Apr 30, 2015
Executives
Vic Viegas - President, Chief Executive Officer Paul Norris - Chef Financial Officer Jennifer Jarman - Investor Relations
Analysts
Rob Stone - Cowen & Co Josh Nichols - B. Riley David Williams - Ascendiant Capital Charlie Anderson - Dougherty & Company
Operator
Good day and welcome to the Immersion Corporation First Quarter Earnings Conference Call. As a reminder, today’s conference is being recorded.
At this time I would like to turn the conference over to Jennifer Jarman. Please go ahead.
Jennifer Jarman
Thank you, operator. Good afternoon and thank you for joining us today on Immersion’s first 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-K filed with the SEC, as well as the factors identified in the press release we issued today after market closed.
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 turn the call over to Chief Executive Officer, Vic Viegas. Vic.
Vic Viegas
Thanks Jennifer and thanks everyone for joining us this afternoon. Immersion commenced 2015 with more record results, generating a new high of $16.3 million in revenue during the March quarter and representing the 10th quarter in a row that we have delivered record quarterly revenue on a year-over-year basis.
The quarter was full of exciting events and milestones as we demonstrated new technologies and solutions at Mobile World Congress in Barcelona. Saw new use cases for haptics announced in the market, continued to make progress on our mobile content initiative and saw new and existing mobile OEMs launch new flagship devices featuring innovative Immersion Technology.
In a few minutes I will discuss our recent business developments, but first I’ll ask Paul to discuss the details of our first quarter 2015 financials. Paul.
Paul Norris
Thanks Vic. As Vic mentioned revenues for the March quarter were $16.3 million, up 6% from revenues of $15.4 million in the year ago period and representing record quarterly revenues for Immersion.
Revenues from royalties and licenses of $16.0 million were also a record and were up 6% from royalty revenues of $15.2 million in the first quarter of 2014. Of these amounts, in the first quarter of 2015 variable royalties based on shipping volumes and per unit prices totaled $8.6 million and fixed payment license fees totaled $7.4 million.
This compares to variable royalties of $7.5 million and fixed license fees of $7.7 million in the prior year period. While revenue mix per line of business is expected to fluctuate on a quarterly basis due to seasonality patterns, for the first quarter of 2015 a break down by line of business as a percentage of total revenues was as follows: 59% from mobility, 25% from gaming, 11% from medical, and 5% from auto.
Mobility revenue was up 25% from the first quarter of 2014, principally due to increased device sales by our customers and higher ASPs. Gaming revenues were up 8% sequentially, but were 21% lower than the year ago period when we recognized revenue from Sony’s initial launch of its new PlayStation 4 gaming console.
Gross profit was $16.2 million or 99% of revenues compared to gross profit of $15.3 million, also 99% of revenues in the first quarter of 2014. Turning now to our operating expenses.
Excluding cost of revenue, total GAAP operating expenses were $16.2 million in the first quarter of 2015, compared to $12.4 million in the year ago period. Operating expenses in the first quarter of 2015 included noncash charges related to depreciation and amortization of $327,000 and stock based compensation of $1.7 million.
Of the non-cash charges $356,000 were included in sales and marketing, $633,000 in research and development, and $1.1 million in G&A expense. And of the stock based compensation changes, $264,000 were included in sales and marketing, $496,000 in research and development and $980,000 in G&A expense.
Litigation-related expense for the quarter was $2.4 million, up from $1.5 million in the first quarter of 2014. As anticipated, the increase in year-over-year expenses was driven primarily by heightened litigation expense we incurred as we neared the HTC trial date, as well as the investments we have made to capitalize on opportunities in China, in connection with our content initiative and other strategic areas.
At this point we believe we’ve achieved the staffing and investment levels that are appropriate to address our strategic opportunities and as Vic will discuss in more detail, are pleased with the investments that we’ve made, are already beginning to yield substantial benefits including recent details in China with Meizu, Xiaomi [ph] and Huawei, exciting new relationships with premier gaming and content companies and the establishment of internal data analytics capabilities that have enabled us to quantify the ways in which haptics can improve the engagement and performance of our customers products, services and content offerings. Further, as part of our ongoing efforts to manage our costs and preserve our scalable and profitable business model, we continue to explore tax planning structures and strategies designed to reduce our future income taxes.
Looking now are our net results, net loss for the first quarter of 2015 was $59,000, or $0.00 per share, compared to net income of $1.9 million or $0.06 per diluted share in the first quarter of 2014. Net loss for the first quarter of 2015 includes a benefit for tax expense based on an effective tax rate of 37.9%.
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 earning per share as non-GAAP net income or fully diluted share. Non-GAAP net income for the March 2015 quarter was $1.7 million or $0.06 per diluted share compared to non-GAAP net income of $3.4 million or $0.12 per diluted share for the same period last year.
Our cash portfolio including cash and short-term investments was $78.3 million as of March 31, 2015, up from $57.4 million exiting 2014. The increase was driven primarily by $21.5 million in cash generated from operations during the quarter.
During the March 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 current outlook, we are confirming our prior guidance of between $56 million and $60 million in 2015 revenues, an increase of between 6% and 13% over 2014. Assuming an effective tax rate of 35%, we continue to expect non-GAAP net income to be in the range of $4 million to $8 million, resulting in non-GAAP earnings per share of $0.13 to $0.27 assuming for calculation purposes only 30 million diluted shares outstanding.
As we consider our annual guidance, we generally expect their quarterly revenue for the remainder of the year will reflect reduced seasonality compared to prior years and that our GAAP OpEx will decrease to be approximately $13 million to $14 million per quarter, also with relatively little fluctuation between quarters. We expect that our HTC related litigation expense will be $1.5 million or less during the remainder of 2015, with the amount of this expense decreasing as the year progresses.
We anticipate that stock based compensation will be between $1.2 million and $1.4 million per quarter during the remainder of 2015. With that, I’ll turn it back over to Vic.
Vic Viegas
Thanks Paul. Q1 is always an exciting quarter for us with a number of new product introductions, and industry events driving activity around the world.
In March we participated in the Mobile World Congress trade show at Barcelona, the most important mobile industry event of the year. This year we not only demonstrated new use cases using our TouchSense products for both Mobile OEMs and content producers and distributors, but introduced our new solution and design framework for wearable OEMs.
As an innovation leader, we have been evaluating how haptics adds value and enhances the experience and usability of wearable devices for over five years. Our launch of TouchSense Core for wearables at Mobile World Congress is an excellent example of how Immersion expertise and technology work hand in hand to innovate new applications for haptics.
During MWC, we also unvalued our Instinctive Alerts Framework, a design framework that uses haptics to instinctively inform the user of how they should respond to notifications. In a wearables environment haptics is one of the most valuable technology features, communicating to users in a silent and unobtrusive manner.
Users maybe engaged in physical activities or in environments when communicating visually or through sound maybe difficult or impractical. But today tactile alerts are frequently all the same, essentially requiring a user to look at their SmartWatch or other wearable device every time an alert is received or shutoff notifications, which reduces the usability of their device.
In order to address these problems Immersion has completely re-envisioned how tactile communications can work in a wearables environment. By using consumer research to understand how users respond to notifications, we developed a set of tactile queues that quickly communicate to the user how they should respond to their incoming notification.
For example, a category we call Now This is comprised of effects that are urgent and can happen anytime; say a phone call or an alarm. These Now This effects are long and strong tactile effects designed to break the users’ concentration away from their daily activities.
Alerts that are no urgent and do not require an immediate response; for example, a text message or an email fall into the Review This category. Review This effects are crisp and short, communicating that the notification has been received, but not breaking the users’ concentration on their primary tasks.
The design intent is that as soon as a user puts on a SmartWatch, they instinctively know if they should urgently respond to notifications or if they can wait until a later time. This immediately adds value to the consumer without distracting the user or requiring memorization.
When using Immersion’s TouchSense software, OEMs have the ability to provide the type of nuanced feedback required to implement a rich communication framework for their devices. By thinking differently about how users respond to touch, and tapping into our deep experience and advanced research capabilities, we are able to add value and context from the first moment the users start wearing their device.
Because SmartWatches and other Wearables are always in contact with the user, they provide a unique opportunity to harness the sense of touch in more meaningful and emotional ways than other consumer devices. Beyond our instinctive alerts framework we also highlighted the capabilities for TouchSense effects to enhance wearable design and communications, showing demos that users feel the realistic movement of tactile watch faces, emoticons with haptic and remote touch communications, the concept of feeling a friend remotely draw messages to you, using haptics to create a sense of connection and emotion.
Also at MWC we unveiled new use cases for Mobile OEMs to enhance their device design, utilities and applications with tactile effects and highlighted those use cases on devices from our growing OEM customer base. Licensees like LG, Samsung, Huawei and our most recent licensee from China, Meizu were on display at the Immersion booth.
These demos show how a true TouchSense experience is realized when the handset uses Immersion software to create high quality tactile effects and when OEMs and content creators use Immersion tools to enhance their UIs, Apps and content with tactile effects. The Immersion presence and capabilities demonstrated at MWC are a great illustration of our role as a torch bearer for haptic technology.
Immersion provides the innovation, tools and software for the entire mobile ecosystem to realize the capability of haptics in devices, entertainment and communications. For the first time we saw as many visitors at Mobile World Congress from mobile advertising, content and gaming markets as OEM manufacturers.
Turning to content, we have made great strides in our ability to capture and market analytic data establishing the value haptics adds to various forms of content. As we’ve discussed before, we have been working hard to improve our analytic capabilities and to gather evidence that validates our early findings that haptically enhanced content is more engaging and performs better in key areas such as increased intent to purchase, higher long term recall rates and greater user engagement.
As a result of this hard work, we are increasingly able to share positive real market, AB testing results and other quantitative data with partners and potential partners and the content ecosystem. What’s even more exciting is that our efforts in this area are combining with our other content investments to create building momentum for our content initiative in the market place.
For example, the successful launch of our haptic advertising technology in connection with last year’s Homeland promotional campaign has generated interest and enthusiasm among participants in the mobile gaming markets, looking to differentiate and improve their own offerings. In the last quarter we capitalized on this heightened interest by launching our TouchSense Engage for games solution and by entering into agreements with top tier game designers who used our easy to use redesign tactile effects tools, integration software and design expertise to create haptically enhanced games.
Moreover as these compelling new haptic games, including Angry Birds Friends by Rovio and Trials Frontier by Red Lynx, a Ubisoft studio hit the market, Google launched the first ever games you can feel collection on its Google store in mid April. Now we are gathering more test evidence that shows how haptically enhanced games perform better in terms of user acquisition, levels of engagement, user retention and monetization metrics, data which position us to generate even more momentum.
Also during the quarter Immersion announced that Le TV, a leading Chinese entertainment company will be one of the first companies in China to debut tactile video experiences on a mobile device powered by Immersion technology. Le TV provides an online video platform with more than 100,000 television episodes and 5,000 movies.
Le TV will be streaming tactile movie trailers, such as the trailer for Expendables 3 to the subscribers of their Le TV video application. What is also interesting to note about Le TV is that while they built their business around the distribution of content, they are now expanding their business to provide playback devices, including mobile handsets and Smart TV’s.
This shift to own a larger part of the consumer experience is happening throughout the mobile ecosystem and it is a trend that dovetails very nicely with our unique ability to build end-to-end haptic experiences, starting with the creation and encoding of haptic content delivered through the cloud and ending with the high quality playback of haptic content and effects on our customers mobile devices. During the quarter we continue to see increased interest in haptics from customers, press and trend spotters, in part driven by the first time adoption of haptic technology by major companies such as Apple and Amazon.
As a result of products launched by these and other companies, we are experiencing heightened demand not only in product categories such as mobile devices where haptics has been prevalent for some time, but also in areas where haptic technology hasn’t been so widely used, such as in laptop touchpads. As haptics becomes a topic of heightened interest, we’ve been able to share our expertise with the broader community of influencers.
At South by South West this year, Immersion gave a standing room only talk on the power and capabilities of haptics in digital experience design. Although it’s gratifying to see Immersion accepted as an innovator at this influential event, it was just as exciting to see two additional talks devoted to haptics, one from an industry leading design and advertising agency and the other from an influential technology futurist.
As more people learn and evangelize the capabilities of haptics, we’re well positioned to benefit from the technologies raised profile and lend our expertise to the creation of rich consumer experiences. We are very excited by the appetite and market momentum we are seeing for haptics and immersion technology from device manufacturers, as well as software and content creators.
Finally, during the quarter we were pleased to enter into a settlement and license agreement with HTC Corporation, resolving the patent infringement litigation brought by Immersion against HTC, but preserving Immersion’s right to appeal the invalidity ruling affecting three of Immersion’s patents. We remain fully committed to enforcing our IP rights and this settlement represents a milestone in our basic Haptics licensing program.
In closing, with the market momentum we’re seeing, our established position as the leading experts in haptic technology and our valuable portfolio of IP and solutions to enable haptic experience, we’re well positioned to take advantage of the growing recognition of the value that haptics can bring to the digital world. We remain focused on executing our key initiatives for 2015 and achieving or exceeding our financial targets for the year.
With that said, we will now open up the call to your questions. Operator.
Operator
Thank you. [Operator Instructions] And we will take our first question from Rob Stone of Cowen & Co.
Rob Stone
Hi Vic and Paul, lots of good stuff going on. My first question is for Vic.
I wanted to ask about what you’re seeing by way of a monetization model for gaming specifically. I know you’ve pointed to a number of different ways to generate revenue and content as you talked about it overall, but a lot of these games you can feel are sort of free to play and then having now purchases and so forth, how do you drive revenue in a category like that?
Vic Viegas
Sure Rob, thank you. So for some time now we’ve been supporting content creators in the gaming space.
I think we announced previously that we are included in about over 20,000 different apps and those have been downloaded over 100 million times and so we’re able to capture and track the analytic data around the impact haptics has on that user experience. So we’re measuring retention, the benefits of ARPU, which is average revenue per daily user.
So we’re measuring this data and that’s led to the more recent adoption by some of the very large titles, we mentioned Rovio and Ubisoft. But those gaming products also are generating great and meaningful analytic data, which again continue to show the benefits that haptics brings to the experience and we believe it does have an impact on in-app purchases, average revenue metrics, retention, time spent playing games and so on and increasing the daily active user base.
So with all that information we’re gathering that data and we’re processing it and then we market that data back into the marketplace to show the value and the benefits and its having a great impact. So as we’ve said before 2015 really represents a period where we’re getting our technology deployed broadly.
We’re capturing this evidence and we’re marketing it and we believe that over time we’ll be able to monetize this. We think that that monetization opportunity starts to pick up in earnest in 2016 and we believe it will become very meaningful and a big part of our future revenue stream.
All of the opportunities are in front of us, so you can measure it on a per unit download, you can measure it on in-app purchases, a rev share model and annual subscription fee. There are a number of ways to monetize this opportunity, but key first and foremost is to prove the value to our partners that haptics makes a meaningful difference.
Rob Stone
Great, thanks. I got a couple of housekeeping questions for Paul.
One, I noticed that there was a fairly meaningful of these in percentage terms step up in PP&E. Any comment on the CapEx in the quarter, what that was for?
Paul Norris
Yes, you have sharp eyes. We’re actually investing in some furniture and tenant improvements fixtures for a space next door that we’ve managed to lease from our existing landlord at a favorable rate as we looked to expand a little bit to accommodate our footprint here.
So we’re going to be making a move in the coming months and in connection with that you’ll see the increased PP&E on the balance sheet.
Rob Stone
Okay. You mentioned I think litigation expense $1.5 million or so for the balance of the year.
Is that a quarterly figure?
Paul Norris
No, that’s for the balance of the year in total and it should be no more than that. It could be last – it maybe front end loaded so you might see something in excess of $500,000 in Q2 and then trending downward.
But again, it’s over the full remaining three quarters, not per quarter.
Rob Stone
Great, thanks. I’ll jump back in the queue.
Vic Viegas
Thank you.
Operator
And we will take our next question Josh Nichols with B. Riley.
Josh Nichols
Hi guys.
Vic Viegas
Hey Josh.
Josh Nichols
Hey. Looking at content and media, I know that’s something that a lot of people are focused on.
For mobile YouTube is one of the places where most mobile content is consumed right now and I was wondering, the company has been entering a lot of partnerships. What would it take to get haptics enabled on YouTube through the app and what kind of hurdles are there to getting that done?
Vic Viegas
So that’s clearly an opportunity that we’re thinking about and trying to take action on. One of the techniques that we try to use is a pull technique, so as we gain adoption in other content areas and by other partners, they too are asking for people within the ecosystem to provide haptic capability.
For example, pretty regularly game companies make calls into Apple to ask what their plans are to add haptics, because they are seeing the benefits and they want to see it deployed broadly across all platforms. So YouTube is just another area that we believe could be a great portal for haptic content.
You could imagine where we could integrate our SDK. With their SDK we’ll provide tools to the content community, so that haptic content could be created and then uploaded to the YouTube site or YouTube could offer it as a service, a premium service for the parties who use that area.
So a number of different things, but today we’re busy focused on engaging with all parties and again, deploying broadly and getting good solid analytic data that would meaningful to a company like YouTube.
Josh Nichols
And regarding the analytic data, are you having any issues with these partners allowing Immersion to get all this data as far as the new rates and everything else or is that information a little bit sensitive?
Vic Viegas
Yes, I would say it’s clearly an area of sensitivity. Our tools, our SDK have the ability to capture that analytic data.
Our partners also have tools and techniques that allow them to capture the analytic data. Where possible we’re asking for the analytic data to be generated and shared, so that you can mutually benefit from the knowledge and information.
In some cases we’re able to achieve that. In other cases we get some push back and we think that over time a good indicator is where a partner continues to re-up for new haptic capability and new content, because they are seeing a meaningful difference.
So it is a sensitive area. We’re having a lot of success though with the sponsorship by Google as a category and their gaming space, as well as some of these large companies now using us on hit titles.
So we’re gathering data, but it is a sensitive area and its one we negotiate kind of on a deal-by-deal basis.
Josh Nichols
Right. And then last question from me, so the companies had a few deployments now in concept and media gaming, a couple of places where they could get some good data.
As far as how much data you’re going to be able to need to really put a valid case in front of potential partners for the ROI proposition and where do you stand right now as far as what you have, how much is left to go?
Paul Norris
Well Josh, this is Paul. It becomes statistically significant pretty early on.
You don’t need too much data to begin to show that you can move the needle in various directions, whether its engagement or monetization or retention, etcetera and so I think each of our customers – so we already have enough to build a pretty solid case. We find as we go into specific relationships with say a new customer in gaming, they may have their own model of in app sales or they may be focused on their own particular metric.
So what we can do is frame out the case for them in a pretty solid way as it stands right now, but they may want to do some of their own testing initially to make sure that they are validating that in their own world and based on their own priorities. So it’s kind of an ongoing process where it takes slightly different paths depending on who you’re talking to, but it builds on itself, so that as we get more, we just have a better pool of information that establishes and regardless of what the metric is that you’re looking for, we’ll have more evidence supporting that, so that strengthens our case going in and talking to the party.
Josh Nichols
Great. Okay, thanks a lot guys.
Operator
And we will take our next question from David Williams with Ascendiant Capital.
David Williams
Hey, good afternoon guys and congrats on the quarter. Just that you guys have made several pretty exciting announcement during the quarter in relation to gaming.
I wanted to see if maybe if you could share any of the analytic data that maybe you gathered since releasing some of the haptic play or the games you can feel. Is there any kind of information that you can give us around as far as downloads or any kind of useful analytics?
Vic Viegas
I don’t think we’re in a position right now to provide that kind of information David. We’ve provided some data in the past around number of user studies, around video ads and video content where we’ve got a fairly strong and deep history of data there, and so we’ve done that.
I think the Showtime Homeland campaign was successful. They self reported I think a 500% above average click through rate and significant increase in viewership on the mobile platform, so those were publicly disclosed.
The new data coming in from all of the various parties and some of them are public. In gaming we’ve talked about, but others haven’t been made public and we’re gathering that data, but the specific data around that is something that we’re able to share.
The kind of things that we’re measuring though would be click though rate, various engagement metrics in terms of time spent in an app, the daily active users and the impact haptics has on growing that population retention metrics, first time user experience, average revenue per daily active user and average revenue per paying user. So these are just a few of the things that we’re tracking internally.
There is probably a dozen other data points that we’re also tracking, but these we think are becoming more obvious; it’s valuable to the content owner. So over time we hope to have more data, maybe provide this in a general format, the trends that we are seeing.
We are seeing a lot of positive trends, we can tell you that, but I think quantitatively the information will evolve over time because of some confidential aspects to this.
Paul Norris
One other thing I’d add too David is there’s certainly context in which you can get even better data and in particular when you can do an AB test, where you’ve got somebody to launch this, the exact same experience with and without haptics. You can really compare apples to apples there and those are the kinds of tests we’re structuring, in some cases behind the scenes as pilot programs as opposed to public launches that may get a little bit more press, but where the games are being – you just got the one version that’s up there with the haptic enhancement and it’s doing very well.
So again, we’re in this process of doing the beta programs, gathering the data and assembling it and being able to slice and dice it in different ways and as Vic pointed out, with all of those metrics we’re seeing some real uplift, so it’s pretty exciting.
David Williams
And could you give us maybe a little bit of color on how the games you can feel kind of came together with Google and then maybe if that speaks to the relationship that your building there and is this I guess the strategy, the overall strategy as that begins maybe marketing a little heavier consumer versus just the OEMs, because of their adoption that helps you further down the road.
Vic Viegas
Yes, it’s been – it wasn’t a single breakthrough one day. It was I think a series of activities showcasing the ease of use of the tool, doing demonstrations to lots of content developers and over the years we’ve been building this fan base of content creators and its really exciting to see someone who creates great content at one company leave and go to another company and bring that same energy and enthusiasm for haptics.
So we’ve been building that ground swell of support from content developers for quite a few years and its only more recently that we’re able to capture and publish some of these analytic results. Up until now it’s been more word of mouth, more particular experience that you qualitatively can capture, but now we are in a better position to quantitatively show the benefits to the content developers.
In terms of the particular category, I think there was an individual at Google who saw this trend, liked the value that haptics brought. We had an internal sales and design person who was continuing to pursue Google as a great outlet and a showcase for the haptic content.
As a category that came together quickly and that opportunity then generated lots of interests from some of these other content developers to then move either to expand their use of haptic or begin the use of their haptic and it came together kind of collectively, but it was a sustained effort and probably accelerated by the more recent proof that we have that haptic makes a meaningful difference. We hope to continue that marketing effort of capturing data and promoting it and we believe over time it will become self-fulfilling.
It clearly adds value and people are going to want to have that if they want to have a successful product.
David Williams
Great and one last one if I can here, are you seeing the same types of adoption across geographies or are you seeing similar I guess excitement levels in maybe China as you are to – what we are seeing here in the U.S.
A - Vic Viegas
Yes, I clearly would say it’s an internationally trend. A lot of the work, Rovio for example is out of Europe, you’ve got local U.S.
base companies that are promoting in their games. You’ve got a lot of interest in China and so as we’ve been investing in the Immersion infrastructure to support and promote the capability around the world, we are starting to see real trends and real interests.
And as you begin to show value in let’s say a Chinese game, it will attract the attention of other gamers and content developers, so we hope to build momentum there, likewise in Europe and the U.S. as well.
So it’s something that we think translates internationally.
Paul Norris
The other thing David I would say is that we are particularly seeing interest and enthusiasm from some of our OEMs in China as well and beginning to see the benefit of this content initiative on or core OEM business. Our customers like Xiaomi are really interested in seeing games and other forms of content that have haptics that are engaging their user base, their fan base.
So it is all sort of beginning to build on itself in a very nice way.
David Williams
Great thanks. Good luck on the quarter.
Vic Viegas
Thanks David.
Operator
[Operator Instructions] We will take our next question from Charlie Anderson with Dougherty & Company.
Charlie Anderson
Good afternoon and thanks for taking my questions. I wondered on the lack of the buyback in the quarter, if you could address that.
If that was maybe at least confirm for us that with the stock price issue we see you with lots of cash and a undervalued stock from our perspective if it was for strategic reactions, and then maybe what some of those strategic reasons would typically be that would keep you from doing a buyback in the quarter.
Paul Norris
Well Charlie, so it’s more than just a stock price, because we would agree with you. We think the price of the stock is undervalued and we think it’s a good buy.
We have been building our cash reserves and we continue to monitor it against market trends and strategic initiatives and factors. So I’d say during the quarter there was uncertainly around HTC and the need to pursue and continue litigation; that’s settled.
We are happy with that outcome. But having plenty of cash on the balance sheet is important not only in terms of potential future litigation, but also to hopefully reduce the chances of future litigation by providing a strong balance sheet which helps us in our licensing initiatives.
So I don’t think you should measure it as if we aren’t buying, we think the stock is fully valued. I think it has more to do with management of cash and the balance of the strategic direction we are headed.
Charlie Anderson
Perfect. Then as it relates to the HTC settlement, I know that came after your initial guidance.
I know you said it was not material, but it will contribute something and I was wondering just maybe timing, did it impact the quarter at all and do you have all the information still or is there still some unknowns associated with that as it relates to the rest of the year. Just any color there would be helpful.
Vic Viegas
Sure, so I would say HTC did not have a direct impact on the quarter other than it was a contributor to the increase spending because of the litigation. But in terms of the results of the lawsuit and settlement, there was no impact on the quarter.
We are obviously really happy to have it resolved. Spending should go down substantially as Paul has mentioned and we are excited to add them as a new licensee.
When you look at the deal, there is some revenue recognition complexity around the amounts recognized. Some will be recognized as a contra expense, and then licensing revenue then will be recognized under the terms of the license.
So we think it will began having an impact in Q2 and continuing to have an impact in future quarters. We don’t see any of those amounts as being material in any of those periods, unless potentially if HTC picks up business and grows substantially, that may have a different impact, but today we don’t see it as a significant impact.
Charlie Anderson
Got it. And then last one from me.
Now we have a very high profile product out in the market with the Apple Watch using effectively haptics and I wonder from your advantage point now that it’s out there and you have app developers building apps that may take advantage of what they found, the haptics engine. Just generally speaking, since it’s out your view on future licensing opportunities as it relates there and then also the impact of the ecosystem.
Vic Viegas
Well, we are not exactly sure the way that Apple will deploy the capability, whether they will open up the platform to third party developers. We believe it will ultimately occur, but we are not sure of exactly a timing.
We’d like to be in a position to provide support and tools and capability to those developers, so that they can create great content that would take advantage of the hardware capacity on the Apple platform. So not much I can say in terms of the impact directly with the Apple ecosystem.
I can say that it’s having a substantial impact on the Android community and the other OEMs in the marketplace. They are all at various levels of deploying haptic capability.
Some are accelerating their interest and investments; some are continuing what has been a long and sustained investment in this space. So we are feeling good about that.
We think our use of haptics on the MacBook platform and a touchpad has generated a lot more interest from the laptop community. So we’ve been in that space for quite some time and have a lot of capability that we are planning to bring to that market.
So everything that Apple is doing is having a positive impact on our business. Specific activities direct with Apple or their ecosystems, not something I can cover at this time.
Charlie Anderson
Great, thank you so much.
Vic Viegas
Thanks Charlie.
Paul Norris
Thanks Charlie.
Operator
And this does conclude today’s question and answer session. I will turn the call back to management for any addition or closing remarks.
Vic Viegas
Well, thank you all for being on the call with us today and as always, we look forward to updating you again on our next quarterly call. Good day.
Operator
And this does conclude today’s conference call. Thank you again for your participation and have a wonderful day.