company is no longer required to pay interest to the holders of the debentures. This debenture conversion will save about $1 million of cash interest expense per year, as well as approximately $600,000 of accretion expense per year.

Moving on to a brief business update, our medical revenue grew 19% compared to the second quarter of last year. Product sales for all product platforms grew substantially, as did international sales. In the second quarter, we launched an exciting new simulation platform that can address training needs for laparoscopy across multiple disciplines, including general surgery, gynecology, pediatrics and urology. We plan to launch additional software modules for this system this year.

In the gaming market, our revenues increased 45% compared to the second quarter of last year. We continued to license our patents to third parties for gaming peripherals, including most recently Hori, USA and Katana game accessories. Hori develops peripherals and accessories for game, gaming consoles such as the Sony PlayStation, Microsoft XBox and Nintendo products.

Katana has represented that they have been licensed by Sony Computer Entertainment to produce gaming peripherals and accessories for Sony PlayStation Portable, PlayStation 2 and PlayStation 3 platforms. Katana has stated they plan to design, manufacture and, in September of 2007, begin distributing peripherals for Sony PlayStation products in North America. We expect to see continued growth in our gaming revenues in 2007 over comparable periods in 2006.

Next, revenue from our touch interface products business grew 67% in the second quarter compared to the same quarter a year ago. Revenue from royalties, product sales and development contracts all increased. The automotive market led the growth, with expansion of licensed products and recognition of certain royalty payments in the second quarter. We continue to work closely with 3M Touch Systems to begin selling tactile feedback touchscreens for the casino, gaming and bartop amusement markets later this year.

3M Touch Systems is working with their lead customers on product design. We expect some of those customers to show their tactile touchscreen gaming products at gaming trade shows this fall and have them available for sale thereafter. We are starting to see product orders from 3M needed for these design efforts.

Turning to our mobile device business, we now have license agreements with three of the top five handset makers. Our recent license agreement with Nokia provides the springboard to achieving our goal of widespread proliferation of VibeTonz-enabled mobile devices. The agreement requires Nokia to pay minimum annual revenues to Immersion and provides Nokia with the incentive to use VibeTonz technology in a high volume of phones.

The increase of VibeTonz-enabled mobile phones in the market provides not only revenues from handset makers, but the opportunity to achieve significant content revenue. We have begun to provide Nokia with the technical support to incorporate VibeTonz technology into upcoming phone models, which we expect to see released in the first half of 2008. We expect to begin generating revenue from a Nokia license agreement in the third quarter of this year.

LG launched their first VibeTonz-enabled phone in Korea, the popular touchscreen-based Prada by LG. Samsung continues to release VibeTonz-enabled phones around the world.

I'd now like to turn the call over to Steven to give detail on our financial performance for the quarter and a brief legal update. Steven?

Thanks, Vic.

For the second quarter of 2007, our revenues were $8.6 million compared to $6.7 million in the second quarter of 2006, an increase of 29%. The revenues for the quarter equaled our previous highest quarterly revenues achieved in Q4 2006. Our year-to-date revenues were $15 million compared to $12.7 million in 2006, an increase of 18%. Our net income for the quarter was $176,000, or $0.01 of earnings per diluted share compared to a loss of $2.4 million, or $0.10 loss per share in the second quarter of 2006.

I would now like to discuss each of the sections of our income statement in order, starting with revenue. Compared to the year-ago quarter, we saw growth in revenue from all our businesses, with the exception of our 3D business, where we saw a small decline.

Looking at each of these businesses in turn, revenue from our medical business, which comprised 48% of total company revenues, grew 19% to $4.1 million from $3.5 million in the year-ago quarter. Medical product sales grew 55% over the year-ago quarter, and medical product sales comprised 98% of total medical revenues in the quarter.

Gaming business revenues increased 45%, from $980,000 in the year-ago quarter to $1.4 million in the second quarter of 2007. Gaming revenues accounted for 17% of total revenues.

Our touch interface product revenues grew 67% to $1.6 million from $978,000 in the year-ago quarter, owing in part to expansion of the number of products licensed to the automotive market. Revenue from touch interface products accounted for 19% of the total revenues for the quarter.

Revenues from our 3D products represented 13% of the quarter's total revenues and totaled $1.1 million, down from $1.2 million in the year-ago quarter.

Our mobility revenues totaled $291,000 for the quarter compared to $38,000 a year ago. Mobility revenues comprised 3% of the quarter's total revenues. Mobility revenues for the quarter do not include any revenues from the Nokia licensed signed at the end of the second quarter.

Analyzing our second quarter revenues by category, total product sales revenues accounted for 62% of total revenue, up from 59% in the second quarter a year ago, with 77% of product sales coming from medical and 20% from 3D.

Royalties from patent and technology licensing represented 32% of total revenue, 6% higher than a year ago, with the growth attributable to our gaming and touch interface product businesses. Development contracts and other revenue for the quarter represented 6% of total revenue, down from 15% of total revenue in the second quarter of 2006.

For the quarter, our gross margin was 72% compared to 73% in the second quarter of 2006. This reduction is as a result of a sales mix change, and is in line with our expectations.

Second quarter 2007 operating expenses, pre-litigation conclusions, totaled $8.9 million compared to $7.3 million in the year-ago quarter. We invested more in research and development, increasing our expenditure by $711,000 compared to the year-ago quarter. We also incurred more general and administration consulting costs in support of our accounting and tax treatment of the monies received from the conclusion of the Sony litigation. Our sales and marketing costs were flat compared to the year-ago quarter.

We incurred non-cash stock-based compensation charges of $609,000 in the quarter, of which $583,000 are included in operating expenses. This compares to $694,000 in the year-ago period, of which $676,000 were included in operating expenses.

Interest and other income totaled $1.8 million for the quarter while interest expense totaled $407,000 in the period, for a net total of $1.4 million income. Interest expense comprised interest and accretion expense on our convertible debenture. In the comparative period, interest income expense was a net expense of $319,000.

During the quarter, we revised our estimate of our income tax provision for the year and accounted for an income tax benefit of $1.5 million. In the comparable period a year ago, our income tax benefit was $15,000. Our diluted EPS for the quarter were $0.01 per share. The debentures were excluded from the calculation of this EPS as they were anti-dilutive for the period. For the year-to-date diluted EPS calculation of $4.03, the debentures are included in the calculation, as their effect is dilutive. EPS calculations are performed using the treasury stock method.

Moving to the balance sheet, on June 30, 2007 we had cash, cash equivalents and short-term investments totaling $135.6 million, slightly down from $137.6 million on the 31 of March, 2007. Our accounts receivable at June 30, 2007 totaled $6.7 million compared to $3.3 million at March 31, 2007. Our days sale outstanding, or DSO, on June 30, 2007 was 71 days.

As of June 30, 2007 we had 26.9 million shares of common stock outstanding, and we also had 141 employees. As Vic mentioned earlier, if all the debentures are converted to common stock, there will be an additional 2.8 million shares of common stock issued.

Now a brief legal update. Please refer to our most recent 10-Q for more details. On July the 6th we were served by Microsoft with a complaint relating to the conclusion of our litigation with Sony Computer Entertainment. We believe we are not obligated under the sub-license agreement with Microsoft to make any payment to them. Our response is due to be filed in the court by September 4.

Because we do not control the court calendar, we cannot predict the timing of the next steps, or when the case will be decided. But, we do expect this litigation to proceed as a normal contract dispute, which would generally be less complicated and less time consuming than patent litigation. We intend to defend this lawsuit vigorously.

Vic?

Thanks, Steven.

As I mentioned in our May 3 conference call, we're in the midst of a strategic review and evaluation of various business opportunities that I estimated would take three to six months to complete. For the past four months, the management team, members of the Board of Directors and a number of consultants have been engaged in an extensive analysis of a broad range of strategic opportunities for significantly growing Immersion's revenue and shareholder value.

We initially cast a wide net and considered various business models for the company, financial and litigation strategy, potential acquisition, entry into new markets and growth strategies for existing markets. Through market research, interviews with key industry participants and further analysis, we narrowed the focus to a smaller number of key initiatives.

We are now in the process of making revenue and investment projections, risk assessments, implementation plans, key milestones and defining organizational needs. We expect to be finished with this process before the next conference call, which is scheduled for November 1, when I will be able to share with you more detail on the vision, strategy and objectives for the company.

Before discussing a few of our strategic opportunities, let me remind you of our present position. Immersion is the global market leader in haptic technology and products. Throughout our history, even through some very difficult years, we preserved our potential to pursue large market opportunities and invested in strengthening our technology position. Now, with over 600 pending or issued patents, we have a strong intellectual property portfolio that we have successfully defended.

As an enabling technology, we believe haptics is a key ingredient that can be as ubiquitous as sight and sound in the digital interface. We are very well positioned to achieve the big upside potential in the growing market for haptics technology.

We are also encouraged by market indication that the value of haptics is being increasingly recognized. Adoption of new technology often requires demonstrating its benefits and value through trials and studies. We recently published a white paper entitled, "The Value Of Haptics," which can be found on the home page of our website. The paper summarizes the recent published findings from third-party scientific studies on the value of haptic feedback in human-computer interaction.

Just one example is a 2007 study by researchers at the University of Glasgow in Scotland, involving the use of touchscreen keyboards on mobile devices with and without tactile feedback. The study found that, with tactile feedback, users entered significantly more text, made fewer errors, and corrected more of the errors they did make. Users also strongly preferred the tactile feedback, reporting that it improved their task performance and reduced their frustration and annoyance.

Recently, there have been many similar comments in the press about touchscreen phones that support the value of tactile feedback. Our recent agreement with Nokia is further validation of the value of haptics and its growing market acceptance. The response by decision-makers across a number of industries interviewed for our strategic study provided additional confirmation of the many ways haptics could add value to their products.

With this backdrop, we continue to see large opportunities in the three areas we've been investing in for the past several years - that's medical, mobile devices and tactile feedback for touchscreen. The recent strategic analysis has helped us widen our perspective and identify additional opportunities in these segments. We now have the financial means to pursue a broader set of objectives in these markets.

For example, in the medical market, we have historically focused primarily on selling medical stimulators to hospitals for clinician training either directly or through medical device manufacturers. Some near-term possibilities we are considering are to expand our international sales in this market, or develop additional platforms and software modules. Longer-term strategies could include creating demand for simulators through insurance companies, hospital certification programs, and FDA-mandated training requirements.

An exciting new area for us to explore is to apply our technology to help medical device manufacturers enhance physician training to increase the financial success of new product launches. Formal industry research on the rate at which physicians adopt new technologies suggests that adoption is influenced by the availability of information and how much training will be required to master a new technique.

For instance, medical virtual reality simulators could help device manufacturers achieve market acceptance, increase usage in market share, speed market penetration, and collect data for improving product design or performance. Expanding our efforts to work with medical device makers on these goals could open a new set of opportunities within the medical training market.

In the mobile device area, we have many opportunities to add haptics to the mobile experience, which includes the handset as well as media, content and messaging. With the potential for hundreds of millions of VibeTonz-enabled phones in the market, we intend to work more closely with wireless operators and content developers to achieve revenue-sharing agreements for haptics-enabled content, media and messaging.

In the tactile touchscreen area, our focus is narrowed on high potential consumer-facing markets, including automotive, self-service retail and casino gaming. We continue to receive more and more interest from these market segments and acknowledgements of the benefits our technology can provide. We have a strong relationship with 3M Touch Systems in the casino gaming area, with products coming to market soon.

For years we have built a foundation in the automotive industry, developing relationships and signing license agreements with both automotive manufacturers and their suppliers. Industry interest in tactile touchscreens and touch surfaces has grown considerably, and the longer-term opportunity for implementations in vehicles remains significant. In the retail self-service market, we are looking to more closely partner with proven integrators who have valuable experience and the presence to broadly deploy our technology.

In addition to completing these market-based strategies, we are finalizing the company's corresponding financial plan. This plan includes using or reserving cash for the following items - (1) investment in our market growth initiatives, (2) possible litigation expenses as a defendant or plaintiff, or contingent claims against Immersion, such as the Microsoft claim, (3) opportunities to acquire intellectual property, and (4) potential acquisition opportunities.

As I mentioned earlier, we will be in a better position to give more details on our new market initiatives and financial plan at our next conference call.

In closing, Immersion is in an exciting place. We have multiple large business opportunities in our existing, as well as new, markets, which our financial strength now allows us to pursue. I can assure you we will continue to take a measured approach to controlling operating expenses in order to reach key market financial and strategic milestones. We are the number one company in haptics, and demand for our products is increasing as the market recognizes the value of this broad-based technology. I am confident that we can significantly increase shareholder value by carefully selecting and executing on our growth strategy.

[Janetta], please open the call for questions.

(OPERATOR INSTRUCTIONS.)

[Lee Lutcher.]

All right. Hello, Vic. [Lee Beekler] actually is the name.

Yes. Hi, Lee, how are you?

Hi. I'm fine, thank you.

I've got a question having to do with the mobility business. Several weeks ago there was a report published from Reuters that talked about an interview which you gave, apparently, and they reported that you had told them that you believed that 2009 would be the time that you would expect to see significant mobility revenues, or maybe that was the earliest time. I don't exactly remember.

A couple of CCs ago, you commented that a rate of -- an annual rate of about 50 million VibeTonz-enabled phones would be your expectation before you might see some significant revenues. So, I have two questions associated with that.

I wonder, first of all, if you could tie those two comments together. And secondly, when you spoke about the 50 million VibeTonz-enabled phones and the concept of that being a significant revenue event, were you referring to all the revenues in that activity, or were you specifically addressing the download?

Lee, I'll try to remember everything you're asking and, if I don't capture it, I'll let you ask a follow-up. But, I was quoted by Reuters in that interview. My comment really was focused on what -- when will we have a significant impact on our P&L from our mobility business, and I predicted 2009. I said 2009 because I believe, while we will generate substantial revenue, especially in terms of percentage growth in 2007 and 2008, these are periods where we will be working hard to deploy a high volume number of phones. Our goal is actually north of 50 million phones in the near-term, but we believe that it will require that level in the marketplace before we'll have substantial report from the content businesses.

So, this is carriers who will begin requesting these phones, companies that create and make the content, such as games, ringtones, carriers excited about the ability to add haptics to messaging services, for example. I think those revenue-generating events are more likely to occur in 2009 than they probably are in 2008 in a material and substantial way.

So, I do believe 2009 is the year that you'll see substantial growth in revenue from mobility, but we're actually extremely positive about what we'll see in Q3 and Q4 of this year. But, these are periods where we'll begin building that base of business and deploying the content business in parallel.

OK, thank you. That answers the question nicely.

Mark Argento.

Hi, Mark.

Good afternoon.

Can you talk a little bit more about Touch Interface? Looks like that business is starting to ramp nicely, sounds like some wind in the auto sector, some additional growth there. Could you talk a little bit about what you're seeing in that category?

Yes, sure, and I'm also happy you're on the phone. And yes, we did quite well in the auto space. The BMW relationship continues to expand, and so we benefited greatly in the quarter from them, as well as our relationships with the supply side.

So, we're seeing more products in the market. We're seeing new and different products being introduced, and pretty excited about that.

On the touchscreen space, we continue to work on design wins. The early design wins are typically smaller volume, but they are starting to gain momentum, let's say. As the industries and market leaders become more aware of the benefits, we're starting to see a lot of interest.

With regards to 3M, again as we said in the script, 3M is working closely with some of their top customers. They're beginning to produce these products and go through some internal efforts to showcase the capabilities, and so we're beginning to receive production-level orders from 3M. So, we're just starting now to begin to see the revenue potential from these businesses, and are optimistic that, over the next few quarters, you'll continue to see growth on these areas.

That's helpful.

And then, in terms of the Nokia relationship, you said there's minimum guaranteed payments, and you'll start to see those -- will we see those, you said, in Q3?

Yes, that's correct.

And what -- at kind of what level do -- are there overages involved at a certain volume point, or how is, at a high level, does this -- can we think about this relationship?

I think, as I mentioned before, the agreement is confidential, obviously, and we want to preserve that confidentiality with Nokia. The agreement is such that there are payments that will be made. And as you'll -- we believe you'll begin seeing phones in the market some time in 2008. So, we're excited about not only the revenue, but also the ability to drive high volume, number of phones in the market.

One way to look at this, based on the monies that will be received, if there's a very small number of phones launched by Nokia, it will be a very expensive license. If, on the other hand, they launch in the hundreds of millions of phones, it will be an appropriate and a fair license arrangement. So, that's about all I can really speak to in terms of the specifics of the revenue and the model.

But, in terms of kind of -- in terms of reflecting this in the income statement, C3 next quarter we should see Nokia revenue come in the mobility category. Is that safe to say?

Yes, that's right.

OK.

Thinking a little bit broader base in terms of the business, what's your targeted growth rate for this business on an annualized basis? I know you guys don't provide specific guidance, but what -- could you grow this business 25%, 30% a year, faster, slower? What's your thought on that, on either the business in aggregate or if you want to take it by kind of a segment basis?

Sure. The capability of the technology, it's a pretty broad-based technology. And I think as we highlighted, it takes quite a while for markets to understand and begin the process of incorporating it in their products. If you were to look at other examples, such as the touchscreen industry itself, it took many years for people to appreciate the benefits and value, and now it's a very large and significant industry, but it took time. The markets that we're focused on, the three in particular, the mobility market, the medical market and the tactile touchscreen market, each of those three we think has the potential to be in excess of $100 million.

So, we believe the markets are substantial in terms of volume. The value proposition supports a revenue stream that would be substantial. But, it will take continuing efforts to get design wins, relationships, deploying the capability in the market, such as in the mobility space, getting phones in the market before we can fully capitalize on those opportunities. So, I'd rather not try to give you a percent per year, but I think the things we're doing today will create dramatic revenue. And in the business timeframe that we're looking at, we think that each of these markets support $100 million-plus businesses.

Does it make sense at some point in time to separate the medical business once the licensing business gets going, from a P&L perspective, from the margin -- on the margin side? But, is that a business you think could sit -- stand alone because you are actually making product? You could license yourself or spin it off?

It's something that I'm sure we'll probably consider at some point down the road. Public companies and the cost to maintain the public position, it's not inexpensive. If there's a better model to capitalize on the value, we will definitely consider it. But, as we sit today, the growth potential is great. We think we have the resources and the ability to execute. Somewhere down the road it may transition from a product -- primarily a product-based business maybe more towards a licensing business.

So, I think we will be in a form of transition somewhere down the road. But, right now I think we're very excited about the near and long-term opportunities. The product platforms continue to grow and are well received. And not only just the historical strategy of selling into training facilities, but also using our simulators in support of new sales initiatives for medical device companies. These are areas that we're excited about, and we think we have the ability to succeed.

Good. Thanks, Vic. Appreciate it.

Chris Little.

Hi, Chris.

Hi, Vic. Hi, Steven. Congratulations on another great quarter.

I have two questions. The first question relates to new technology that Microsoft just announced called Microsoft Surface. I believe it's a product that is developed as a hardware and software combination that allows users to manipulate digital content using natural motions and hand gestures. I was just wondering, it looks like, taking a look at this technology, that it'd be a great fit with Immersion's haptic capabilities. Any possible collaboration with Microsoft and their Surface technology?

I believe you're exactly right. I think our technology helps improve the interface and improves the product. At this stage we're not working with them on anything, but I can't say that, in the future, we won't come together and try to integrate our technology into that product.

Excellent. Good to hear.

My second question relates to Sony and the PlayStation 3 and whether or not they include haptic capabilities now. Correct me if I'm wrong. I understand that Sony, under the agreement, has the right to -- or the access to Immersion's patent. So, if they wanted to implement their own form of force feedback, Immersion would not realize any additional revenue from the PS3 controllers. Is that correct?

That's correct.

OK. So, assuming that that's not the case, I mean, if they said to you guys, Immersion, "OK, we want your solution, and help us implement this and use your solution" with their six axis controller, would this solution be both a software and hardware solution? And additionally, because it's your solution, would you realize any additional revenue?

That's an interesting question. So, you're right in distinguishing between the IP license, which they currently have, and the other is technology. We have technology that we're quite proud of that could be utilized not just in hardware, but also in software and in tools. We think we have exceptional tools that would enable a better experience in the game play, make it easier for the developers to create haptically-enabled games. We also think that we could add value to the existing hardware platform, namely our next-generation technology. So, this would all be subject to a separate arrangement and a different stream of revenue.

I want to just clarify my answer to your first question, that under the agreement that we have with Sony, there is ongoing payments made to Immersion over I believe a three-year period, which we are recognizing over a 10-year period that cover the license rights of the PlayStation3 product.

OK, great. Thanks a lot.

[Derek Punch.]

Hi, good afternoon.

Hi. Is it Eric?

Derek.

Derek. OK, great. Thank you.

My question centers around the Microsoft litigation issue, and I want to understand if you guys have an estimate of the legal costs going forward, certainly over the next quarter, that you would have to engage in to conduct this litigation with Microsoft.

Yes. We have an internal estimate, but that estimate is confidential, but it's also predicated on the activities in court. So, I think as we stated earlier, the dispute is one of a contractual dispute. We think it will be less expensive and less timely for this litigation compared to an IP litigation, but the actual cost and the timing of those expenses, it will really be predicated on the court activities.

OK. All right, that's all I had. Thank you.

[M.C. Montgomery.]

Hi, Vic. Congratulations on the great quarter. I've just got one brief question.

I attended the annual shareholder meeting and was able to use the laparoscopic equipment, and I'm just kind of curious what the perception of that is in the marketplace. Have you gotten an initial feeling about the receptiveness of teaching institutions as to their desire to implement that?

M.C., I remember you well. I think I was just on a call ...

Actually -- it's B.T. actually.

B.T. You had just had a gall bladder removal earlier that day.

So, anyway, yes. The product itself was launched late in the quarter, but the feedback from the early introduction and the presence at trade shows and so on is extremely positive. And we've added a lot of capability to the product, and we have a commitment in terms of adding cases and added software modules for the platform over the next few years, actually. So, there's quite a product roadmap, and we'll continue to invest in that platform. It appears to be a real successful platform, and one which the customers are very happy with.

Great. That sounds exciting.

And you also experienced it, so I think you have a pretty good sense of its realism and its benefits.

Yes.

Well, thank you very much, and congratulations to everyone there. You did a great job.

Thank you.

[Michael Kim.]

Hi, Michael.

Hi, Vic. Hi, Steven.

Hi.

Actually, I've got a whole litany of question and, hopefully, some of them haven't been asked.

Just first on -- just talking about the medical side, you mentioned the laparoscopic product launched later in the quarter. Do you have a sense of that will be your key driver in medical sales later into the second half of this year going into next year, or is there another platform that you guys are looking to launch similar to the laparoscopic product?

I think we mentioned that, during the quarter, all of our platforms did exceedingly well. They did quite well. And so, I couldn't really tell you in any given quarter, or even next quarter, which will be our number one product, so we continue to see exciting opportunities in all the platforms. We're seeing interest, and we're investing in our international effort, so we think that those are new markets for us. So, we think the platforms have a long life and a lot of potential here.

Are you finding that the reception is a little bit stronger internationally versus domestically, or vice-versa?

Hard to tell. I think it's universally accepted and appreciated. I think we have a stronger set of resources and an established presence in the U.S. But, I can also tell you that we've had a lot of interest and success in deploying products in China, for example. So, I think we see those potential advantages, and we want to deploy and take some time and add resources in these other markets. And we think we'll have a lot of success there.

Excellent.

And then, just turning on to the mobile side, obviously you guys have secured three of the top five handset OEMs. Did you mention if you were looking, or had expectations of securing another one this calendar year, or is that something we should look forward to in the early part of next year?

Well, you have to be clear. So, we have the number one -- based on second quarter, the number one, the number two and the number five OEM suppliers, so we're quite excited about that. That leaves two others. I can say, in both cases, we have had relationships with them in the past in some development initiatives.

So, we're familiar with the other two companies in the top five. I wouldn't say that it's our expectation or plan to sign any of the remaining OEMs. Right now we're working with everybody and trying to bring them to a license agreement. But, we're focused on working closely with the three partners and making sure that they're successful.

So, I guess just regarding Samsung and LG specifically, is it your sense that you'd be able to migrate them to a licensing-type arrangement that you've secured with Nokia within the next 12 -- certainly two, three quarters?

So, we have licensed Nokia. We've also licensed in the past, and continue to have license agreements, with Samsung and LG, so they are licensed.

Yes, I'm sorry, more -- I mean, aligning Samsung and LG more along the lines of what you're seeing with Nokia, that similar type arrangement.

We're trying to make all three successful. Just the sheer size of Nokia at 100 million -- I think they were about 100 million phones, at least according to the report I have, for the second quarter. They just are substantial. So, we want to make them successful, and -- but we're also devoted with dedicated resources in Korea, focused on making sure every product model and everyone within Samsung and LG have the resources to deploy the technology broadly in a high percentage of their phones. That is the stated goal for us.

Yes. I think Nokia tends to be fairly uniform across their product portfolio, at least in terms of the user interface. I mean, is that the type of conversation you've had with Nokia regarding Immersion's technology?

Well, I think they tend to adopt across a broader range of products, let's say, using platforms. So, I think that's a stated goal of theirs whereas, in Samsung and LG, I think they typically make decisions at the product level, so it's a slightly different view of how to incorporate technology. But, our discussions are at every level within all three companies, and we continue to try to support them in any way possible to grow the number of handsets with Immersion's VibeTonz.

OK, great. Great.

And then, just turning to 3M real briefly. Their customers should be demonstrating touchscreens with your technology later this year. Is your sense that the customer cycle and the product cycle starts in Q1 of next year or more of a Q2 event?

Typically, the products are shown at the G2E show. I believe it's in November of this year. And then -- and those products at that show, they would begin taking orders from their customers. The actual delivery dates, the regulatory approval process is decided by these customers. They may have those approvals in advance. They may decide to get approvals after. I don't know the details, but they will be showing products, and we would expect orders to begin shortly thereafter.

Michael, can I let somebody else step in and ask some questions?

Sure. Absolutely. We can take some of these offline later.

OK, thank you.

[Alec Breeman.]

Hi, Alec.

Hi, how you doing? In the strategic review, also -- [and comment on] that would be sort of your thoughts about maybe whether a repurchase authorization might make sense at some point. Is that still pretty much as before?

It's a candidate. It's one we have not dismissed, but it's also going to be viewed in the context of, as I said, the other -- making sure that we've added adequate funding for our growth initiatives and litigation strategies and some of the other things we're looking at as well. So, it's still a candidate, yes.

Got you. Thanks.

Yes, you're welcome.

At this time you have no further questions.

OK. Well, again as always, I appreciate your participation in the call, and we appreciate your continued support of Immersion. Thank you, and good afternoon.

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