Immersion Corp (IMMR) 2015 Q3 法說會逐字稿

Good day, and welcome to the Immersion Corporation third-quarter 2015 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Jennifer Jarman of The Blue Shirt Group. Please go ahead.

Thank you, Adam. Good afternoon, and thank you for joining us today on Immersion's third-quarter 2015 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, 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 financial measures. For each non-GAAP financial measure discussed, a presentation of the most directly comparable GAAP financial measure and a reconciliation of the differences between the non-GAAP financial measure discussed and the most directly comparable GAAP financial measure is available in today's press release.

With that said, I'll now turn the call over to CEO Vic Viegas. Vic?

Thanks, Jennifer, and thanks, everyone, for joining us this afternoon. The third quarter of 2015 was another quarter of record results for Immersion, generating $14.3 million in revenues and representing the 12th quarter in a row that we have delivered record quarterly revenues on a year-over-year basis. As we recently announced, Immersion haptics have now been included in over 3 billion digital devices, and last quarter we saw the momentum behind haptics adoption grow even faster as our customers and potential customers increasingly have sought out rich haptic experiences for their offerings. We are excited by this recent surge in market interest and use of haptics from other key industry players, substantiating our view that haptics provides intrinsic value to the user experience, especially in markets where advanced technology is allowing us to improve our quality of life but in doing so has introduced greater complexity in the management and engagement with our digital devices.

In a few minutes, I'll discuss our recent business development. First, I'll ask Paul to discuss the details of our third-quarter 2015 financials. Paul?

Thanks, Vic. As Vic mentioned, revenues for the September quarter were $14.3 million, up 19% from $12.1 million in the year-ago period and representing record quarterly revenues for Immersion's third quarter. Revenues from royalties and licenses of $13.9 million set a similar record and were up 19% from royalty and license revenues of $11.7 million in the third quarter of 2014. Of these amounts, in the third quarter of 2015, variable royalties based on shipping volumes and per-unit prices totaled $6.2 million and fixed-payment license fees totaled $7.7 million. This compares to variable royalties of $4.2 million and fixed pricing fees of $7.5 million in the prior-year period.

While revenue mix per line of business fluctuates on a quarterly basis due to seasonality patterns, for the third quarter of 2015 a breakdown by line of business as a percentage of total revenues was as follows. 63% from for mobility, 23% from gaming, 7% from auto and 7% from medical. Looking at year-over-year trends, mobility revenues were up 14% from the third quarter of 2014, principally due to increased device sales by our customers, new customer relationships in Asia and the timing of revenue recognition. Gaming revenues were up 19% due to increased volume of devices with haptics sold by our gaming customers. Automotive revenues were up 42% due to increased auto sales by our customers and timing of revenue recognition. Medical revenues were up 56%, primarily due to increased sales by our customers and timing of revenue recognition.

Gross profit was $14.2 million, or 99% of revenues, compared to gross profit of $11.9 million in the third quarter of 2014.

Turning now to operating expenses, excluding costs of revenues, total GAAP operating expenses were $12.9 million in the third quarter of 2015, compared to $10.2 million in the year-ago period. Operating expenses in the third quarter of 2015 included non-cash charges related to depreciation and amortization of $226,000 and stock-based compensation of $1.3 million. Of the non-cash charges, $353,000 were included in sales and marketing, $371,000 in R&D and $765,000 in G&A. And of the stock-based compensation charges, $302,000 were included in sales and marketing, $276,000 in R&D and $698,000 in G&A.

Looking now at our net results, net income for the quarter was $184,000, or $0.01 per diluted share, compared to $1.1 million, or $0.04 per diluted share, in the third quarter of 2014. Net income for the third quarter of 2015 includes a tax provision that reflects certain non-cash tax expenses associated with our international tax planning activities, resulting in an effective tax rate of 85% for the quarter.

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 adjusted to reflect an expected long-term effective tax rate of 19% less stock-based compensation. We define non-GAAP earnings per share as non-GAAP net income per fully diluted share.

Non-GAAP net income for the quarter was $2.2 million, or $0.08 per diluted share, compared to non-GAAP net income of $2.5 million, or $0.08 per diluted share, for the same period last year.

Our cash portfolio, including cash and short-term investments, was $67.2 million as of September 30, 2015, up from $57.4 million exiting 2014. The increase was driven primarily by $12.3 million in cash generated from operations during the nine months ended September 30, 2015. During the September quarter, we did not buy back stock under our authorized stock repurchase program. We will continue to monitor our cash balance and stock price as well as market conditions and strategic factors as we consider any future buyback activity.

Based on our year-to-date performance and current outlook, we are upping our 2015 revenue guidance to between $59 million and $61 million, an increase of 11% to 15% over 2014. In addition, based on positive results and expectations as well as the impact of calculating non-GAAP net income using a 19% effective tax rate, we're narrowing our non-GAAP net income guidance to between $6 million and $8 million, resulting in non-GAAP earnings per share of $0.20 to $0.27, assuming for calculation purposes only 30 million diluted shares outstanding.

As I just mentioned, we have been taking certain steps to reorganize our international operations to better serve our global customer base, more accurately reflect the geographic distribution of our worldwide revenue and income, and, as we generate higher levels of profitability from our scalable licensing model, reduce our income tax expense.

As I noted last quarter, we do not anticipate paying material cash taxes as a result of this reorganization but do expect that our GAAP tax rate will fluctuate significantly as a result of the timing of NOL utilization versus recognition of the related tax expense. More specifically, we expect the following.

First, over the next few years, our tax provision will include approximately $2 million per year in non-cash tax expense related to the transfer of certain foreign licensing rights to international affiliates. We have recorded deferred charges related to the deferral of income tax on the transfer of these rights. The deferred charges will be amortized as a component of income tax expense over the five-year life of the transferred assets.

Second, commencing in the fourth quarter this year, we expect that the tax rate on the majority of our foreign-sourced income will decrease to low single digits, while our income subject to US income taxation will continue to be taxed at approximately the US statutory rate of 35%.

While the net impact of these factors will vary from period to period, we generally expect that our effective tax rate will decrease as we generate higher levels of profitability from our scalable licensing model. All of these assumptions are based on no material change in tax laws or rates. We also believe that in the fourth quarter, our GAAP operating expenses will be between $14 million and $15 million and that stock-based compensation will be approximately $1.4 million.

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

Thanks, Paul. As noted earlier, Q3 was a strong quarter for Immersion, generating record results and enabling us to raise our annual revenue guidance. During the quarter, we saw indicators that the market is increasingly recognizing how tactile feedback can enhance consumer devices and allow for richer and more intuitively designed user interactions.

In our conference call last quarter, I spoke of key market trends -- emotional communications, immersive entertainment and the connected world -- as drivers of growth for haptics in consumer devices. Recent customer and market developments, including our own activities as well as greater adoption of haptic technology by other major companies, are accelerating these trends by enabling new use cases in which customers can interact more easily and enjoyably with the digital world through well-designed experiences featuring touch feedback.

During the quarter, we continued to see increased interest in haptics from customers, press and trend spotters, in part driven by the increasing adoption of haptic technology by major companies such as Apple and Amazon. Based in part on products launched by these and other companies, we are experiencing heightened demand not only in product categories such as mobile devices, where haptics have been prevalent for some time, but also in areas where haptic technology hasn't been so widely used, such as in laptop touch pads.

We have been particularly pleased by recent developments in the area of pressure sensing, where many manufacturers and suppliers have expressed interest in deploying products that couple pressure-sensing technologies on the input side with haptic feedback on the output side. We have been in active discussions with a number of ecosystem participants and generally see the deployment of pressure-sensing and haptic feedback experiences as a software and intellectual property licensing opportunity for us that could prove to be significant.

Immersion is well-positioned to drive greater growth of our haptic technology in this fast-paced new market setting. Our researchers, engineers and design teams have continually developed new and compelling ways to improve haptic implementations with increased tactile versatility and vibrant touch effects that complement the design of the device. Over the years, we've gained a deep understanding of how the sense of touch provides humans with meaning, context and emotional connection, and we've developed a storehouse of solutions, IP and know-how to help our customers translate this understanding into compelling consumer experiences. We continue to be committed to providing our customers with advanced solutions that make their products better and more engaging, both in existing and emerging market areas such as pressure sensing, virtual and augmented reality, and advanced mobile viewing experience and wearables.

During the September quarter, specific events and activities that reflect the growing momentum behind our business include new customer engagements such as a signed deal with Acer for the launch of the industry's first dual-haptic -- meaning two-actuator -- gaming tablet; the launch of new content in media relationships; as well as content including new games and trailers. Recent design wins and launches including the Fujitsu ARROWS NX F-04G and Gionee Elife E8 mobile smartphones; and an expanded relationship with Huawei, increasing the number of Huawei smartphones featuring our TouchSense technology.

The agreement with Acer not only represents a new device opportunity, but it also illustrates the synergies between our OEM and content teams. Along with use of Immersion's TouchSense technology to enhance the user experience in onboard applications in the tablet, Immersion worked closely with Gameloft to enable the Asphalt 8 game title to take advantage of the dual-haptic capabilities of Acer's Predator gaming tablet. This haptically enhanced version of Asphalt 8 is a preinstalled game that will be exclusively distributed on the Acer Predator tablet when it hits store shelves later this fall.

Also in the third quarter, we received our first revenues from the Fujitsu ARROWS smartphone, which launched in May. The ARROWS phone is a prime example of a beautifully designed smartphone powered by Immersion TouchSense and other advanced technology. Additionally, Gionee launched the Elife E8 smartphone in July featuring Immersion's TouchSense technology and applications across its user interface, and has continued to expand the use of haptics throughout the phone.

Finally, while we can't go into more detail, and while we remain open to further discussions, as of September 30, our agreement with Xiaomi expired, and they are no longer an Immersion licensee.

Regarding our content business, China has proven to be an area of great growth as our Chinese content partners have enthusiastically adopted our TouchSense Engage technology. Just as an example, in the last quarter alone, we saw the download of over 15.4 million games containing Immersion technology in the Chinese market.

Turning to North America, we recently announced a collaboration with Opera Mediaworks and the distribution of our TouchSense Engage technology through Opera Mediaworks' mobile ad platform. This collaboration has been ongoing, and adoption of our technology in Opera's mobile ad platform has grown over time and it is now able to reach more than 1 million consumers per day through 250 separate mobile apps. We just announced the first ad campaign under this collaboration, as Stoli Vodka recently launched a haptically enhanced animated ad featuring a woman shaking a Stoli Vodka martini.

On the console gaming front, we enjoyed higher-than-expected revenues from sales of gaming peripherals as well as a renewed interest in haptics for the next-generation gaming market as virtual reality technologies are being launched and gamers seek more immersive gaming experiences. We believe you will need haptics in order to realize the full promise of a virtual reality experience. We anticipate that the VR market will continue to evolve, and we are working to develop exciting new technologies to create more immersive environments in high-fidelity tactile experiences.

Finally, we continue to appeal the court's decision to invalidate three of our patents in our patent infringement case against HTC. We filed our opening brief in August, and we were pleased to report that both the US Patent and Trademark Office and the Intellectual Property Owners Organization -- a trade association for owners of patents, trademarks, copyrights and trade secrets -- filed amicus briefs in support of our position. We expect HTC to file its response to the brief next month.

To conclude my formal remarks, our positive quarterly results and recent progress show continued execution across our key verticals as strategic initiatives. The uptake for the use of haptics technology is clearing -- clearly nearing an inflection point as today's consumer electronics devices and the experiences that they enable continue to evolve. As the leader in haptics solutions and IP, we are more excited than ever to capitalize on increasing adoption in the marketplace. We look forward to a strong finish to the year and a successful 2016.

With that said, we will now open up the call to your questions. Adam?

(Operator Instructions) Charlie Anderson, Dougherty & Company.

I wanted to ask first on the Xiaomi renewal, I know you've had a few of these the last few years where these have come up and they have lapsed, and a few months go by and they come back. I wonder if you could maybe just add any color on how this one looks compared to the last few that you've done.

Charlie, thanks for the question. I don't really want to speculate as to their intent or their goals here. But as you know we've got hundreds of licensees, and periodically, someone decides to stop licensing our technology. This is one of those cases. And we don't see it having an impact on, obviously, on Q4 or the year, nor do we see it as a large impact on our 2016. We expect to continue to show substantial growth in the business and in our revenue, and we'll be providing that guidance next quarter. But we don't see this as a big impact for the Company. As I mentioned in the comments, we are open to continuing discussions with them, but at this point we have to acknowledge that they are no longer licensed.

Perfect. Thank you so much for that color, Vic. You also mentioned force touch, 3-D touch pressure sensor opportunity. You mentioned laptops. I wonder -- it sounds like you're having discussions currently with some of the OEMs out there. I wonder how close some of those are to actually turning into a product. Is that something we could see in 2016?

And then I wonder if you could maybe expand the point to smartphones. Obviously, you have licensees that out there who are exploring similar technologies on the smartphone. Would they be able to access your current license, or is that an incremental opportunity in 2016 that you can see?

Charlie, as you probably know, we've been active in pressure sensing and the benefits when coupled with haptic feedback. Just to briefly explain, if you lightly touch the screen, you can get a certain haptic effect. As you press further, you get a different haptic effect. And depending on the pressure map, at various levels you can get very different haptic experiences, all identifying different activities within that function.

So they are very complementary -- pressure sensing on the input side, haptic feedback on the output side. So we have a long history of developing such solutions. We are taking advantage of the various ways to recognize pressure sensing from not only the OEMs but also the component suppliers that are active in touch pads for laptops and other markets.

So we are engaged with them. We are helping them identify the ways to -- through reference designs how to utilize actuators from our ecosystem partners. How to mount those. How to provide suspension and feeling for the component itself. And then simplifying and making our TouchSense 3000 easier to use when combined with pressure sensing. So, it's something that we've been active in for some time.

I'd say there is a heightened interest recently. We are optimizing our solutions to take advantage of the interest, and we are talking to really all of the partners along the ecosystem from the component suppliers, OEMs, as well as the content providers. There will be a rich set of applications that will benefit from the addition of pressure-sensing capability with haptics, and so we expect to work closely with those developers. So, we are excited by the opportunity.

I think your last comment around the smartphone, I think similarly, we have ongoing engagements with them. We are currently demoing certain capabilities, providing them with tools and beginning to showcase how haptics using pressure sensing can enhance various applications. Lots of different ways to utilize this, and we'd expect to have products from our marketing partners out in the market very soon.

Charlie, this is Paul just adding on to part of your question. We definitely do see it as an opportunity. As you know, we are pretty careful about when we license selecting particular fields of use or having limitations on the functionality and what customers are allowed to deploy. And so as you get into these new types of implementations involving pressure plus haptics or dynamic types of interactions, there is a clear opportunity for us to license both on the software side and also on the IP side. We generally feel pretty good about our IP in the area of associating haptic effects with pressure sensing. Obviously have to look at how things get implemented, but overall, it's a pretty positive trend for us as we look into next year.

And we think that it's a way for us to continue to add more value to the OEM customer, and thereby helping us increase our ASP. So we see this as a real positive for the revenue momentum that's being created.

And then last one for me, I think OpEx was up $1.5 million sequentially in the guidance in December. Any color there? Is there anything one-time in terms of bonus or anything like that?

No. We start seeing some increased expenses around the end of the year. In particular, we have some trade shows coming up in the early part of 2016.

It's also -- we have timing issues as to when we actually incur the expenses, either toward the end of a quarter or immediately after. This last quarter actually came in a little bit lower or at least in the late end of what we had suggested. I think last quarter I said $13 million to $14 million for the second half of the year in each of the final two quarters. This quarter came in at $13 million, even more or less. And if you look at next quarter, it could be as much as -- if we say it as much as $15 million then that's really the same $28 million that we were kind of thinking about last quarter. So, not too much that I would point to specifically.

Great. Thanks so much.

Tony Stoss, Craig-Hallum Capital Group.

Jeanette Omdalen in for Tony Stoss. A couple of questions from me. Recent iPhone teardowns show a fairly new and advanced LRA or haptic motor, and Navic has commented on his plans to expand capacity given new demand from smartphone OEMs looking to add haptic feedback. Hoping you could comment on how you see these technological advances in haptic feedback hardware and how it's impacted interest you're seeing from smartphone OEMs coming to you guys.

Hi, Jeanette. Thanks for the question. Yes. There are number of ecosystem partners that we work with including Nidec and AAC and others. They are investing in designing higher-quality LRA actuators. This is technology we're quite familiar with and have been taking advantage of for many, many years. We are excited by the trend because this is showing greater interest in higher-fidelity haptics and takes more advantage, fuller advantage of our software capabilities so that we can continue to create these rich experiences, whether they are just UI elements on the device or they are playback of video or games.

So we see this trend as very positive, and we are excited by the interest levels of not only the actuator vendors to increase the quality of their products but also by the uptake of the OEMs who are looking for a greater experience and, therefore, more interest in working closer with Immersion. We are also seeing from the OEM greater interest in expanding their applications and integrating haptics in new and exciting ways.

So, all in all, this is a very positive trend for us.

Great. And then --

Yes. You can add an ID even add an extra dimension to that, Jeannette. Interestingly, people are upping their games now in haptics, and richer experiences may be driven by the iPhone implementation are something that our customers are considering.

But also, in the Android world with some of the lower-priced models, our OEMs are particularly interested in what we can do on the software side to maybe make less expensive actuators, create comparable experiences. So not only are we seeing the upside benefit, but we're also seeing some additional heightened interest in our software on the more moderate-priced hardware configurations.

Great, thanks. Then lastly, wondering if your engineering teams have had a chance to play with the new iPhone 6, and wondering what feedback they provided into the degree in which they think Apple has leveraged haptic feedback and if your initial reaction is that they have or what degree you think there is a potential patent infringement in your patent portfolio?

Sure. Yes, our engineers and a number of other people at Immersion have become quite familiar with the iPhone 6. I think what I've heard is that they are quite impressed with the quality of the actuation technology, the hardware. I think we are a little underwhelmed by the lack of use. The capability is there to do so much more. And, obviously, we think that they should do more, and we will try to exploit that in the Android marketplace. So we will continue to invest heavily in bringing more capability to new applications.

Anything else with regards to Apple, the iPhone or even the MacBook or their MacBook, watch or the Magic Trackpad, it's just areas -- we are familiar with them, but we are not prepared to say anything more than that.

Sure, great. And then lastly for me, it just seems like you are becoming increasingly bullish on the potential revenue opportunities from content providers. Wondering if you guys could just give an update on where you are in discussions with them and how you see that playing out.

Sure. Well, as we talked about, there is increasing adoption across the key areas we are focusing on for content in media. So, if you look at the three, they are mobile gaming -- we are seeing dramatic adoption by top-tier bellwether game developers, top titles, integrating and using haptics. The number of downloads are increasing dramatically. And so we are getting to the point where the value of haptics in the gaming experience is becoming very clear, very obvious and proved through a number of analytics that we capture from these products.

So we are feeling really good about the uptake, and we are getting to a point where we can see the opportunity to start charging for this capability in the mobile marketplace. You look at the mobile videos including ads, and there continues to be an increasing number of trailers offered into the market. More ads, a number that we have not talked about, some that we have announced and discussed. And, again, they are showing continued strong buying behavior. When haptics is part of the experience, people are more likely to watch the video, ad more likely to stay on to completion; brand recognition, product recall are all higher.

So, those are all positive trends. The uptake is better. And for the first time, we really have a solid distribution channel through the Opera Mediaworks where we can reach 100 million -- or 1 million different users on a daily basis. So, the ability to get ads in front of people has increased dramatically, and that's a very positive trend.

I will say, though, that we don't believe that there will be meaningful revenue, at least in 2016. We are hopeful that it starts to grow and become a much more meaningful part of our business in 2017. But, today, these are really good early indicators of good value. It's a key part of our strategic efforts and, we think, over the long haul will become a big part of our business model.

Great. That's all for me. Thanks, guys.

Mike Crawford, B. Riley & Company.

What's the approximate number of Xiaomi handsets that use your proprietary TouchSense software?

You know, Mike, that's a good question. The Xiaomi agreement was not tied to a per-unit royalty. It was relatively fixed; about $3 million a year. I don't know the actual number of phones, number of models. I know we are using the technology, but it was not on a per-unit basis.

And for that fixed amount for license, royalties earned in the September period, is that something that will show up in revenue in the fourth quarter, or would that have already shown up in revenue in the September quarter?

Because it was fixed in nature, it would be recorded in the quarter of the contract period. And so they were licensed through September, so we recorded revenue for that quarter in that quarter. We would not record any revenue after that period because they are no longer licensed. It doesn't reflect the same quarter in arrears that you have a per-unit.

Okay. Because if I look at your raised guidance of $59 million to $61 million for the year, implies revenue could be as low as $10.2 million to only $12.2 million in Q4, which would be at the end of your sequential year-over-year record revenue streak. And that's not only just from Xiaomi given the size of that license? What else is going on?

Let me say I jump in for a second. I think that, by my count, it's a little higher than that. We are at $46.8 million for the year so far. So to get to the $59 million, you'd be up a little bit higher than your (multiple speakers).

$46.8 million, yes. Sorry.

I think, Mike, it's somewhere probably, I think, around between $12 million and $14 million for the fourth quarter, which should continue the positive trend.

Okay. And then with -- could you remind us how the Samsung license works, that I believe that expires December 31 as well?

Yes, as I said, Mike, there's hundreds, probably even thousands of license agreements. And so there's always some number expiring and renewing. But Samsung in particular, I think that agreement would expire, assuming we don't renew it, and we have every indication and every effort to renew it as we have in the past a number of times. That agreement, I think, expires at the end of the year, December 31.

And that also is primarily a fixed license. So, would that work the same way that the Xiaomi revenues were being recognized?

Yes, I think there are differences in the agreement that I can't get into. But I think that, as I said, we intend to renew that agreement, and it has certain provisions that would continue to allow us to recognize some revenue into 2016 as well.

Okay. Great. And then -- all right. Thank you.

Rob Stone, Cowen and Company.

I wanted to follow-up on the notion of taking greater use of your technology and driving higher ASP and ask about the dual-actuator gaming tablet. Is that something, adding a second actuator, that changes the field of use or would increase the ASP? I know it's just one device, so maybe you don't want to speak about a specific customer. But just generally, if you get into dual actuation and things like that, is that another ASP-sweetener?

Yes, exactly, Rob. The TouchSense 4000 is the software product that drives multiple actuators, two or more. And so that is offered as a premium product to drive dual actuators. The advantage of dual actuators is you can start to create a stereophonic effect of actuation. You can have sensations moving from left to right, right to left, up to down. So there's a lot of unique ways to utilize that in a gaming product in particular but also in video as well. So it is a premium product offered as a TS 4000 license, and it would come at a higher ASP.

Following up on the gaming thread, you talked about the emergence of virtual reality and the need to really have haptic feedback to make that a compelling experience. We are really on the cusp of a bunch of products launching through this holiday season or early next year. Do you see that showing up principally as augmenting your gaming peripherals business, or is that something that -- for example, a number of VR hookups are basically using a smartphone in some kind of a viewer, like the Samsung Gear VR? So, how should we think about the perimeter on that opportunity? Is it a gaming niche, or wider?

Well, I believe from the people that we've talked to that the bulk of the interest, it will come through the gaming space whether it's console gaming or using your mobile device, your mobile phone. So I think a lot of the adoption will be on the gaming side. There may be other areas to consider as well, but I think gaming is the key focus.

The way we bring haptic capability can be through controllers, similar to gaming controllers. In fact, they may be dual purpose. They may be controllers used to play games as well as to experience the artifacts in a game. It could be also haptic capability embedded in wearables such as the Gear, as you mentioned, so that you can still provide a sense of physicality in the VR world through a wearable. Or it could be even in the ear flap of a pair of goggles, where you are providing, similarly, a sense of realism that you are in that virtual reality world.

So I think we are seeing right now the biggest interest is from the gaming side, and we think we can service that market from a number of vantage points -- controllers, wearables and ear flaps.

Great. With respect to the Opera Media -- the ad network opportunity, can you just detail for us what's required in terms of the pieces of the ecosystem? Let's say I'm a brand owner and I'm excited about a haptic-enabled ad. How many other pieces need to come together, and how wide would you say is the available infrastructure that can support that assuming it's connected to the right networks?

Hi, Rob, Paul. We've got the infrastructure in place now in the sense that what we've done is integrate our haptic technology with the Opera Mediaworks platform. And Opera Mediaworks has thousands of apps that are part of its own ecosystem that basically are served by their SDK. To date, about 250 out of many thousand have actually updated and gotten the most recent version of the Opera SDK. But just as a matter of the ordinary upgrade process, we should expand our footprint out with them by many multiples and be able to reach far more than -- in essence, it's about 1 million, as Vic said, a day now, and it will be tens if not even more millions per day over time.

And any of the publishers then who have the updated Opera SDK will be able to serve haptically enhanced ads. And so that will be available to any brand or any advertiser or agency that wants to work either directly -- we'd prefer them to Opera Mediaworks in this case, but who would be interested in having that kind of a campaign.

What kind of share for this capability does Opera have? I don't know the names in that space all that well. Are there some others -- Opera competitors that you need to line up as well to have full coverage?

It's a very fragmented ecosystem. They have -- they acquired AdColony, which is one of the major -- one of the very large ad networks. And it's the AdColony property that they are operating here. There are a few other ones you may have heard of like Millennial Media and YuMe, et cetera. There's probably four or five that might be of similar size. And we've been talking to this ecosystem and actually have some arrangements with some of them already that we haven't been able to talk about yet.

The other way that you can reach a lot of volume in the ad tech space is to go directly to some of the very large apps or publishers like a Facebook, obviously. So you could -- if you integrated -- if we integrated our haptic technology directly with Facebook, that would instantaneously give you a very large reach, of course.

Okay. And finally, just a housekeeping question for you, Paul. You broke out the non-GAAP tax rate this quarter in your reconciliation. Can you give us a sense for what non-GAAP rate we should be thinking of for the fourth quarter? Any thoughts on next year?

Yes, I think we're going to continue on with the 19% rate that we use this quarter because it is based on our current knowledge, the best rate reflective of our long-term expected effective tax rate once the --. We finished all of the structuring activity, but we'll have some tax fluctuations over the next period of time as the accounting for some of the internal movement of assets and IP exploitation rights is accounted for. Long-term, we are expecting around 19%, and that's probably the best measure to give to the public. So, unless something changes dramatically about the mix of our revenue, we would expect to be at about that rate.

Great. That's all I had. Thank you.

(Operator Instructions) Richard Mashaal, Senvest.

You know, when we invested in Immersion, one of our concerns was how would we get the Chinese to pay for the intellectual property because that's always what you read -- that the Chinese are the biggest flouters of intellectual property, and there's always complaints about getting paid for it.

In China, yet, I find it rather ironic that you are able to sign a deal with Gionee and Huawei and Xiaomi. Yet, the biggest vendor of handsets, Apple, feels no problem to flout your intellectual property and trample all over it. I got an Apple iWatch, I got an Apple iPhone 6S. It's obvious to me that they are flouting your IP. I know you guys have no comment on it, but I've looked at the patents. Everyone else feels no problem to pay -- feels it's appropriate to pay you, yet Apple has no problem trampling all over our IP.

And what I always want to say is that, you know, I support you guys in holding out until they pay you a fair price for the IP and do whatever legal measures you've got to take to get paid for those -- we estimate being 1.5 million man-hours of technology in 2,000 patents. So, we are very, very upset with Apple's actions, that they've seen fit to introduce these products and not compensate you guys. And I would love to see you guys go after them, get an injunction and have them stop shipping the iPhone 6S into the United States. We are just furious about this.

Thanks, Rich, for the comments. I think we feel the same, and we promise to go about our business in a very prudent and strong effort. So we will -- we hear you loud and clear. We are definitely of the same mind.

Yes, well, we were there when you guys fought Sony and Microsoft and won. And I think you fight Apple, you'll win again. And this is a -- 20 years of building a Company, and now it's at an inflection point and everyone uses it. And Apple has no problem, just comes in and tramples all over it. We are very upset.

Thanks for the comments, Rich.

Thanks, Vic.

(Operator Instructions) There are no further questions at this time. Please continue.

Thank you all for being on the call with us today. We very much look forward to updating you again on our next quarterly call. Have a great day. Thank you.

Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation. You may now disconnect your lines, and have a great day.