Immersion Corp (IMMR) 2011 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Immersion Corporation third quarter 2011 earnings conference call. (Operator Instructions). This conference is being recorded today, November third of 2011.

I would now like to turn the conference over to Jennifer Jarman of Blueshirt Group. Please go ahead.

Thank you, Gilbert. Good afternoon and thank you for joining us today on Immersion's third quarter 2011 conference call. This call is also being broadcast live over the Web and can be accessed from the Investor Relations section of the Company's website at www.immersion.com. With me on today's call are Vic Viegas, President and CEO, and Shum Mukherjee, CFO.

During this call, we may make forward-looking statements which may include projected financial results or operating metrics, business strategies, anticipated future products, anticipated market demand or opportunities, and other forward-looking topics. These statements are subject to risks, uncertainties, and assumptions. Accordingly, actual results could differ materially. For a listing of the risks that could cause this, please see our latest Form 10-Q filed with the SEC, as well as the factors identified in today's press release.

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 the Company's press release issued today after market close.

With that said, I'll turn the call over to Chief Executive Officer, Vic Viegas. Vic?

Yes, thanks, Jennifer, and thanks, everyone, for joining us this afternoon. Our third quarter revenues were weaker than anticipated due to softness in the medical and automotive lines of business, though licensing revenue continued to reflect double-digit growth over the prior year.

During the period we added several new licensees across our various markets, along with numerous ecosystem partners, and we achieved an important milestone, with the first MOTIV-based handset and the first MOTIV-based tablet brought to market with a new mobile OEM. We continued to make progress in our engagements with the Android developer community, as well as top-tier mobile and tablet OEMs, while also further strengthening our IP in fundamental haptics technologies.

In a few minutes, I will discuss recent developments and the new opportunities emerging for us based on our growing patent portfolio. First, I'll ask Shum to provide a more detailed review of our financial results for the third quarter, as well as our updated outlook for the year.

Thanks, Vic. Revenues in the quarter were $6.5 million, flat with the third quarter of 2010 and reflecting softness in the medical and automotive lines of businesses, as Vic mentioned. Revenues from royalties and licenses were $5.9 million, up 14% from royalty revenues of $5.1 million in the third quarter of 2010, primarily reflecting strong demand in the gaming and mobility lines of business. Revenues from the sale of products were $345,000 compared to $1.2 million in the same quarter last year, and revenues from development contracts were $275,000 compared to $189,000 in the year-ago period.

While revenue mix per line of business is expected to fluctuate on a quarterly basis due to seasonality patterns, in the third quarter of 2011, a breakdown by line of business as a percentage of total revenues is as follows -- 46% from mobility, 31% from gaming, 12% from medical, 7% from auto, and 4% from chip and other. For the sake of clarification, these percentages are based on total revenues, including revenues from royalty and licensing, product sales, and development contracts.

Cost of product sales in the third quarter of 2011 was $192,000 compared to $457,000 in the third quarter of 2010. Gross profit margin in the third quarter of 2011 was $6.3 million, or 97% of revenues, compared to a gross profit margin of $6.1 million, or 93% of revenues, in the same period last year. The increase in gross profit as a percentage of revenues this quarter was primarily driven by the high end mix of revenues from royalties and licenses, which enjoy higher gross margins than gross margins from revenues related to product sales.

Excluding cost of product sales, total operating expenses were $7.3 million compared to $7 million in the third quarter of 2010. The operating expenses of $7.3 million include non-cash charges related to depreciation and amortization of $556,000 and stock-based compensation of $940,000. Excluding these non-cash charges, OpEx was $5.8 million during the quarter, slightly below our near-term target range of $6.0 million to $6.5 million. As we have indicated in the past, we continue to invest in sales, marketing, and R&D to drive our revenue growth.

Non-operating other income and expense, taxes, and discontinued operations were $370,000 in the third quarter of 2011 compared to $184,000 in the third quarter of 2010, primarily reflecting higher withholding taxes resulting from higher royalty revenues from some Asian countries.

Net loss in the third quarter was $1.4 million, or $0.05 a share, compared to a net loss of $1.1 million, or $0.04 a share, in the same period last year.

As you know, in addition to normal GAAP metrics, we use a metric called adjusted EBITDA to track our business. We define adjusted EBITDA as earnings before interest, taxes, depreciation, and amortization, less share-based compensation and other non-recurring items, such as internal investigation and restatement costs, restructuring costs, and discontinued operations. Adjusted EBITDA in the third quarter of 2011 was $454,000 compared to adjusted EBITDA of $428,000 in the same period last year.

Revenues for the nine months ended September 30, 2011, were $22.9 million, down 7% from the corresponding period in 2010. Year-to-date revenues from royalties were $20.1 million in 2011, up 13% from royalty revenues of $17.8 million in the same period of 2010, reflecting strength in the gaming and mobility lines of business. Year-to-date revenues from product and development contracts were $1.9 million and $943,000, respectively, compared to revenues of $6 million and $848,000, respectively, in the corresponding period in 2010.

As noted in earlier conference calls, the first three quarters of 2010 included revenue primarily from medical product lines that have been transferred to CAE or discontinued, and some true-up adjustments for the gaming line of business. Excluding these items, normalized revenues for the first nine months of 2010 were $20 million. Based on the year-to-date Q3 2011 revenues of $22.9 million, we're up 15% from normalized revenues in the same period of 2010.

Gross profit margin for the nine-month period was $22 million, or 96% of revenues, compared to gross profit margin of $22.1 million, or 90% of revenues, in the same period of 2010. Operating expenses, excluding cost of revenues, were $22.3 million in the first three quarters of 2011 compared to $25 million in the corresponding period of 2010.

Net loss for the nine months ended September 30 was $1.3 million, a $2.3 million improvement over net loss of $3.6 million reported for the same period in 2010, primarily reflecting the reduced operating costs as a result of the transfer of certain medical product lines to CAE, headcount reduction, and other cost-saving actions.

Adjusted EBITDA for the first nine months of the year was $4.2 million, up $1.4 million, or 50%, from adjusted EBITDA of $2.8 million in the same period last year. Our cash portfolio, including cash and investments, was $63.5 million as of September 30, 2011, compared to $61.2 million exiting 2010. Cash generated from operations was $2.2 million in the first three quarters of 2011 compared to cash used in operations of $1.2 million in the first three quarters of 2010.

Lastly, Immersion activated its stock repurchase program, underlining its confidence in our management team and our strategic presence. As of September 30, 2011, we have $31.4 million remaining under our authorized stock repurchase program.

As we approach the end of fiscal 2011, we are revising our guidance to reflect our year-to-date performance, combined with current data from our customers. We now expect annual revenues to be in the range of $29.5 million to $30.5 million, reflecting revenue growth on a normalized basis of approximately 12% to 15%. We anticipate the bottom line to range from a loss of $1 million to a loss of $2 million.

And with that, I'll hand it back to Vic.

Thanks, Shum. Let me start with an overview of some of the progress we've made in securing new licensees in our target markets outside of mobile. New licensees for the quarter include Imation, who will be incorporating Immersion tactile feedback technology into peripheral products for use with gaming consoles; Lexmark, who is implementing haptic feedback into select multifunction printers; Sirius XM Radio, who has licensed our TouchSense 3000 software to enable intuitive haptic interfaces for the Sirius XM Radio players; and MAKO Medical, who has broadened its relationship with Immersion and entered into an exclusive agreement for our technology in the field of robotic-assisted orthopedic surgery.

We're also pleased to announce that Immersion's technology was highlighted in the recent launch of the Cadillac Q navigation system at the CTIA Conference in San Diego. The revolutionary infotainment interface combines capacitive controls, proximity sensing, and haptics to deliver a safe and connected automotive control interface. This design, over three years in development, is one of the early examples of the new automotive applications for haptics that will be coming to market in 2012.

We have also continued to work closely with haptic ecosystem partners to provide design flexibility and enhanced reference design platforms to simplify haptic integration. During the quarter, we signed a new agreement with Microchip to bundle Immersion's TouchSense technology into its microcontrollers for distribution into consumer and commercial products. We also certified analog devices, new haptic drivers, for use in Immersion's TouchSense reference design.

In addition, we announced that Texas Instruments and Immersion have collaborated on a reference design where TI's driver devices for piezo actuators are used in conjunction with Immersion's TouchSense 5000 software to enable high fidelity touch feedback in mobile devices.

Finally, we certified Semtech as an authorized component provider for Immersion's TouchSense 3000 and 4000 reference design platforms. As I've mentioned previously, we believe that the level of activity we're seeing in the ecosystem is a leading indicator of the shift in the market towards haptics in general and also towards higher fidelity haptic solutions.

Zooming in on the mobile market, we were pleased to see our MOTIV platform come to market for the first time with our newest mobile customer, Fujitsu. Fujitsu's F-12C mobile phone quickly became the highest seller in the local Japanese market, and its haptic interface was well received. Fujitsu followed up this handset introduction with the Arrows tablet in October, the first MOTIV-enabled tablet, which also incorporates our TouchSense 3000 software.

We believe that the rapid implementation of the MOTIV platform, which was introduced to mobile phone manufacturers in February at Mobile World Congress and emerged on the market only seven months later, is a strong proof point for the ease of use and compelling user experiences the MOTIV platform enables. We continue to engage with new and existing customers with not only our MOTIV platform, but with our high-definition, piezo-based TouchSense 5000 solution, and look forward to sharing continued progress with you in the coming months as OEMs introduce their new 2012 product line.

On the developer front, our newly formed Developer Relations Team had a whirlwind quarter, participating in a dozen training sessions and seminars for Android developers, helping to evangelize the benefits of incorporating haptic technology via the MOTIV development platform. More and more developers are becoming familiar with haptics through these grass-roots efforts, and time and time again, we're seeing developers who are able to incorporate haptics into their apps after just a few minutes of training. This ease of use, combined with the elevated user experience, is creating real buzz among the development community that resulted in a number of additional apps launching on the Android market during the quarter.

Haptify released its Flat Splat with haptic effects, enhancing fun, interactive game play. In addition, we saw a wide array of new apps that use haptics to enhance functionality, including ViBe's mobile app to improve accessibility for blind and hearing-impaired individuals; Base 2 Connects ColorConnect that uses haptics while shaking your phone to adjust your avatars; Peg Solitaire, which uses our MOTIV SDK to add the sense of realism to a pegboard solitaire game; and Haptic Memory Match, which uses haptics to create a memory game based on haptic touch, where users hunt for matching haptic vibration. We're encouraged by the creativity we're seeing from third-party developers as they discover how easy it is to incorporate haptics into their apps with Immersion's MOTIV SDK.

Looking at the broader mobile environment, we are very excited to see the momentum surrounding haptics. Based on recent analysts' reports, we estimate that in 2012, up to two-thirds of smart phones will incorporate haptics into the user interface. Today we are seeing both licensed and unlicensed haptic solutions being integrated into the UI.

We are encouraged that the mobile consumer is being introduced to new haptic experiences, and we believe the increasing adoptions of the technology confirms that haptics is a key ingredient to a better mobile user experience.

At the same time, our growing patent portfolio is opening up new opportunities for Immersion as the haptics ecosystem expands. Since the end of the second quarter, we have had 30 new patents issued, four of which are fundamental to the implementation of haptics on touch screen.

The features covered by these patents serve as the foundation of today's haptic user interfaces. They include experiences such as the buzz you receive on your touch screen when you're typing on the virtual keyboard; the vibration you receive when you're engaged in game play or another activity and get a notification that you've received a text message or an incoming call; or the association of distinct haptic effects to notifications, such as calendar reminders or voicemail messages. The continued proliferation of unlicensed haptic solutions marks a yet untapped opportunity for Immersion, and we look forward to updating our investors in future quarters on our efforts to monetize these patents.

In closing, we have made solid headway in advancing our strategic agenda over the first nine months of the year, and still expect to finish fiscal 2011 with strong double-digit revenue growth on a normalized basis. Despite the near-term softness in some of our verticals, we are seeing haptics embraced by both mobile OEMs and content providers. We believe that adoption, combined with the strength of our IP and fundamental haptic technologies, positions us well for future growth

Further underlining our confidence, we intend to more aggressively repurchase shares under our existing stock repurchase program in the current quarter.

Lastly, I'd like to close in saying that we look forward to seeing our investors at one of our upcoming scheduled IR events, including the AEA Classic Conference in San Diego November 7 and the SRA Securities Conference in San Francisco on November 15.

We will now open up the call to your questions. Gilbert?

(Operator Instructions.) Charlie Anderson, Dougherty and Company.

So I guess I'll start with the guidance. Obviously, you guys saw a little bit of softness in Q3, and it looks like you think you'll have a little bit more in Q4. I wondered if you could speak to each of the verticals that you serve and where you might see a little bit of weakness compared to where you thought going into the year.

Sure. So, Charlie, as you pointed out, Q3 was a little weaker than what we had expected. Our earlier forecast anticipated about an additional $500,000 to about $1 million in additional revenue. I'd break that out by medical products, revenue was down about $300,000 to $500,000 from what we were forecasting. And in the automotive space, I would say it was weak by about $200,000 to $300,000 due to some continuing production challenges in Japan and a few delayed projects. So that was Q3.

Q4, we do expect revenue to be a little lower than originally anticipated, by about around $1 million. And that's in part due to medical softness, which we think will continue, of about $0.5 million. And we think our royalty revenue, primarily from the mobile marketplace, delayed to some product launch delays, we think that that probably is in the neighborhood of about $0.5 million.

So all told, we do think that the revised guidance is a target that's achievable. And based on early reports that we've already received, we're pretty confident that we'll achieve those targets.

So you had one customer who's a major customer put up very healthy Q3 smart phone and handset volumes. So is it an issue, a very large customer, or is it more everyone else where you're seeing that weakness in mobile?

Not all of -- our larger customer, obviously, would be Samsung. Not all of their platforms will include the Immersion solution. So in some cases, they are not providing haptics in a number of their platforms, namely Bada and a few others. So we think that they have grown substantially in the quarter. We expect to benefit from that, but our other licensees -- and really, we're talking about forecasts that are anticipated revenue -- so we see some delayed signings of, in one particular OEM case, that we think will not occur in the quarter. And that's a result of the softness in revenue.

Got it. And then just moving out a little bit, you talked last quarter about some relationships you're moving forward with, with some new OEMs, fairly large OEMs. I wonder if you could update us on that in mobile?

Yes. We continue to be engaged with many of the top 10. I talked specifically about three last quarter. We continue to be engaged, I'd say, with two of the three. One has fallen off the radar. As we mentioned in the script, we are aggressively looking at our patent portfolio and ways to monetize, and sometimes those discussions get in the way of product launches and licensing signings. So we'll continue to pursue all the major partners and prospects and have confidence that our portfolio is strong and our solutions are strong as well.

Got it. Thanks so much.

(Operator Instructions.) Jeff Schreiner, Capstone Investments.

Vic, I'd like to follow up on your last comment, because it seems to me, personally, that all the alluding you're doing about the patents is not about possible sales, but about a possible litigation strategy. What are some of the opportunities or strategies on a broader basis that you may have been looking at, without maybe telling us exactly what they are, to monetize? How does one monetize the patent portfolio Immersion had for so long and do it here quickly?

Probably the best way to describe it, Jeff, would be the situation that we're facing today, we're extremely excited about the opportunity. The market clearly is embracing haptics in a large and meaningful way, and we think that's a good thing for consumers in general, OEM customers, and Immersion.

But this situation, I would say, is very similar to where we were 10 years ago in consoles and gaming. We had, at that time, launched a number of high-quality haptic solutions, had licensed a number of very successful companies, and they were gaining tremendous success in the marketplace. And based on that success, others entered into the space with homegrown solutions, launched their own products, and we believed at that time that we had the underlying IP portfolio that covered those products. We spent quite a bit of time in licensing negotiations and engaging them in ways to bring those under license. And 10 years ago, that didn't quite work out and resulted in litigation.

Today, I think we're similarly excited about the growing adoption of haptics in the mobile marketplace, with mobile devices. And we believe that our underlying IP portfolio is quite strong and growing as we speak. And as a result, we are engaged in those types of discussions with a number of different companies. And we hope, we believe, that they will result in good, solid licensing agreements in place that generate substantial revenue growth for the Company.

The alternative to the results of a good license agreement may include litigation, may include other types of activities. I can't really go into any of those details at this time.

Could I ask one just more broader question to follow up on that about, knowing that you don't want to go into too much details, but when you started and Henry took the Company back over, you talked about having to start from ground zero in reviewing and looking at the IP portfolio, kind of understanding what you had before you go and slap people in the face, so to speak. Where are you at with that process? Can you tell us about that? Have you been able to complete that process?

I guess I would characterize it a little differently. I did believe that it was necessary to take a full review of our patent portfolio, which we've done. We've accelerated our innovation efforts in our R&D and engineering teams, and as a result, have dramatically increased the number of filings that we've now made. And as we look through the patent portfolio, we look for ways to improve and to fill in gaps and to expand the portfolio. I would say at this stage, that effort -- or I guess I would say the assessment effort, understanding what we have -- has been completed.

The effort to continue to grow and innovate and expand the portfolio is probably a never-ending process. We'll continue to do that. But we're well aware of the portfolio that we have, and we're accelerating our efforts to monitor the marketplace. You know, it's an ever-changing market, and so our IP continues to grow. Product launches and introductions of haptic solutions in the market continue to grow. So we're always looking at making sure that we've monetized the portfolio as well as we possibly can.

Okay, thank you very much for that. Just wondering, though, real quickly, can you help us understand a little bit the negative impact that you saw from medical and auto? It would seem that that would still fall, some of that, into the June quarter on a trailing lag. And that's much earlier than a lot of semiconductor companies even saw some of this similar type of industrial auto-type weakness.

Just wondering, you've helped us understand what the cause may be, the limited visibility. But when did you guys realize you were going to be dramatically lower, at least than maybe where you thought, relative to today in terms of when you reported it? I'm just trying to understand the process of when maybe you found out and the lag it is in terms of getting from your customers, if it's really one quarter or a little bit more. Just trying to understand that, because it seems like the weakness you saw was much earlier than others have been seeing.

If you look at where we expected the quarter to end up and where it ended up, I'd say from a royalty standpoint, we were pretty much spot-on. And that's in part because you get those royalty reports early to middle of the quarter, and you have a fairly good idea of how they should shape up in the middle of the quarter.

Where we had the weakness was more on the product sales for our medical products. And so you're continuing to monitor purchase orders and shipments up until the end of the quarter. And so all the way up through the end of the third quarter, we expected some softness, but we didn't expect the magnitude, the $300,000, $400,000, to $500,000 that we did experience.

Again, it's one customer. They have worked through much of their inventory challenges, and those orders that we were hoping for did not come in, in the quarter. We expect fourth quarter to be similarly soft in the medical space as well.

On the automotive, automotive is a combination of royalties as well as NRE work that we do in developing solutions for our customers and partners. And those are influenced by deliverables, milestones and accomplishments, as well as orders. And so, again, the weakness came in our development and product revenues. And those really aren't known until the quarter is over, until you're at the very end of the quarter.

Okay, thank you. And one last question for me, and I appreciate your time. Can you talk more about this relationship with the semiconductor companies just to get -- I'm wondering, how do investors really track the progress and growth here? You look at the semi and other, around 4% of total revenues. That would suggest, I think somewhere, quick back-of-the-envelope math, around 200-some thousand to $250,000. You've had relationships now for almost a year with some of the largest touch IC vendors in Cypress and Atmel, and it's still in the six-figure range, not seven-figure range, in terms of making a revenue contribution. And I'm just wondering, how should we expect these newly announced, which obviously bring some better, continue the quality of companies that you're working with into the fold. But Vic, how can we maybe track the progress and growth of this market in terms of that there's been some benefit for Immersion in these partnerships?

So we are excited by the quality and the quantity of people interested in doing one of two things. And what's key to understanding the chip business for Immersion, there are two types of relationships that we have.

One is as a certified component supplier. And so many of these companies provide drivers or chip capabilities that have nothing to do with the Immersion software solution, but simply they are an enabling component in one of our OEM customer products. And so their driver may be driving the actuator for a Samsung or an LG or a Nokia. And so one revenue stream from these semiconductor companies is they pay us as a certified component vendor, and that's the revenue that has been historically the bulk of our semiconductor revenue. And in some of those cases, some of our early customers have lost some design wins, and some of that revenue has actually decreased.

The second category, the more exciting opportunity, is really looking future, is these semiconductor companies embedding our Immersion TouchSense solution into their touch controller chips and selling those into the mobile space, automotive space, industrial products, other markets. And when they do that, then that becomes a substantial royalty stream for Immersion. Those require design wins with this combined chip solution. And to date, while those companies have launched product, the number of design wins has been very sparse. So most of our semiconductor revenue has come from certified component vendors as opposed to integrated TouchSense solution providers.

Okay, thank you very much, gentlemen, for your time.

Darice Liu, Brigantine Advisors.

Vic, I'd like to go back to your earlier comment about, I think you said in 2012, market research data says about two-thirds of smart phones will incorporate haptics in their user interface, licensed and unlicensed. Can you talk about the different haptic solutions out there outside of yours and what the competitive landscape looks like right now?

Sure. Essentially, the Android operating system offers haptics, whether it's licensed via an Immersion TouchSense solution or it's an unlicensed solution that we would refer to as a basic haptic solution. So I think you're seeing a dramatic increase in the Android penetration. And with that, you'll see continued growth in the use of haptics in the Android platform.

Obviously, in addition to the Android platform, you have Nokia, who has been a big advocate of Immersion haptics, and we expect them to continue to ship products with the Immersion solutions. And in addition to that, you could also look at a substantial increase in the use of haptics in the Apple platform. Whether it's in their alerts or whether it's part of their gaming applications, they're continuing to invest in the use of haptics in that platform.

So in terms of the basic haptic solution, it's not able to do the different types of, I guess, vibrations and motions that your product can do for gaming and things of that sort? It's just a base type of solution?

Typically, the basic haptics would simply be turn the motor on, turn the motor off, based on a touch screen interface or a gaming application or an alert. So it would be a very basic capability. The Immersion solution, obviously, provides a level of fidelity and strength and duration that is more context-rich for whatever application you're engaged in.

Going back to my original question, are there any other solutions out there that can provide -- that is providing, I should say -- the context-rich solution of haptics?

To my knowledge, no. I'm not aware of anyone who's providing the kind of complexity that we offer.

Okay. The other question, from a financial perspective, Shum, you said this quarter's OpEx is below your usual target of $6 million to $6.5 million. What should we be looking forward from next quarter, considering the softness in revenues, and when do you think we'll return back to the $6 million to $6.5 million range?

We expect to be in the $6 million to $6.5 million range going forward. Maybe slightly less, but that's going to be our range in the near term.

And can you remind me what your breakeven level is?

It would depend on the revenue mix, but given certain assumptions in terms of margins, I would imagine that the breakeven is probably something in the neighborhood of $8 million to $9 million a quarter.

A quarter, yes.

And then I know visibility's limited, but considering the design activity in the customers that you're working with, do you have an idea of what your product mix will look like going into next year?

The bulk of our revenue will continue to be the royalty and licensing revenue. We expect that to continue to grow substantially. The product revenue is really a medical product that is a legacy of our medical products business that we still continue to sell. That's been --

I meant between mobile and auto and medical and things of that sort, and gaming.

I don't know that we're really in a position to give a lot of visibility into 2012 revenue. It's pretty clear that we expect mobility to continue to grow. We're seeing continued growth in the gaming space. And given what we believe is improving condition in the automotive and new OEM launches, I would expect automotive to continue to grow. Medical revenue, really, will be tied to product sales of our virtual IV product line, but the licensing revenue from the medical space, we'd expect that to grow as well.

Okay, thanks, guys.

(Operator Instructions.). Robert Katz, SunWest.

I wonder if you could give more clarity on when you --

Sorry, Robert, you cut off.

Give guidance as to when you expect piezo-based mobility solutions to ship, and what do you anticipate will happen with the royalty rate on those systems?

We expect mobile products to ship in 2012. In terms of royalty rates, those are prenegotiated, so they would be, I believe, a pretty substantial uplift on our ASP. When you compare our TS 5000 solution relative to the TS 3000, substantially higher.

And to follow up on some of Darice's questions, basic haptic, does that infringe on your patents, or does that demand a smaller royalty than maybe some of the advanced haptic features that you have? What do you believe, where do your fundamental patents kick in?

The answer to the fundamental patents, I think the three that we've talked about recently include a patent that covers multitasking. And so the best way to describe that patent would be that if you're texting or you're dialing a number or you're playing a game, and while you're engaged in that function, you get an incoming call or a calendar alert, so there are two applications occurring, each with a haptic effect, that would be covered under our, we call it our 288 patent, or multitasking.

The second is the patent 183 and the 720. And both of those patents have to do with touching a GUI object in the touch screen environment, and that generates a haptic effect. So imagine if you're texting as you're typing, or if you're dialing a number, when your finger touches the GUI object, the number 5, then you'll generate a haptic effect, and that would be covered under both of those two patents. So that's pretty fundamental, touching the screen and getting a haptic response is covered by those patents.

Going back to basic haptics, in terms of -- you know, we refer to that as a simplistic method of generating a haptic effect. But it's really a question of how is that effect used? Clearly, if it's used in a multitasking environment or it's used in a touch screen interface, then that would be something we would want to take a long, hard look at. Just because you offer basic haptics doesn't necessarily mean it's infringing, but it would require a fair degree of legal analysis. And those are the things that we're busy doing today.

Do you feel you would be able to have a blocking stance if someone had that feature in their phone and was not a licensee, that you can stop them from enabling that feature?

It's hard. This is probably not the best forum to have that kind of discussion. But essentially, if someone offers an unlicensed haptic solution that's covered by one of our patents, then we would aggressively enforce the patents. it wouldn't be fair to our existing licensees and it wouldn't be fair to our shareholders not to monetize the patent portfolio. So we will do that. We'll be cautious about it, but we will be thorough, and we will be mindful of making sure that we're monetizing that portfolio.

Okay, look forward to that. Thanks, Vic.

Ladies and gentlemen, this does conclude the question-and-answer session. I'll turn the call back over to management.

Thank you, everyone, for being on the call with us today. We look forward to updating you again on our next quarterly call, and have a good day.

Ladies and gentlemen, this does conclude the Immersion Corporation third quarter 2011 earnings conference call. You may now disconnect.