Immersion Corp (IMMR) 2016 Q4 法說會逐字稿

Good day, and welcome to the Immersion Corporation fourth-quarter 2016 earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Jennifer Jarman of the Blueshirt Group. Please go ahead.

Thank you, Carrie. Good afternoon and thank you for joining us today on Immersion's fourth quarter and FY16 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 Nancy Erba, CFO. During this call we may make forward-looking statements, which may include projected financial results or operating metrics, business strategies, litigation 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, our presentations 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 turn the call over to Chief Executive Officer, Vic Viegas. Vic?

Thanks, Jennifer. Thanks, everyone, for joining us this afternoon. 2016 was an exciting year for Immersion as we broadened our customer base across our existing verticals with new strategic engagements and were also able to demonstrate the measurable value haptics is bringing to new and emerging markets. We remain focused on leveraging our three key strategic assets: Our culture of innovation, our haptic know-how and our broad patent portfolio. As we continue to execute on our long-term plan of driving broad adoption of our haptic technologies across existing and emerging markets.

We were pleased with our fourth quarter and fiscal year results having achieved both revenue and non-GAAP net income in line with our full-year guidance. This is particularly significant as it demonstrates our focus on financial execution during the year when it was also critical that we dedicate resources and attention to protecting and preserving our intellectual property. We remain confident in our IP position and steadfast in our approach.

I will provide a more detailed update on our business later in the call, but at this time I'll turn the call over to Nancy to review our fourth quarter and FY16 financial results and outlook. Nancy?

Thanks, Vic. Revenues for the December quarter were $9.3 million, down 44% from revenues of $16.6 million in the year-ago period, mainly reflecting the absence of revenue from Samsung and Sony. We remain in the standstill period with Samsung, which was negotiated as part of the wind down agreement completed in July 2016.

Revenues from royalties and licenses of a $8.9 million were down 43% from $15.8 million in the fourth quarter of 2015. Of these amounts in the fourth quarter of 2016, variable royalties based on shipping volumes and per unit prices totaled $6.2 million, and six payment license fees totaled $2.7 million. This compares to variable royalties of $8.7 million and fixed license fees of $7.1 million in the prior-year period.

While the revenue mix per line of business is expected to fluctuate on a quarterly basis due to seasonality patterns, for the fourth quarter of 2016 a breakdown of by line of business as a percentage of total revenues was as follows. 36% for mobility, 43% from gaming, 12% from auto, and 9% from medical.

Looking at year-over-year trends, mobility revenues were down 65% from the fourth quarter of 2015, principally due to the absence of revenue from Samsung. Gaming revenues were down 22% during the quarter, primarily due to a decrease in revenue from Sony, which was partially offset I revenue from new customers such as Nintendo. While we successfully resolved the Sony Japan arbitration process discussed in our second quarter call, we are now in and arbitration process with Sony in the US.

We continue to have confidence in the strength of our IP and anticipate a resolution to this arbitration in 2017. Automotive revenues were up 7% due to increased volume from our existing automotive licensees as more vehicles sold today have incorporated haptic technology. Medical revenues were down 25% and we expect this transition within our revenue mix to continue. Gross profit was $9.2 million or 99% of revenues compared to gross profit of $16.5 million in the fourth quarter of 2015.

Turning now to our fourth-quarter operating expenses, excluding cost of revenues total GAAP operating expenses were $20.4 million in the fourth quarter of 2016, compared to $15.2 million in the year ago period.

A significant portion of this increase was driven by higher legal expenses, primarily related to our litigation with Apple and various other legal matters. Operating expenses in the fourth quarter of 2016 included $1.5 million of non-cash charges comprised of depreciation and amortization of $227,000 and stock-based compensation of $1.3 million.

Of the total non-cash charges, $448,000 was included in sales and marketing, $360,000 in research and development and $728,000 in G&A expense. Of the stock-based compensation charges,$386,000 was included in sales and marketing $256,000 in R&D and $667,000 in G&A.

Looking now at our net results, GAAP net loss for the fourth quarter of 2016 was $38.1 million, or a loss $1.32 per basic and diluted share, compared to GAAP net income of $1.1 million, or $0.04 per basic and diluted share in the fourth quarter of 2015. GAAP net loss for the fourth quarter of 2016 included a tax provision of $26.8 million, primarily related to a non-cash charge of $28.1 million recorded to establish a full valuation allowance against the Company's US deferred tax assets.

Let me briefly discuss the non-cash charge taken in the fourth quarter related to our deferred tax asset. As required by accounting standards codification or AFC-740 income taxes, we assessed recoverability of our deferred tax assets regularly to determine whether a valuation allowance is required by evaluating all available positive and negative evidence.

As a result of our most recent analysis we concluded that a full valuation and allowance was warranted against all of our net federal and state and certain of our foreign net deferred assets at this time. This assessment requires that we use only objectives and verifiable evidence in our analysis. In plain English, this means that in our forecast we were required to exclude potential future revenue from our litigation efforts, but had to include the expected litigation expense.

It is important to understand that this one time charge has no impact to our cash, does not impact our ability to utilizer our deferred tax assets in the future and most importantly does not reflect our long-term financial outlook or confidence in our business strategy. Our day-to-day focus and ability to execute against our operating plan remains unchanged. We will continue to monitor the status of our deferred tax assets on a regular basis and when we determine that we will be able to realize the economic benefit of our deferred tax assets in the future we will make an adjustment to the deferred tax asset valuation allowance at that time.

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 the non-GAAP earnings per share as non-GAAP net income per share. Non-GAAP net loss in the December 2016 quarter was $7.9 million, or $0.27 per basic and diluted share, compared to a non-GAAP net income of $2.1 million, or $0.07 per basic and diluted share in the same period last year.

Turning to our full 2016 results, our revenues were $57.1 million, down 10% from revenues of $63.4 million in 2015. Full-year revenues from royalties and licenses were $56 million in 2016 down 9% from $61.7 million in 2015, reflecting the decrease in revenue from our mobile business and to elect lesser extent decreased revenue from gaming.

On these amounts variable royalties total $25.6 million in 2016, and six license fees totaled $30.4 million, down from variable royalties of $29.8 million and fixed license fees of $31.9 million in 2015. For the full 2016 year, a breakdown by line of business as a percentage of total revenues was as follows. 57% from mobility, 24% from gaming, 7% from auto and 12% from medical. Gross profit for 2016 was $56.9 million, or 100% of revenues, down from gross profit of $63 million in 2015.

GAAP operating expenses, excluding cost of revenues were $72.2 million in 2016, compared to $58.2 million in 2015 driven by the increase of $13.9 million in litigation expense, primarily related to our enforcement action against Apple. GAAP net loss for the year was $39.4 million, or a loss of $1.37 per basic and diluted share, compared to GAAP net income of 2015 $2.9 million in 2015, or $0.10 per basic and diluted share.

GAAP net loss for 2016 included a tax provision of $25.5 million for the year, primarily related to a non-cash charge of $28.1 million recorded in the fourth quarter to establish a valuation allowance against the Company's US deferred tax assets. Non-GAAP net loss for 2016 was $5 million or a loss of $0.17 per basic and diluted share compared to non-GAAP net income of $9.1 million, or $0.31 per basic and diluted share in 2015. As Vic mentioned earlier both revenue and non-GAAP net income were within our guidance for the full year.

Now to address our balance sheet, we continue to be pleased with the strength of our balance sheet and the improvement in our cash position during the year.

Our cash portfolio including cash and short-term investments was $89.8 million as of December 31 2016, up from $64.9 million exiting 2015. The increase was driven primarily by $22 million in cash generated from 2016 operations. During the year we repurchased $729,000 under our authorized stock repurchase program, leaving $33.7 million remaining in the currently authorized share 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 buyback activity in the future. Regarding guidance for 2017, in addition to normal consideration we also need to take into consideration the ongoing litigation with Apple and the current unlicensed status of Samsung. We have not included revenue from either in our revenue forecast.

With this in mind we're currently expect 2017 revenues of $38 million to $42 million. This reflects base business growth of roughly flat to 11%, excluding the recognition of $19 million in wind down rights of Samsung products that were licensed under our prior agreement. Based on this forecast we expect to generate bottom-line results of between a non-GAAP net loss of $23 million and $32 million. On the expense side, we are currently assuming litigation expense of between $18 million and $22 million for 2017.

GAAP operating expense outside of this litigation expense totaling $60 million to $63 million for the year, and finally stock-based compensation of between $6 million and $6.2 million for the year with the highest expense expected to occur in the first quarter. I will now turn the call back to Vic to provide a business update.

Thanks, Nancy. I would like to focus my comments on four primary areas. First, a look at the market engagement cycles of our strategy. Second, a recap of highlights since our Q3 call. Third, an update on our strategic markets. And fourth, an update on our litigation status and focus for 2017.

Immersion as torchbearer for haptics employs a market engagement cycle with four stages. The first is innovation. We seek out and explore new value areas for haptics across our markets. This activity generates new IP know-how and demonstrations of haptic value.

The second is demand creation. In markets where there is substantial and recognizable haptic value as well as sustainable and growing business opportunities, we evangelize and seed the market with new-use cases and demonstrations of haptic value working through ecosystem partners, content creators and leading OEMs. The third is adoption and monetization. We leverage our products, IP, know-how and services.

Through licensing relationships we allow leading customers in our markets to realize the value that haptics brings to their products, allowing us to achieve a sustainable and growing revenue stream. And fourth is leadership; in markets where IP and our solutions are fully recognized leveraged and monetized, our shareholders benefit from the investments and market making efforts we have made.

This also creates a platform upon which we can consider developing new and innovative offerings. These stages can vary in length depending on market maturity, customer engagement and the ability we have to leverage our previous innovation.

Today we are facing a few companies who have chosen to copy our innovations, forcing us to take legal action in order to receive fair compensation. This can be costly and time-consuming, especially since their approach leverages cost and time in an effort to gain the benefit of below market royalty rates and un-cannibal licensing terms from Immersion.

Fortunately, as the true innovators in the field of haptics we have the know-how, IP, and strength of broad market adoption in our favor. We also have a strong balance sheet. The full effort of our creative employees as well as the experience and determination necessary for these legal actions.

The effort to achieve sustainable commercial success for the benefit of our stakeholders is a strategic imperative for us and we believe we will succeed. Now since we updated you last during our November call, we have had a number of positive customer product and market announcements that I would like to call your attention to.

We completed an early renewal of our agreement with LG for touch sense technology and Basic Haptics patent license. LG has been a licensee since 2006 and is a strategic customer across their mobile and wearables product offerings. Additionally we renewed agreements with mobile OEMs Meitu and Gionee.

We entered into a multiyear licensing agreement with Grayhill, a designer and manufacturer of intuitive human interface components and custom solutions. We announced a multiyear patent license agreement with Nintendo, including the anticipated use of TouchSense technology for the Nintendo Switch system. In partnership with IPG Media brands, we announced the positive results of a scientific media trial examining the impact of touch enabled advertising created with haptic technology.

And we announced the launch of TouchSense force for gaming and VR/AR which allows developers and peripheral manufacturers to easily create sensations like pushing, pulling grasping and pulsing by integrating high-quality touch effects into their games and devices.

These announcements reinforce our unique position in market. One which leverages our complete suite of IP and solutions and allows our customers, both content creators and OEMs, to take full advantage of haptic technology.

As we look forward to 2017 haptics is becoming an essential part of the digital experience. We enter the new year with great momentum building upon recent successes in our more established markets and optimism as we see the value of our innovation moving into newer markets.

Our focus remains on five strategic markets. Mobile OEM and content, mobile ads, wearables, gaming, which includes VR and AR, as well as automotive. I would like to walk you through an update on each of these areas.

In 2016 way licensed new mobile OEMs including Lenovo and renewed license agreements with LG, Meitu and Gionee. In addition to understand the value of our IP, these OEMs utilize our software to offer their customers the best haptic experience available based on our innovation and know-how.

We are now leveraging our demonstrated value in the mobile market into new opportunities, such as mobile gaming, social media and 360 video with partners like Tencent with Kowloon War, Perfect World with Torchlight and Hero Interactive with Tank Girls. Going forward in 2017, we expect the mobile OEM and content market to remain our largest revenue market with our base business continuing to grow with our customers.

In the mobile advertising ecosystem, we're delighted to have IPG Media lab advocate our value proposition with their recent media trial and study of Immersions haptic technology. Their study found that touch enabled technology and video ads leads to a 50% lift in brand favorability, equating to 68% cost savings over the cost of increasing brand favorability using ads without haptic technology.

The effectiveness of haptics spans across standard demographics and highlights the fact that haptic technology creates a more emotional experience, leading to consumers feeling more excited and happy during ad exposure. This translates to a 62% increase in feelings of connection with the advertised brand, which is often very difficult for marketers to do.

This validation by a leading media agency has enabled us to grain greater traction among the mobile ad networks we are working with, such as Teads and AdColony, and also brings new opportunities to us. We remain optimistic about this emerging market and our ability to capitalize on the value that haptics brings to mobile ads and expect to recognize a meaningful increase in revenue from this market in 2017.

Another market that emerged during 2016 with broad adoption of haptics is wearables. Haptics is a natural nonvisual feedback mechanism for wearable devices, whether in smart watches, sports watches or fitness pans. We are pleased that wearable products were included as part of the recent LG renewal and we are in discussions with other leading wearables customers regarding patent license and software and solutions opportunities.

Immersion has been a leading innovator in the gaming market since before the time of our IPO in 1999. We have a long and rich history within the gaming industry, from our earliest efforts with rumble on the Sony PlayStation and Microsoft Xbox console platforms to our most recent multiyear agreement with Nintendo on their new Nintendo Switch platform.

Our work with game developers has allow us to build partnerships with third party preferable companies like Logitech, EDP and Guillemot, all culminating with our newest advancement TouchSense Force. We look forward to helping shape and develop the future of gaming and virtual reality markets in 2017 and beyond by providing early access to this haptic technology which represents an ideal platform to truly provide immersive experiences for users.

Our intellectual property business development team continues to make good progress addressing the automotive market. Our existing agreements with companies like Alps and Continental provide us the opportunity to grow with the market as haptics in vehicles becomes more and more mainstream. We are excited by new partner engagements that will take advantage of the latest developments in automotive applications for haptics. As haptic adoption continues to grow in automotive, we expect revenue to grow accordingly.

Turning now to an update on our Apple litigation, we have received a Markman order and overall are pleased with the claim constructions. Apple has now filed a total of nine interparty reviews or IPR's with the patent and trademark office challenging the validity of all of the seven patents in the litigation.

At this point of the nine IPR's, two have been instituted at the patent and trademark office, one has been denied and one has had a select number of claims instituted. We expect to hear their institution decisions on three of the remaining IPR's in the coming months and the remainder in August 2017.

Finally we expect the patent trademark office to issue final decisions about the validity of these patents between January and August of 2018. As a reminder, our hearing before the ITC is currently scheduled April 27 through May 5, 2017 and the initial determination date is scheduled for August 11, 2017. The target date for completion of the investigation is still expected to be on December 11, 2017.

We believe the results received thus far continue to support our confidence in our position and our ability to reach an outcome that will appropriately compensate us for our innovations and resulting patent portfolio. Finally we recently announced that we have entered into a cooperation agreement with View Capital Advisors LLC and its affiliates.

Under the terms of the agreement, Immersion has agreed to nominate to its Board of Directors and support the election of View's independent nominate, Daniel P. McCurdy, a the Company's 2017 annual meeting of stockholders on Friday, June 2, 2017. Additionally Immersion has also agreed to submit to a stockholder vote a binding proposal to declassify the Board of Directors.

We're pleased to have reached this agreement as we believe this outcome serves the best interests of the Company and its stockholders. 2016 has been a year of exciting and innovation with widespread adoption of haptics across all of our target markets and a broadening of our customer base.

We exit the year with a strong and healthy balance sheet which enables us to continue to execute on our strategic objectives. We remain focused on the importance of defending the value of our 20+ years of innovation and protecting the interest of our stakeholders.

In the near term, we recognize that there will be some trade-offs with regards to financial performance as we vigorously defend our IP. Looking ahead we are confident that our innovative solutions in IP increasingly will be recognized as a must-have by existing customers, leading to measurable value creation and growth in 2017 and beyond.

With that said, and as we close out the year, I would like to thank our dedicated employees around the world, our customers and partners and you, our valued investors, for your ongoing support. We will now open up the call to your questions. Carrie?

(Operator Instructions).

Charlie Anderson, Dougherty & Company.

Thanks for taking my questions. I just want to start with maybe the litigation expense you guys mentioned $18 million to $22 million in 2017. Can you remind us what it was for the full year of 2016 and Q4 as well. And then you mentioned that Q1 is the largest OpEx quarter; imagine that's from litigation. I wonder if you could frame for us how much of that $18 million to $22 million occurs in Q1 so we can get our models running here.

Hi, Charlie, thanks for the question. The litigation in 2016 was $16.7 million, and we aren't going to split quarter by quarter, but the litigation expense in 2017 will be more heavily weighted to Q1 and Q2 with the hearing occurring at the end of April and May. And in addition it was the other comment on the first quarter was related to the stock comp, so that hits more heavily in Q1.

Okay. Got it, and then are you guys is $18 million to $22 million I'm assuming that's mostly Apple and IPR's are you also reserving some amount for potential other litigation? Any color there would be helpful.

Certainly we have a legal strategy that we're executing to. We are not going to break down what's included or not included in the litigation, but we're looking at our strategy as a whole going forward and making sure that we have the balance sheet structure to be able to support that.

Perfect. And then question for Vic. Vic, I don't know if I have seen more consolidation in IP then I have in the last 12 months. And I just wonder from your perspective when you look at your ability to enforce and your size, what are some of the options that are here beyond the litigation strategy? Are there partnering activities, are there other things you can potentially do here to help along with your strategy? Thanks so much.

Sure. Yes there's quite a few options that we have. We are very confident in the strategy and that strategy can include the sale of patents. It can include partnering with other companies who can carry some of the heavier lifting of litigation.

We can consider contingent legal representation tied to success. There are clearly opportunities for us to favor upfront payments for our new licensees. There's a pipeline, a very rich pipeline, of new opportunities that we think will continue to bolster the balance sheet and give us all of the assets necessary to execute on the strategy.

So a lot of options beyond just simply filing a lawsuit and then managing the execution of the lawsuit. There are a lot of other strategic options available, and we will continue to consider those as we move through 2017 and beyond.

And just quick housekeeping, tax rate for 2017, with what happened in Q4 is there any change to the tax rate?

Yes. Given the valuation allowance we will probably, I am going to guide you to is a nominal expensive. It will be our cash tax. So you can think of somewhere in the 5% range.

Okay. Perfect. Thanks so much.

Josh Nichols, B. Riley & Co.

Real quick, just want to go over one or two of the underlying assumptions. Just really wanted to know what's included in guidance that's already been inked, but more importantly what's in guidance that's still on the come at this point.

The guidance we are providing the $38 million $42 million, we see that as our core business. The bulk of that is signed agreements. However, some of those agreements call for quarterly royalty reporting so it will be contingent on the units and volumes of our customers. We do anticipate entering into new agreements, as well.

We have a lot of confidence in that core number $38 million to $42 million. We think there is still plenty of upside tied to the pipeline that I referred to. There's obviously Sony and Motorola standout as two very real near-term opportunities that we think should be manifested in 2017, but there's also another long list of candidates from our solutions and our IP business side, as well.

Sony revenue you received from Sony regarding US controllers, or Motorola if you were to get a license, that would be upside to the current guidance, correct?

The Sony revenue would be tied to our current arbitration proceedings that we think will be concluded here in 2017. And the Motorola renewal is not yet signed.

We have not renewed the agreement with Motorola, so we're still trying to work through those. Either of those could continue in some form of enforcement or we hope to have those resolved and become revenue in 2017.

Great. And then historically, I know the Company has been able to significantly increase mobile license fees whenever a lot of these agreements came from a new renewal. But now that the market is getting a little more mature on the mobile front, is that still the case? As haptics usage has proliferated throughout most of the platforms, or are we reaching a more steady-state mature phase where longer term license agreements might be signed with maybe less increases than before whenever not as many devices used haptics?

I think you need to think about the Canadian innovation that's happening, so the technology the licensing that's occurring isn't on the same technology that was in existence in the time period you are referencing. We continue to grow our portfolio.

As you know we're the leader; we believe in pressure and that will garner -- that will give us the ability to continue on that trajectory where the royalty rates are increasing over time.

Josh, I would also add that the value of haptics is growing substantially and so we do pass along those increases. The value is generated through richer experiences whether it's social media, gaming, 360 video, these are applications features that people are asking for and we are developing solutions for and therefore they're providing more value.

We are not at the early introductory phase any more. We are not heavily discounting prices. We are at a truer value of our deals, but we are still able to pass along some increase in the pricing.

Thanks for clarifying that, and then last question. I believe you mentioned you are still in a standstill agreement with Samsung, and that expires sometime this year, but you haven't mentioned exactly when. Is that still the case?

That's correct. That's still the case.

Thank you.

(Operator Instructions).

James Medvedev, Cowen and Company

Let me just start with -- I want to make sure I've got the math right on this. It's in terms of expenses, it's $60 million to $63 million GAAP minus share-based compensation and then plus on the order of $20 million for litigation. That's the expense situation for 2017, is that about right?

Yes.

Okay, I just want to make sure if all the moving pieces correct. And you said that's more H1 -- half-one weighted. How does revenue track through the year. The $40 million midpoint revenue forecast?

The seasonality has historically been Q4 and Q1 are heavier waited for our revenue just given our tightness to the gaming market and mobile in terms of their seasonality of sales. I would expect that to be about the same this year, as well.

Okay. That's good.

And Jim, I think on the guidance for the expenses, I think all we've really said is that the litigation spending will probably be a little more heavily weighted to the front half of the year.

Okay. Understood. And that's of course soon as things are wrapped up, assuming they get wrapped up, I guess we'll just see how things unfold. With the tax -- with the deferred tax valuation allowance, what are the rules on that?

I know you do a look-forward into profitability, but how far does that look-forward go? In other words, if you don't see earnings coming off -- how many years forward do you have to do a look forward and before you take the tax allowance?

It actually has two parts It's actually a 12/4 look back, and then a about a year to a year and a half look-forward. But because of the regulations which say that it has to be objective and verifiable evidence, we were not able to include any revenue looking forward associated with any of the litigation we are in.

But we have to include all of the expense. That's what weighed the decision that we made to go with a full valuation allowance this quarter.

Okay. Can you tell us how much NOLs, what's the total of the NOLs federal, state, foreign?

I don't have that in front of me. I could get that for you later, but I don't have that in front of me.

Okay and then my final question if I could squeeze one more in. 0% to 11% core growth this year, does that represent the long-term trajectory, or should we expect some acceleration or some slow down past 2017?

No, I don't think it's reflective of our long-term growth opportunities. I think it's taking a snapshot of where we are at given some of the uncertainty that we have with Apple, Samsung, Sony, and Motorola. We are building a base of business. Obviously LGs renewal, Meitu, Gionee, Nintendo, those are all adding to existing customers and an existing base of business, but right now we are still trying to execute on that pipeline.

Trying to resolve what we believe should be fairly straightforward legal enforcement with Sony and Motorola. So we think once we have established that, that will get us back to a base of business that then can grow based on success and licensing people in the wearable space, mobile ads, gaming and VR, automotive and all the markets that show such great promise. But right now we have taken a step back given some of pushback from a few of these companies.

Okay. Well thank you. Good luck.

(Operator Instructions).

Matthew Galinko, Sidoti.

My question is just around the design cloud that you launched a few months ago. How is engagement with that platform, and is it having the desired effect that you had when you envisioned it?

Yes, it's a great part of our future strategy. The design cloud allows our ad partners and customers to create haptic tracks for their ads in the cloud, allows them to experience it real-time on their mobile device. They can then share it within their community before they actually push the button to go live with the ads.

It's a great preview feature for the service. When you add some of the obvious positive studies that have been coming out from Teads and now most recently from IPG, it's having an impact on the advertising marketplace and we are getting lots of interest from not only the ad agencies but the creative brands to add haptics because of the measurable improvement that has been a lot of their retention and engagement metrics.

It's one piece of the overall solution. Having the cloud delivery capability gives us the ability to deliver optimized experiences based on the ad and whatever device is being played back. So you can offer across a wide range of platforms and devices a very rich and powerful experience. We are excited by the advances that we have made recently in the space.

Got it. And is that platform still a work in progress? Are you still putting a lot of resources into it, or is it fairly mature for its purpose?

That particular feature is I think fairly well-established, and we continue to add new capability to the ad offerings. For example, some customers need help in generating tags for the HTML delivery or serving the video itself. We are building out that capability and offering a wider suite of solutions to a broader audience of mobile ads.

So we are still making the investments not only on the technical side, but also on the market-facing side in terms of building out our sales and our market support teams to engage the customers to build this very exciting new opportunity for us.

All right, and so not to put words in your mouth, but is that to say you would expect headcount to be ticking up on the sales and marketing line in 2017?

Yes, we see continued growth. The level about 10% growth year-over-year from 2016 to 2017, and the bulk of that investment is going into the mobile ad space, going into the content initiatives, the gaming and VR space the wearables building out our IPBD capability and team.

Still making good investments. We are seeing the results of those investments and believe that continued investment is still appropriate.

Great. Thank you.

It appears there are no further questions at this time. I'd like to turn the conference back over to Management for any additional or closing remarks.

Well thank you all for being on the call with us today, and we look forward to updating you again on our next call. Have a great day. Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.