Immersion Corp (IMMR) 2014 Q4 法說會逐字稿

Good day and welcome to the Immersion Corporation fourth-quarter earnings conference call.

Today's conference is being recorded.

At this time I'd like to turn the conference over to Jennifer Jarman.

Please go ahead.

Thank you, Jessica.

Good afternoon and thank you for joining us today on Immersion's fourth-quarter and fiscal 2014 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 Paul Norris, 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 and 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 the press release we issued today after market close.

Additionally, please note that during this call we may discuss non-GAAP connector measures.

For each non-GAAP financial matter discussed a presentation of the most directly comparable GAAP financial measure and a reconciliation of the differences between the non-GAAP financial measure discussed in the most directly comparable GAAP financial measure is available in today's press release.

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

Vic?

Thanks, Jennifer.

And thanks everyone for joining us this afternoon.

We are pleased with the accomplishments Immersion made throughout 2014 which resulted in record revenues and continued profitability, a strong customer base across our vertical markets and the introduction of new haptic solutions targeted toward the broader mobile video and advertising ecosystem.

In the last quarter of 2014, we generated record fourth-quarter revenues of $13.6 million, reflecting growth of 13% from the year ago period and representing the eighth quarter in a row that our quarterly revenue set a record for the quarter.

Aided by these Q4 results, our annual revenue for 2014 totaled $52.9 million which is an all-time high for Immersion, up 12% from 2013.

Net income for the fourth quarter was $1 million, representing Immersion's eighth straight quarter of profitability.

In 2014, our customers adopted innovative new haptic use cases and their products as they and other technology leaders increasingly recognized the value haptics brings to the consumer experience.

We also achieved key milestones that have established the foundation for future growth in the immediate and long term.

These milestones include renewing important existing mobile license relationships such as our agreement with LG Electronics in Korea and entering into new agreements with key mobile OEMs, such as Huawei in China and, since the end of the year, MEIZU and Xiaomi in China, launching our TouchSense Engage solution for mobile video and advertisers to create haptic content with Showtime as a launch partner promoting its award-winning television show.

More recently we announced further progress in our worldwide content and media initiative through our first tactile video program in China with LE TV.

In addition to these announced relationships, we have numerous activities underway with game developers, video developers, social media services, ad agencies, ad networks and mobile app publishers and developers; continuing design wins in our automotive business, including new implementations and broader deployments with Audi, Mercedes, Acura, Cadillac, and Lexus as well as new agreements with major tier suppliers, Continental and Tokai Rika; and investing in our organization to capitalize on growing business opportunities and strengthening our executive team and Board of Directors with the addition of Jason Patton to lead our mobile content and media business, Mahesh Sundaram to lead our worldwide sales efforts, and Dave Habiger and John Veschi to add their knowledge and expertise to our Board.

In a few minutes I'll discuss our recent business developments and expectations for 2015 but, first, I'll ask Paul to review the details of our fourth-quarter and fiscal 2014 financials.

Paul?

Thanks, Vic.

Revenues for the December quarter were $13.6 million, a record for Q4 and up 13% from revenues of $12.1 million in the year ago period.

Revenues from royalties and licenses of $13.3 million were up 15% from royalty revenues of $11.6 million in the fourth quarter of 2013.

Of these amounts, in the December quarter of 2014, variable royalties based on shipping volumes and per unit prices totaled $5.9 million and fixed payment license fees totaled $7.4 million.

This compares to variable royalties of $3.8 million and fixed license fees of $7.8 million in the December quarter last year.

While revenue mix per line of business is expected to fluctuate on a quarterly business due to seasonality patterns, for the fourth quarter of 2014, a breakdown by line of business as a percentage of total revenues was as follows.

63% from mobility, 28% from gaming, 5% from auto, and 4% from medical.

Gross profit was $13.5 million or 99% of revenues compared to gross profit of $12 million in the fourth quarter of 2013.

Turning now to operating expenses, excluding cost of revenue, total GAAP operating expenses were $12.3 million in the fourth quarter of 2014 compared to $11.3 million in the year ago period.

Operating expenses in the fourth quarter of 2014 included non-cash charges related to depreciation and amortization of $148,000 and stock-based compensation of $1.2 million.

Of the non-cash charges, $378,000 were included in sales and marketing, $307,000 in research and development, and $687,000 in G&A expense.

Litigation-related expense for the quarter was $1 million, up from $627,000 in the fourth quarter of 2013.

Net income for the fourth quarter of 2014 was $1 million or $0.04 per diluted share compared to net income of $37.4 million or $1.26 per share in the fourth quarter of 2013.

The higher net income in the fourth quarter of 2013 was largely due to our release of substantially all of our federal deferred tax income tax valuation allowance in that quarter, resulting in a one-time benefit for income taxes of $36.8 million.

As a reminder, in addition to normal GAAP metrics, we use non-GAAP net income and non-GAAP earnings-per-share to track our business performance.

We define non-GAAP net income as GAAP net income less stock-based compensation.

We define non-GAAP earnings-per-share as non-GAAP net income per fully diluted share.

Non-GAAP net income in the December 2014 quarter was $2.3 million compared to non-GAAP net income of $38.6 million in the same period last year with last year's figure again benefiting from the release of our tax valuation allowance in 2013.

Turning to the 2014 fiscal year, our revenues were $52.9 million, up 12% from revenues of $47.5 million for fiscal 2013.

Full-year revenues from royalties and licensing were $51.8 million in 2014, up 12% from $46.2 million in 2013, driven primarily by increased gaming revenues but also aided by revenue increases in our mobility, automotive, and medical lines of business.

Of these amounts, in 2014, variable based -- variable royalties, based on shipping volumes and per unit prices totaled $21.6 million and fixed payment license fees totaled $30.2 million.

This compares to variable royalties of $19.5 million and fixed license fees of $26.7 million in 2013.

For the 2014 fiscal year, a breakdown by line of business as a percentage of total revenues was as follows.

60% from mobility, 27% from gaming, 8% from medical, and 5% from auto.

Gross profit for the year was $52.5 million, up from gross profit of $47 million in 2013.

Operating expenses excluding cost of revenues were $46.5 million in 2014 compared to $43.4 million in 2013.

Net income for the year was $4.1 million or $0.14 per diluted share compared to net income of $40.2 million in 2013 or $1.37 per share which was driven largely by the $36.5 million one-time valuation allowance release.

Non-GAAP net income for 2014 was $9.4 million compared to non-GAAP net income of $44.8 million in 2013, again with the 2013 number largely driven by the $36.5 million valuation allowance release.

Overall, our 2014 revenues were within the upper half of our revised annual guidance and over 90% of the lower end of our original guidance for the year, while our non-GAAP net income was within both the range of both our initial and revised guidance for the year.

Our cash portfolio, including cash and short-term investments, was $57.4 million as of December 31, 2014, down from $71.1 million exiting 2013.

The decrease was driven by our activities under our stock repurchase program as we purchased 1.5 million shares of Immersion stock for $15 million over the course of 2014 with $3 million being spent to buy back approximately 377,000 shares during the fourth quarter.

Also during the fourth quarter of 2014, the Board increased the amount of our authorized stock repurchase program by $30 million, leaving approximately $34.4 million, remaining at the end of the year.

Management and the Board remained very confident in our business fundamentals and future prospects, continuing to believe that our stock is attractively priced and expect to continue to execute opportunistically to buy back shares under our authorized stock repurchase program.

As of February 24, 2015, based on ongoing operations and payments received under new and existing agreements, and taking into account our share repurchases, our cash portfolio totaled $79.8 million.

Based on our current outlook, we expect revenues for 2015 to be in the range of $56 million to $60 million, reflecting growth of 6% to 13% over the prior year.

Assuming an effective tax rate of 35% we expect non-GAAP net income for 2015 to be in the range of $4 million to $8 million, which results in non-GAAP earnings-per-share of $0.13 to $0.27, assuming 30 million diluted shares outstanding.

With that I'll turn it back over to Vic.

Thanks, Paul.

As I mentioned earlier, we've been pleased with the accomplishments Immersion has made in 2014, which have resulted in a broader global footprint and customer base, as well as record revenues and profitability.

During the year we strengthened our IP and software solutions and grew our team to help us execute on the wealth of opportunities we see in 2015.

I'd like to review those accomplishments with you and share our outlook.

As the leading innovator in haptics we've established a strong IP portfolio and industry-leading software solutions, based on our innovations.

Through our 20 year history, we have evangelized the power and capabilities of haptics in different consumer markets, including console gaming, mobile UI, games, adds and video as well as automotive HMI, virtual reality and wearables.

Many of our ideas are ahead of their time.

We understand that as a forward thinking innovation company we are the torchbearers for haptics and have a responsibility to seed the market with ideas and work with partners to realize our vision.

That is one of the reasons why 2014 was an exciting point in time in the Company's history.

During the year we saw many of our new and existing customers adopt haptics in areas beyond touch confirmation.

Industry-leading customers such as Samsung created rich tactile experiences in its Note 4S pen, using haptics to not only improve the usability of this important feature but also using haptics to create realistic textures for drawing.

Huawei, in its Honor 6 phone, used haptics to enhance novel aspects of differentiated applications like feeling the glass crack in the mirror application and enhancing the retro and physical feel of the camera.

These are just a few of the growing high-value use cases that are gaining traction in popular mobile applications today.

We are excited to see increasing market adoption of haptics and other applications such as camera, weather, themes, navigation, and e-commerce.

Even as Immersion customers are deploying haptics in richer and more advanced ways in order to improve the usability of new features and differentiate their products, other industry-leading companies are increasingly recognizing the value that touch feedback can bring to digital experiences.

For example, Microsoft released its new Xbox controller with haptic features in the trigger, doubling the number of actuators in the device in order to further cement haptics as a must-have feature for the console gaming market.

Amazon, who had not previously included actuator technology in its tablets and e-readers, released its flagship Kindle Voyage e -reader in September with a high fidelity actuator that enables the page press feature, allowing readers to feel a lifelike page turning sensation, as they flip through book pages without even raising their fingers from the device.

Apple, a design leader renowned for creating products through a user-centric approach, has not only released the iPhone 6 and 6 Plus with a high- quality custom actuator but has emphasized how haptics will be used to enhance communications and user experience in the soon to be released Apple Watch.

Apple's highly publicized haptic engine uses haptics to communicate with the user gently and unobtrusively and the Company's leadership has touted the compelling nature of well-designed haptics as critical to the Apple Watch experience.

As a longtime torchbearer for haptic technology, we welcome these innovations and see them as validation of Immersion's evangelism for haptics.

These new applications represent an opportunity for us to license IP, enhance more experiences with our solutions and bring haptics to a broader audience.

Beyond our traditional markets, 2014 saw the first in-market application of our TouchSense Engage solution, which allows video creators, game developers and advertisers to add tactile effects to their mobile content.

The Showtime Homeland trailer which ran in both the Showtime and Slate apps in September was the first-ever tactile advertisement, a result of years of Immersion innovation and technology development.

The innovative ad received a great amount of press and was honored in the Google Creative Sandbox as an innovative campaign for Android, and Showtime reported exciting engagement metrics as a result of their haptic add, including a 502% increase over the industry average and click-through rate.

Having established the viability and effectiveness of Immersion's technology with a Showtime ad, we've now deepened and expanded our engagement with various content creators, technology platforms and advertisers around the world.

We recently announced an agreement with LE TV to launch the first trial program of tactile content in China and see opportunities around the world with content producers and distributors who want to enrich the mobile viewing experience with haptics.

We are excited and highly optimistic about the large opportunity for Immersion in mobile.

We believe that by showing new uses of haptics in applications and content, we are not only creating greater value for our OEM customers but also shifting the use of haptics from a simple touch confirmation mechanism to one that excites the senses and engages emotions.

We believe tactile effect design will become a critical part of the mobile experience creation process just as audio and visual design are today.

By providing creators with a means for letting users actually feel content we're changing how content is consumed on the mobile platform.

Also in 2014, Immersion continued its investment in developing the industry-leading haptic IP portfolio.

During the year, Immersion filed 62 new patent families and was granted 137 patents worldwide.

Our current portfolio boasts approximately 1,900 granted and pending patents and is a testament to the great innovative minds and expertise at Immersion.

With this momentum at our back and a strong foundation beneath us, we are excited to enter 2015, focused on executing on the opportunities in front of us.

We believe we have a great team in place to grow our business.

Our new Vice President of Sales, Mahesh Sundaram, comes to us from Dolby and Intel and has a wealth of experience managing and growing IPN licensing business with customers in Asia.

Today, we announced a new member to our Board of Directors, John Veschi.

John brings experience in creating managing and monetizing technology IP and having served as the CEO of Rockstar Consortium Inc.

and, prior to that, the chief IP counsel at Nortel.

John is a welcome addition whose expertise is highly valued.

With the momentum in the market, a strong team in place and a valuable portfolio of IP and solutions to enable haptic experiences, we are focused on exceeding our financial targets and executing on key initiatives in 2015.

I'd like to share a list of seven key priorities for the coming year.

First, we plan to license new customers and achieve key design wins in our primary verticals.

Second, we plan to renew expiring customer licenses and expanding engagements with our existing customers to bring more models and new use cases for haptics to the market.

Third, we plan to expand the use of Immersion TouchSense solutions to new applications and experiences.

As mobile technologies enable a wider and wider range of applications, haptics becomes of growing importance in the user experience.

Fourth, we plan to capture process and communicate analytic data that provides compelling evidence of the value of Immersion TouchSense solutions for OEMs and the content ecosystem.

Fifth, we plan to expand our pilot programs and engage in commercial deployment of our content media business in games, social media, and mobile ads and video.

Sixth, we plan to grow our marketing presence around the globe through new and expanded marketing programs.

Working with our customers and partners we will make haptics a more visible part of the consumer experience.

And finally, we will continue to focus on innovation by building our world-class IP portfolio and protect it through appropriate compliance activities.

Next week, we will be attending Mobile World Congress in Barcelona where we will be showcasing new use cases and technologies for haptics in the mobile and wearables space.

We are continuing to innovate technology and design concepts to evangelize new and compelling use cases and share our expertise with customers and partners throughout the mobile and wearables ecosystems.

We believe that as we execute our initiatives we will be able to create increased value and demand for our software and IP.

We will continue to invest in Immersion through ongoing innovation, key resources, and our stock buyback program.

We also remain confident in the strength of our IP portfolio, the value Immersion brings to the market and our commitment to protecting our inventions.

As part of that effort to protect our inventions, we continue to vigorously pursue our case against HTC in the District Court of Delaware.

Earlier this month, the judge in the case issued opinions on claim construction and summary judgment motions, denying HTC's summary judgment motion that it did not infringe two of our patents, but invalidating three other of our patents in suit based on procedural grounds.

We are pleased with the court's decision to rule in our favor with respect to two of our strongest patents in suit.

While it is always expected that certain patent claims will be trimmed during the course of litigation, we are disappointed in the judge's procedural interpretation regarding three of our patents and we will be vigorously appealing this decision.

We remain extremely confident in our case and look forward to our trial which commences on March 23.

To conclude my formal remarks, Immersion achieved record results in 2014, successfully generated momentum for haptics in the market, expanded our footprint with device manufacturers and made substantial progress in improving the value of our solutions for mobile content providers, technology platforms and advertisers.

We have strengthened our management team, expanded our software solutions and continued our rich history of IP innovation.

We are looking forward to executing against the growing opportunities in front of us and look forward to updating you on our progress in the coming year.

As we close out the year, I'd like to thank our dedicated employees around the world.

I'd also like to recognize our customers, partners, and valued shareholders for your continued support.

We look forward to seeing some of you this quarter at Mobile World Congress, upcoming investor conferences including at the JMP Securities Technology conference in San Francisco next on Monday, March 2 or out on the road.

With that said we'll now open up the call to your questions.

Jessica?

(Operator Instructions) Charlie Anderson, Dougherty & Company.

I wanted to start out with just a question about cash.

You guys, as of yesterday, you are up around almost $3.00 a share in cash.

What might be kind of uses of cash as a continued kind of buyback?

Your guidance assumes that your share count is up year-over-year.

Just give us some color there around your cash and buyback, and that would be helpful.

I think we look at the buyback in a very similar way to the way we have all along.

We think it's a good investment in Immersion and we think the price is a reasonable one to be buying at.

So that -- I don't know whether we will buy at the same rate as we did in the past year but, again, we continue to look at that as a viable use for our cash.

We do have seasonality around when the cash comes in the door so as you undoubtedly noticed, the cash balance is up from the end of the year and that's due to payments that come in at different times over the year and as some of them come in early in the year we recognize those over the rest of the year and use some of the cash during operations.

So again I would expect to see a somewhat similar profile to what we had last year.

And Charlie, I would just add that having cash on the balance sheet's an important part of a strong licensing program and as we need enforcement actions or such, having plenty of cash on hand is a good thing.

Got you.

I think assumed in your guidance, Vic, you're up about $7 million or so year-over-year in absolute dollars and OpEx.

Can you walk us through where those increases are coming?

And maybe talk -- isolate litigation versus non-litigation and then also maybe on sales and marketing versus R&D.

Some of that breakdown would be helpful.

Sure.

Let me answer that, Charlie, if I can.

Looking at litigation first, I think you'll see a bump up in G&A expense this quarter in particular, since we have our trial slated for the last week in March.

So, that will be particularly high and then should moderate during the remainder of the year.

Generally, what's driving the increase in OpEx is our investment in headcount.

That's our main expense and we have grown to be 141 people at the end of 2014 which is up from, I believe it was 112 at the beginning of the year.

So we've got a higher number of employees that will be on board for that year and we're going to continue to invest in areas like content initiative as we go through the year.

So, the breakdown as between the various categories, I would expect that most of the headcount -- new headcount and a good bit of the headcount that we have added over the last little bit is in the sales and marketing and some in the research and development area with less in the G&A category.

And those are the main drivers that were looking at over the next four months -- four quarters.

And then tacking onto that, I think at your last investor slide deck you had talked about a long-term range for OpEx of 49% to 54%.

So kind of at these levels we are looking at a long-term revenue at this level of OpEx of $90 million or so.

Do you assume after this year we are kind about that level and can you scale very quickly to those kind of revenue levels?

Just help us, have we changed the long-term OpEx or margin model?

I think the long-term model is the same.

We have not moved the topline revenue in our guidance sufficiently to make the margins move in the direction of the long-term model for 2015.

But as we generate more revenue in future years, it should move fairly quickly to 49% or the long-term model that you are looking at in our investor presentation.

Charlie, this is Vic.

I would say that we've made a large portion of the investment already in terms of expanding our sales and technical support in the field.

So we feel like we can canvass the marketplace effectively with the team we have today.

As Paul mentioned we have added resources specifically in the content space primarily because the interest level is so high.

And so, these are people engaged specifically in gaming, social media, and in the video space.

Part of our goal and the things that we focus on is also expanding our ecosystem and part of that ecosystem effort will be to provide design services and capability, use our tools to provide haptics in this content.

So, we are again trying to leverage our talents, tools, and resources and use some of the ecosystem resources in the marketplace.

So, I think we are still very comfortable with the model.

Right now it's a short period of investment, and we believe it will be a long period of payoff.

Great and just maybe one last one for me to help us on that.

It's obviously going to be sort of dilutive to your earnings.

I imagine it's very little revenue from sort of content and media today.

Could you maybe describe how much of your total OpEx is associated with content and media so we can think about these as maybe a sum of the parts where your device business is worth something but then your media business is worth something else so that we don't apply that drag to your sort of device business if you will?

We don't really separate out in any precise manner the exact resources devoted to each of the efforts.

I will tell you that a fair portion of our OEM sales and field support are also actively engaged in promoting haptics with the content community.

So, it's a hybrid.

They are providing services for both.

We have a content team that is focused on creating content so that these pilot studies can be conducted and analytic data can be captured.

And so in a lot of ways there is an overlap of resources and I would imagine, over time, I know how we are running the Company is that we see the synergies and the intricate nature of bringing content and the OEM business really together.

With that said, I would say as I have in the past, when I break down dedicated resources from a technical side from a specific focus on content, I am guessing that the number is about 1/3 -- 1/3 of our overall headcount and resources are being focused on content with 2/3 focused primarily on the OEM business.

Perfect.

Thank you guys so much.

David Williams, Ascendiant Capital.

The first question I had is just kind of looking at the breakdown between the different segments.

It looks like mobility was down about 2% this quarter and then gaming looked like it was up about 22% on a year-over-year basis.

And I know in the past, I guess last quarter, you had talked about some of the periphery -- third-party periphery makers for the consoles.

Hadn't released those yet for markets.

So I was just kind of curious if you could walk us through what the puts and takes are for the mobility being down a bit this quarter but a little better in the gaming revenue.

Is there anything that's changed, I guess, in that model?

Is it just timing or is there anything specific that you could point to?

So David, I have -- my numbers show that gaming that mobility was actually up the fourth quarter over the fourth quarter of 2013 by about 16%.

So, I think for the quarter it was up -- I don't know exactly where it was compared to the third quarter.

I think it's up about 8% over last quarter sequentially as well.

And for the year, I know it was up as well.

All right.

I may have a bad number there so my apologies for that.

Thanks for the clarification.

So, mobility is up.

And then I think you did highlight that gaming is up substantially and that's primarily from a benefit of EPS for launch and the controller business that we are getting from Sony primarily.

And what does that cycle typically look like as far as the -- that revenue chain as it comes in.

Do you get a big boost in the first and how long of a ramp do you typically get out of those gaming type devices?

A lot of -- you'll see our mix of revenue in our first quarter has relatively more royalty per unit type revenue in it and that is based on holiday sales of -- among other things -- gaming products.

We did a year ago have the benefit of not only the normal holiday season but the first launch sales that Sony had around the PlayStation 4. So, that was more of an impact than you would expect after a year.

After a year or so, typically what happens is that the purchases of the initial -- the full units of the console and controller tend to subside.

There is a greater attach rate on separate controllers.

People want to buy a second or third controller to use with a console that they'd already purchased or to replace one over time.

And then you start seeing the third-party peripherals entering the marketplace, which is an additional revenue opportunity for us.

In this case, with the new launches, the two first party sellers that we work with that -- Microsoft and Sony -- have held onto the controller business longer.

So, it's a little bit pushed out as far as when we'll see the third-party controller sales really benefiting us.

But we are now expecting -- especially on the Microsoft side -- to see some of those products hitting the market in time for the holiday season coming up in 2015.

And I would add that we see this continued trend for the next three to five years as this platform continues to proliferate and then as it moves towards the end of its cycle much further out then there would be incentives to launch new -- a new platform, which is how the industry typically goes.

David, I'd also use your question to maybe highlight -- as Paul was explaining, is for these reasons that we actually see 2015 being a little less seasonal than normal, because if you look at the benefit from the PS 4 launch and the revenue derived in the first quarter of 2014, we are looking at a very good Q1 of 2015.

But I'm not sure that you'll see some of the same seasonality where Q4 is typically substantially bigger than our other quarters.

I think you'll see a more leveling throughout the year.

Thanks for that.

And then lastly for me is I know that there's been some discussion about the potential to license Lenovo with the Motorola acquisition they had earlier.

Knowing that Motorola is already a customer, can you give us any color around how those discussions maybe with Lenovo have been trending and any expectations there or maybe thoughts around that?

Sure.

We've had quite a bit of success in China.

It's been a focus of ours for a while.

We are enjoying the relationship with Xiaomi, Huawei.

We just announced and are talking about MEIZU and [Jionni] as well.

The remaining candidates are those that you would expect.

Lenovo is one of them.

We have active discussions with them, ongoing development efforts, and our hope would be some day to license Lenovo but our relationship with Motorola is specifically for Motorola-branded products and we would hope to enter into a license agreement directly with Lenovo at some time.

And David, the other thing I'd add is that I believe Motorola has done even better than Lenovo may have expected.

The sales that -- the volume from Motorola is higher than it's been in prior periods and Lenovo -- since the acquisition by Lenovo, Motorola has actually announced, I think it's three phones for the China market, and I believe that Lenovo is going to, at least for the time being, run Motorola separately as its own entity to take advantage of its brand.

So we are feeling pretty optimistic and good about the Motorola business over the next year or so as well.

Thanks so much.

Josh Nichols, B. Riley.

A couple questions.

I guess I just want to start off on some guidance for something.

So looking at the bottom-line guidance, it seems like to get there on the low end I would need -- let's see, your need, right now OpEx in Q4 was $12 million.

46% for fiscal year 2014.

And it would need to jump all the way up to about $60 million to get the low end of your guidance.

Under what scenario would that happen?

There are two factors that go into our OpEx that are major to consider.

One is litigation and the other is headcount.

We added headcount during the course of 2014, kind of over the course of the year added the incremental headcounts and we didn't have it for the full year.

That headcount will be with us for the full 2015.

So, if you're looking at OpEx aside from any extra litigation expense, in the first quarter, I do think it might be a run rate of around $13 million rather than the $12 million in Q4.

And then again, as I mentioned earlier I would expect to see OpEx be a good bit higher in Q1 simply because of the HTC trial.

I think if you take all of that out, that will take you to over $50 million in OpEx.

We have a few levers we can pull and litigation expense is not -- we don't have that yet.

So, the variability around that could easily take you to $50 million.

Okay, thanks.

And then, just looking at the revenue guidance, I was wondering what's really built into that number?

What assumptions are behind it and did anything fall out?

I would say nothing fell out.

This is our first establishing guidance for 2015 so it's the first guidance we've provided.

The guidance does not anticipate any significant increases in new licensees or significant design wins.

So, it's not capturing anything that's either not already achieved or we believe is conservatively achievable.

So, it's a good estimate based on most of the business we have in hand today.

So, I would think a lot of it is just like the LG increase that came in in like the back half of the year, right?

There is no major deals or up sizes in Huawei or anything else that's coming down the pipe, right?

If you look across the four verticals, I think we still expect growth in all for verticals.

Gaming, auto, and medical are primarily per-unit fees so we expect to see increased volumes there and driving increased revenues on the OEM mobile side.

I think we have already in place most of the contracts we need, and its assumptions, based on their volumes including the LG agreement, including some of the product launches we'd expect from some of our new Chinese OEMs as well.

All right.

And then I was just looking lastly -- so the Company has been an aggressive buyer of its own shares.

Always good to see prices that the Company has been purchasing at, but I did notice that it looks like the forecast is for share count to increase an additional $2 million -- or 2 million shares in 2015.

That's about double what maybe we would expect without a buyback.

Could you give a little bit of color on that?

Yes, that's just a placeholder number.

We weren't attempting to try to send signals with the share count number at all.

It was simply as a -- in order to have the denominator for the per-share amounts that you would get, based on our non-GAAP net income projection.

Yes, so there's really not much to it.

I wouldn't read anything into it.

Yes.

And then lastly, I know historically you've given some guidance on as far as dollar value for some of the litigation expense.

Do you have any type of idea what the HTC expense might look like this year now that it's slated to go to trial coming up in the next month?

It's really hard to do that around the time of trial because there is so much activity going on.

I certainly would put in $3 million or $4 million for the first quarter.

It could be a bit higher than that but it could also be lower than that.

After the trial, regardless of whether there are -- regardless of the outcome of the trial, the expenditures should drop pretty dramatically, even considering appeals that might be filed either by us or by HTC.

Okay.

So $3 million to $4 million minimum like or possibly more in Q1 but then tapering off pretty quickly, the remainder most likely.

Yes.

Okay, great.

That's great.

Thanks a lot.

John Fichthorn, Dialectic.

So a lot of my questions were asked, but a couple that you probably won't answer but I'm going to ask them anyway.

You mentioned Apple three times in the call.

You talked about their intent to use and promote haptics in their Watch and enablement of haptics and their phone is.

And so, I'm just -- I was wondering if you could give us any more color around the current state of your relationship with them since you mentioned it three times and kind of what we should expect to see over the course of this year as they launch a product that most likely contains your IP.

Do you hope/expect or license agreement and/or should -- does your guidance factor in potentially litigation expense around that to the extent that they are in violation?

So any color around that either from an expense and/or revenue standpoint would be great and I have one other.

Okay, John, great question.

I would say that we point to Apple just simply as a proof point in the marketplace that haptics is gaining momentum.

And to the extent that they launch solutions and effective experiences, we think it will help our business and it adds a competitive spirit to the rest of the OEMs in their need to at least achieve the same kind of capability.

So we see it is a very positive.

In terms of the forecast there is no expenses built into there for any litigation.

There's also no revenue forecasted for any revenue.

And other than that, I can't give you any update or any other feeling for Apple.

No other feeling?

No other feeling.

It's a haptic feeling.

A haptic feeling.

I'm missing some haptics on that feeling but that's okay.

Then with regards to the media side, expectations to the extent you can break out any -- you know, what are the milestones that you need to hit as a business there or recent analyst reports cited that you had 20 engineers focused on that division which, currently, has no revenue associated with it.

And so -- or very little.

Could you talk to us about revenue hopes for this year?

What's in the guidance to the extent you can break that out and/or milestones that you hope to hit so that we know that this is a worthwhile investment as shareholders that the Company is pursuing?

Sure.

So, the 20 engineers sounds to me a little heavy.

There was a time when we were focused on building tools and products.

We've successfully launched a number of those tools and products and are actually in the market being used and I might say they are working quite well.

So, we do continue to innovate and continue to provide more training and design services because the interest level is very high.

And so, more of our energy today is in supporting active engagements with game developers, social media companies and the video companies.

So that's where a lot of the resources are.

We talked before about six key metrics that we're measuring.

One is around IP.

I think we've talked about more than 100 patents and we continue to grow that portfolio every week.

We also talked about developing tools and products which I just mentioned are now many of those are already in the market and going quite well.

Building an ecosystem where you have not only people interested in using the technology but you have people supporting your sales efforts like ad networks who are promoting the value to their clientele, as well as companies like audio services companies that are now being trained and capable of providing haptic services alongside their audio capabilities.

We've talked about pilot studies.

We pointed to two that are in the market -- Showtime and then LE TV.

And we talked about all the other engagements.

We can't give specifics until either the content is in the market or the partner allows us to communicate the results.

But there are lots of activities underway around the world and then we talked about developing the monetization side.

And today, the bulk of what we're doing is pilots and tests where we capture the analytic data and use that to market the value to existing customers and new customers and moving towards the day when we'll be able to start charging on a per program basis or on a CPM kind of rate card revenue.

And then, I guess lastly, is building our team which today is almost entirely intact.

So we have all of the capabilities in place, management, sales, field support, design capabilities, technical support, marketing resources already focused on building the business.

So essentially, as you've alluded to, it's a full-fledged business in place, and we are now in the proving stages and we hope to transition that into monetization and the outlook still is the same.

We don't expect significant revenue in 2015.

We see it picking up in 2016 and probably being in full force by 2017.

And so revenue this year is immaterial, like under $1 million, over $1 million?

I would think it's under $1 million, John.

Okay, and the LE TV deal that you've currently signed, is that a revenue deal or is that a pilot and kind of proof of concept, out of curiosity?

It anticipates a number of aspects.

Today we are currently in the pilot phase.

Okay.

And I guess my last question is, if you look out on this year, things that aren't in your numbers or things that are in your numbers, what are the biggest potential upsides that could happen that might be long shots and then the biggest potential risks for you guys executing this year?

It's hard to be -- capture all of the bluebird opportunities, let's say.

The upper end obviously would include existing customers, fully engaged launching more products, so, a healthy marketplace where volumes are increasing in all verticals.

So this is gaming, mobile, and automotive.

It would also include existing customers who are launching new solutions in new markets and new areas.

We would like to see people like Huawei, even Xiaomi continue to grow in adoption of emerging technologies.

So we are optimistic about that.

That would obviously help move us to the upper end or above the guidance range.

And then you got new licensees that currently are not licensed and not paying us, of which Apple would be one.

Many others are still available as well in the automotive and the mobile space.

You've got the whole category of wearables and we are anxious to see the success of the Apple Watch.

Early indications are that it will be quite successful in that we believe we'll push others into the space and accelerate adoption and investment in the space and we think haptics adds a tremendous amount of value.

So we think the wearables would also have a big opportunity and then as we continue to grow the content business, experiences increase that that becomes a strong incentive for our partners to include more of our software and continue to grow in engagement with Immersion.

So without giving you a lot of real names that we hope to assign, I think it's a broad category of growth of existing customers, new customers, and expansion in the experience in the content space.

Super.

Thanks, guys.

Good luck.

Mark McMahon, LPL Financial.

So I was wondering if you could actually add a little bit more information to the discussion you had at the end of the call regarding HTC.

When the ruling came out over the last two weeks, there is a perceived -- rightly or wrongly -- a perceived notion that your patent portfolio is not as strong as, you know, maybe everybody was under the impression.

I was wondering if you could specifically talk about the two that were validated by the judge, why they are critical versus the other three if your arguments for rehearing are unsuccessful and they are not included in the trial, how that would affect your licensing strategy going forward with existing customers as well as potential new licensees.

So, Mark, it's understandably difficult to talk about strategy in the lawsuit right before trial but the two patents that do currently remain are strong patents.

One of them is the parent patent to several of the patents that were invalidated and the other has -- arguably would be very difficult to design around, and so, we are feeling actually quite good about going into trial with the patents that are in suit currently.

We also feel like we have good arguments on the procedural grounds under which the three patents that were invalidated were taken out of play for now.

And that's something that we can look at now, we can look at after the trial and we can pursue separately.

As far as overall impact on our licensing program, I really -- I can't manage other people's expectations or how they are thinking about our portfolio.

But from our perspective this is just part of the litigation process.

You do expect there to be a certain amount of trimming down of the claims and issues in patents that ultimately are going to be presented to a jury.

So it's on a very meaningful level, kind of exactly what you would expect and that you would also expect there would be issues probably on both sides where you'd appeal.

And keep in mind, too, that these are patents that we looked at as being appropriate for litigation three years ago, based on certain basic functionality in the Android operating system.

It's -- as we spent some significant time talking about today, a lot of how haptics are beginning to be deployed and used throughout user experiences is very different today and we have a lot of IP around that.

So, I don't overall feel like we are -- we're pleased we have two patents that have been greenlighted for litigation and for the trial, and those may end up being quite a bit stronger.

We think the others might get -- the invalidation may get overturned but in the meantime we have a lot of IP so I don't know that it will meaningfully impact our licensing program, especially as new use cases and business models and types of devices hit the market.

[Anything] (technical difficulty) we may be in a better position.

So just as sort of a takeaway statement, would you say that the perception after the ruling that there is some weaknesses in your patent portfolio, is overblown and the market is overreacted in a negative way which you wouldn't agree with?

So, there were three patents which were invalidated and we've got 1,900 issued or pending and the vast majority of those patents -- there is nothing you could take from the ruling that you could apply to those other patents.

So I don't know how you could look at this and say that it's a comment on the overall strength of the portfolio that is comprised of IP in a lot of different areas, covering everything from hardware to user experiences it to software to implementations.

So, again I can't comment on some of the specific perception but we are feeling pretty good.

Mark, this is Vic.

I would say absolutely the answer to your question is yes, it was overblown.

We feel very good about the case.

We feel very good about our patent portfolio for many of the reasons Paul just mentioned.

So we feel really good about where we're at.

Great.

One last thing and it's just -- if you could just touch on a brief comment.

I was unaware that Amazon had released the new product with actuators and software to simulate haptic touch.

Is that a -- is that a potential licensee?

Is that someone you've initiated discussions with or what's going on with Amazon?

I would say that we've always had a dialogue with either someone at Amazon or somebody who is providing them with design services or capability about the benefits of haptics.

So the fact that they have begun using an actuator and a pretty simple application is exciting, and our job will be to show them how much more we can do with that actuator.

So we'll definitely engage them in a sales discussion and, depending on how that goes, we hope to have a friendly license put together with them.

Okay, thank you.

That is all the time we have for questions today.

I'll turn the conference back over to our presenters for any additional or closing remarks.

Thank you for being on the call with us today.

We look forward to updating you again on our next quarterly call.

Have a great day.

This concludes today's presentation.

Thank you for your participation.