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Operator
(audio in progress) -- ladies and gentlemen, and thank you for standing by. Welcome to the Immersion conference call discussing second quarter 2008 results. The Company's release made earlier today is available from its website at www.immersion.com.
(OPERATOR INSTRUCTIONS)
As a reminder, this conference is being recorded, Thursday, July 31, 2008. A replay of the call will be accessible until midnight, August 7, by dialing 800-642-1687 and entering Conference ID No. 29315678. International callers should dial 706-645-9291. An archive of this call will be also available on the Immersion website, at www.immersion.com.
I would now like to turn the conference call over to Clent Richardson, President and CEO of Immersion. Please go ahead, sir.
Clent Richardson - President & CEO
Thank you, T.K.
Good afternoon, and thank you for joining us today for this discussion of Immersion's results for the second quarter of 2008. Stephen Ambler, CFO and Vice President, Finance, is with me today.
And 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, in Immersion's SEC filings and in our Annual Report to Shareholders, as well as any factors mentioned during our discussions today.
Over the past three months I've visited our global offices and met with our team members to listen and learn. I've met with many of our key customers, investors, partners and industry leaders around the world to understand their needs and how Immersion can deliver even more value to them. Though I'm still in my first 120 days of assessing, observing and developing conclusions, I can now say that I believe Immersion's potential exceeds what I first thought when I joined the Company.
Our technology is without peer. Haptics is fast becoming a requirement for best and most sought-after electronic devices and user experiences around the world. Our solutions are captivating and powerful. They expand human capabilities and improve people's experiences with digital devices. I foresee a day when Immersion technology will be embedded in semiconductor chips that make it extremely easy and a very obvious solution for handset and other device manufacturers to capitalize on, and as a result unlock both the value of haptics and the power for their products.
In addition, we are well positioned to both exploit and rigorously defend our growing patent portfolio, as well as to prudently invest to drive growth for increasing shareholder value and customer value. As I said on my first conference call, my business philosophy is that I will focus on hiring the best people, doing a few things well and on achieving best-in-world status. By applying intense and rigorous focus, our team is setting out on a path to create, productize and deploy best-in-class, easy-to-use, elegant solutions for key markets around the world. Our mission is to accelerate the global adoption of haptics technology, resulting in platforms for additional content, application and products to further penetrate our chosen markets.
Today I will report on our second quarter results and update you on the investments we've made to grow the business, after which Stephen will follow with a more detailed financial update.
We outlined several goals for 2008 in our letter to shareholders in our most recent Annual Report -- add additional international staff and facilities to increase revenue and support our growing customer base worldwide; substantially increase the number of haptic-enabled mobile devices shipped by our licensees; achieve design wins for our TouchSense technology for touch screens and touch services in high-volume markets; step up investments in research that can generate significant innovations for future growth; and continue to defend our intellectual property. I'll be describing what we've done to execute against these goals over the past quarter and the results we've received to date.
First, a summary of our second quarter financial results.
Our revenue grew 8% in the second quarter over the same quarter in 2007, to $9.3 million, a record second quarter revenue.
Our net loss for second quarter was $3.1 million, or $0.10 per share, compared to net income for the second quarter of last year of $176,000, or $0.01 of earnings per diluted share.
As of June 30, 2008, we had cash, cash equivalents and short-term investments totaling $129.4 million.
We are investing in growing the business. An important goal of ours for long-term growth is increasing international sales and balancing the mix of domestic and international revenue. We are aggressively expanding our global reach to exploit our substantial growth opportunities. This expansion includes staffing with the very best people and locating them around the world, wherever the opportunities exist. In the first half of this year, we added 12 new sales, business development, sales support and marketing people across all of our businesses worldwide. This investment is important to delivering our solutions to more customers and to supporting them in their locations.
We are already seeing positive and measurable results from our investments. Second quarter of international revenues reached $4.5 million, almost 50% of total revenue, and an increase of 25% compared to the year-ago quarter.
Developing intellectual property is also of key importance to Immersion, and I'm taking a careful look at our research program to step up investments that can generate significant innovations for future growth. Protecting and defending our intellectual property is vital, and we will continue to do so for the benefit of our shareholders and our licensees.
Now I'll give you a brief business update for all of our businesses, starting with our medical. In medical, we are focused on substantially growing international sales of our three medical training simulator platforms. It is critical to our growth to penetrate the medical simulations market around the world, because Europe, China, India, Asia and South America combined are roughly twice the size of the US market alone. During the first half of this year, we've been successful in attracting and hiring experienced people from the medical simulation industry around the world.
Our international team is pursing major opportunities in Asia and is developing important channel relationships that we will announce at a later date. Even though the team has been on board only a short time, we've seen substantial growth, up 60% in our international sales in the second quarter over the year-ago period. We will continue to aggressively build our global team and establish the necessary infrastructure to support international operations, localize our solutions where appropriate, to capture additional market share and substantially grow revenue.
Moving on to our mobility business, our goal is simple -- to significantly increase the number of haptically enabled mobile devices shipped by our licensees. During the past few months, the ramp-up in launched haptic phone models, in advertising by handset makers and operators, in consumer awareness and in unit phone sales shows the building of momentum for our technology in the market.
Haptics has been highlighted as a key feature in high-volume handsets in Korea, Europe and in the US. For example, Samsung and LG continue heavy consumer advertising focused mainly on the haptic features of popular models in Korea. In particular Samsung's Haptic phone, named for multiple new haptic features and uses, is being advertised on TV, on the Internet with high-quality video and on special, dedicated websites. According to press reports, the Haptic phone sold a total of 340,000 units alone from April through June and led the market in phone sales in Korea during the first half of this year. In the US, Sprint is heavily promoting Samsung's Instinct phone, with our haptics technology. A week after launching it on June 19, Sprint announced that the instinct broke records for the highest sales of any device during the first week.
The momentum building has resulted in haptics becoming an expected feature in leading markets such as Korea. A small manufacturer of handsets in Korea, KTF Technologies, recently signed a new license agreement with us to be able to supply haptics features to their customers. In contrast, Taiwan phone maker HTC launched its touchscreen-based Touch Dual smart phone without haptics in Korea in July. A translation of a review by one Korean publication says that, quote, "because the Touch Dual phone doesn't support the vibration feedback haptic feature, which most touchscreen-based mobile devices are now adopting, a user has difficulty immediately knowing whether selection is registered or not."
One important measure of our momentum is that the number of total phones shipped with our technology now exceeds 20 million handsets, with over 7 million shipping in Q2 alone, more than double the number we shipped in Q1. We are working with our licensees on more than 50 current models in the pipeline, and the projected total volume of phones shipping this year is rapidly increasing.
In Finland, our team continues to support Nokia's efforts to broadly deploy haptics across their phone platform. And we continue to work with operators to specify haptics platforms in all of their handsets. Along with content developers, operators can leverage the power of haptics to improve the user experience and generate revenue for all parties, including Immersion.
Next, an update on our touch interface products group. We are truly excited about the many opportunities we have for providing touch feedback for touchscreens, and we are well on our way to achieving significant design wins. We announced on May 8 that we are focusing on four high-volume global markets -- automotive, consumer electronics, machine control and office automation. In these and other markets, innovative and creative product designers increasingly recognize the value of improving the user experience by providing touch feedback for their products that include a touch screen or touch service.
Some of the key product implementations we are targeting include multifunction printers, personal navigation devices, MP3 players, industrial machine control systems, fitness equipment and IP -- Internet protocol -- office telephones. We have specifically targeted the top five leaders in each of the categories of our four segments and are happy to say we have already put in place working prototypes for many of them. In three cases, we have moved to the license agreement negotiation phase of the sales process.
To make the design process faster and easier for customers, a few days ago we launched a new design kit for small touchscreens of up to six inches diagonal. This kit is a milestone, and that is as a result of an entirely new way we are approaching our partner in customer relationships, creating kits that enable them to rapidly deploy, specify and exploit the power and value of haptics and their solutions.
We are also pleased to share that 3M Touch Systems has completed their qualification of our actuators for their MicroTouch Capacitive TouchSense System, targeted at new casino games and retrofits of existing games. In May, 3M Touch Systems' product, with our technology, was awarded Casino Journal's Platinum Award for the most innovative product of 2007. They also won Casino Enterprise Management Magazine's Top 10 Slot Floor Products for 2008, also announced in May. 3M will begin receiving volume shipments of our A300 actuators this fall for deployment and integration into their systems for end user, end customer beta testing and regulatory certifications. We anticipate these testing and certification steps will take six to nine months, with ramp-up in revenue to Immersion in 2Q '09.
We have invested and we will continue to do so in expanding our international team for our touch interface products group by establishing local sales and technical support staff in several regions, most significantly in Asia. Our Asian sales team is focused on high-volume opportunities and has engaged a number of large OEM, system integrator, original design manufacturers, also known as ODM, companies in Taiwan, Japan, Korea and Mainland China.
Our team is working on both short and longer term opportunities for consumer electronics products such as MP3 players, office automation equipment and other devices. We are intent on ramping revenue growth by engaging significant global brand companies in the Asia-Pacific region, as well as in Europe and North America.
And now an update on our gaming business. Our gaming revenue is currently based on third-party royalty revenue for gaming peripheral sales and on recognizing a fixed revenue amount per quarter from our Sony agreement. Since the introduction of the next-generation console systems starting in November 2005, third-party market share for peripherals has been steadily declining, from over 60% to now less than 20%, according to NPD Group, a global provider of consumer and retail market research. However, over the past several quarters, the third party versus first party market share of controller, joystick and steering wheel peripherals appears to have stabilized.
Our revenue from third-party licensees is up in second quarter '08 over second quarter '07 due to new licensees coming on board and increased sales of new products such as Logitech's new PS3 steering wheel. For the future, we are focused on expanding the base of our gaming business beyond just PC and console gaming. We are also in the initial stages of exploring new opportunities for long-term growth on other entertainment platforms and areas such as gaming devices, Internet-based games, social networking and toys.
I'll now turn the call over to Stephen to give details on our financial performance for the quarter.
Stephen?
Stephen Ambler - CFO & VP, Finance
Thanks, Clent.
For the second quarter of 2008, our revenues were $9.3 million, compared to $8.6 million for the second quarter of 2007, an increase of 8%.
Our net loss for the quarter was $3.1 million, or $0.10 per share, compared to net income of $0.2 million, or $0.01 of earnings per diluted share, in the second quarter of 2007.
Our breakdown of revenues is as follows.
Revenues from our medical business, which comprised 46% of total company revenues, were $4.3 million, compared to $4.1 million in the year-ago quarter, an increase of 4%.
Revenues from our console and PC gaming business, which comprised 18% of total company revenues, were $1.7 million, compared to $1.4 million in the year-ago quarter, an increase of 17%.
Revenue from touch interface products accounted for 11% of total revenues and totaled $1 million, compared to $1.6 million in the year-ago quarter, a decrease of 38%. Non-automotive revenue from our touch interface products business grew 7% compared to last year. The decrease in automotive revenue of just over $600,000 was due to recognition of a one-time lump sum payment in the second quarter of last year.
Revenues from our 3D products were flat, at $1.1 million. Revenues from 3D products accounted for 12% of total revenues for the quarter.
Our mobility revenues totaled $1.2 million, compared to $291,000 in the year-ago period. That's an increase of 327%. Mobility revenues comprised 13% of the quarter's total revenues.
Analyzing our second quarter revenues by category, second quarter total product sale revenues grew 2% compared to the second quarter of 2007 and represented 58% of revenue, compared to 62% in the year-ago period. 75% of product sale revenues came from our medical business, with 19% coming from our 3D business and 6% from our touch interface products business.
Royalties from patent and technology licensing grew 15% over the comparable period in 2007 and represented 34% of total revenue, up from 32% in the year-ago quarter. Gaming and mobility both saw growth in licensing revenues, while touch interface products dropped as a result of the non-recurrence of the one-time automotive payment obtained in the second quarter of 2007.
Development, contract and other revenue grew 35% compared to the same period a year ago, and comprised 8% of total revenue. Mobility comprised 51% of this revenue, with the majority of the remainder coming from our medical business.
One major goal for the year has been to grow our international revenues. We are achieving this goal. For the quarter, international revenues grew 25%, to $4.5 million, from $3.6 million in the second quarter of 2007, and in percentage terms represented 49% of our revenues for the quarter, compared to 42% in the comparable period. For the quarter, our gross margins were 72%, the same percent as in the second quarter of 2007.
Second quarter 2008 operating expenses totaled $12.4 million, compared to $8.9 in the year-ago quarter. This increase was due to investments in staffing, primarily within our sales and marketing teams, plus increased product development and increased legal and outside professional service costs. Litigation costs totaled $1.5 million, compared to $225,000 in the year-ago period. Our head count on June 30, 2008 totaled 169 staff, compared to 141 on June 30, 2007 and 164 on March 31, 2008.
In mid-2007, Microsoft sued us in the District Court for the Western District of Washington State, alleging that we were in breach of our contract with them and that they were entitled to a share of the judgment monies and other sums we received from Sony. We believe we do not owe them any sums and continue to vigorously dispute their claims. Discovery is now closed, and several summary judgment motions are still pending. The trial is currently scheduled for the 14th of October, 2008.
We incurred non-cash stock-based compensation charges of $964,000 in the quarter, of which $912,000 were included in operating expenses. This compares to $609,000 in the year-ago period, of which $583,000 were included within operating expenses.
Interest and other income totaled $909,000 for the quarter, compared to $1.4 million in the year-ago period. Interest income has dropped significantly, in line with interest declines over the last year.
After accounting for a tax benefit of $1.6 million, our net loss for the quarter was $3.1 million, equivalent to $0.10 loss per share. The shares outstanding used in this calculation were 30.4 million shares, the average number of shares outstanding in the period.
Moving to the balance sheet, during the quarter the Company bought back 719,000 shares under its buyback program, at a cost of $6.1 million. The Company has continued to buy back subsequent to the quarter end, and as of last Friday the Company had bought back an additional 360,000 shares, at a cost of $2.4 million. As a result of the buyback, plus our investment of cash in the business as previously described, the Company's cash, cash equivalents and short-term investment balances decreased to $129.4 million as of June 30, 2008, down from $140 million on March 31, 2008. The Company does not hold any auction rate or mortgage-backed securities.
Our accounts receivable on June 30, 2008, totaled $5.3 million, compared to $3.3 million on March 31, 2008. Our days sales outstanding, or DSO, on June 30, 2008, was 52 days. As of June 30, 2008, we have 29.9 million shares of common stock outstanding.
I would like to close by talking a little bit about our investor relations activities. We enjoyed meeting a number of you in May at the Craig-Hallum Institutional Investor Conference and at the Cowan Technology Conference. We would also like to thank all of you that attended our shareholder meeting in June. In the next three months, we have planned investor visits to New York, Boston, Los Angeles, San Francisco, Toronto and London, and look forward to meeting many of you in those cities. We are also planning to hold an analyst day on the East Coast in early 2009. I will give more details about that event at our next conference call, on the 30th of October.
Clent?
Clent Richardson - President & CEO
Thank you.
T.K., with that, let's open up the line for questions, please.
Operator
Thank you.
(OPERATOR INSTRUCTIONS)
Your first question comes from the line of [Barney Brown].
Clent Richardson - President & CEO
T.K. --
Operator
Please go ahead with your question, sir.
Clent Richardson - President & CEO
T.K., we're not able to hear the question from Mr. Brown.
Operator
Okay. One second, sir.
Your next question comes from the line of Glenn Mattson, with GTK Capital.
Glenn Mattson - Analyst
Good afternoon. You said one of your goals in this year was to protect and defend intellectual property. What examples can you give us about defending the property? And I've noticed that the game company has settled, on the West Coast and Seattle, has settled two lawsuits already on intellectual property. Could you help me on that, please? Thank you.
Clent Richardson - President & CEO
You bet, Glenn. Thanks for the question. As an example, we filed suit in April in our medical market against Simbionix and Mentice for patent infringement. We are constantly evaluating products and references in the market that could be infringing, but we do not comment on anything that might be pending or anything we might be considering. That said, other than a large software-based company in Redmond, I don't know of what company you might be referring to in the Seattle area that had settled.
Glenn Mattson - Analyst
(Inaudible) gaming company, like Nintendo, I think it is, is it not?
Clent Richardson - President & CEO
Yes, there is another one up there. That is correct. We know Nintendo. We love their games. And we think that their games could certainly benefit by a license of haptic technology from Immersion.
Glenn Mattson - Analyst
They're not using haptics now, I don't think. Or are they?
Clent Richardson - President & CEO
They have no license from us, so it's hard to say whether they're using haptics today.
Glenn Mattson - Analyst
You're reviewing that, I'm sure, but maybe you don't want to say. But to my knowledge, they are using haptics, and I'm just not so sure one lawsuit filed against Simbionix is really defending and protecting the patents as much as we'd like to see.
Clent Richardson - President & CEO
Right. Understood. Your feedback is taken onboard. You could well appreciate that we do not take litigation lightly. We want to make sure that we have a fulsome understanding of any matter that we would choose to litigate. Furthermore, there is a substantial amount of research involved in any case that we might consider.
And, as I said earlier, we're not commenting on any pending litigation or litigation that we might intend to pursue, but I guess I would suggest to you, we have very aggressive thinking, both at our outside counsel as well as our executive team here, and we're looking at anybody that could be on the bleeding edge of using haptics that isn't licensed currently.
Glenn Mattson - Analyst
From my knowledge, I think there's a number of people you could possibly pursue. Thank you.
Clent Richardson - President & CEO
Thank you, Glenn.
Operator
(OPERATOR INSTRUCTIONS)
There are no further questions at this time, sir.
Clent Richardson - President & CEO
Very good, T.K. Thank you very, very much.
I'm privileged to have the opportunity to lead Immersion and this team as we grow our products and technology and take it to the next level of adoption and proliferation and in so doing deliver more value to our customers and shareholders. New consumer products that create a very intuitive user experience will attain a significant competitive advantage. Immersion holds the keys to unlocking the powerful sense of touch in the user experience for electronic products of all kinds.
Our job is to make haptics an imperative in the user interface, and to help our customers around the world implement it quickly into their new products. The Immersion team and I are intensely focused on combining our products, intellectual property and strong financial base to create a springboard for accelerated growth. This quarter showed that our large opportunities are coming nearer, and we look forward to continued progress.
T.K., thank you very much for your support today.
Stephen, thank you for yours.
We appreciate all those that participated in today's call and those that were listening. Thank you for your continued support of Immersion. Thank you for your continued interest in Immersion. And have a great afternoon.
Thank you, T.K.
Operator
You're welcome, sir.