Mar 2, 2017
Executives
Jennifer Jarman - The Blueshirt Group Vic Viegas - President and CEO Nancy Erba - CFO
Analysts
Charlie Anderson - Dougherty & Company Josh Nichols - B. Riley and Company James Medvedev - Cowen and Company Matthew Galinko - Sidoti
Operator
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.
Jennifer Jarman
Thank you, Carrie. Good afternoon and thank you for joining us today on Immersion’s fourth quarter and fiscal 2016 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 is 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 most recent Form 10-Q 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 will now turn the call over to Chief Executive Officer, Vic Viegas. Vic?
Vic Viegas
Thanks Jennifer, and 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 will turn the call over to Nancy to review our fourth quarter and fiscal 2016 financial results and outlook. Nancy?
Nancy Erba
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 on licenses of $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 fixed payment licensees 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% for medical. Looking at year-over-year trends, mobility revenue 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 by 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 an 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 of $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 ASC 740 for income taxes, we assess 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 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 the only objective 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 to be 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 utilize our deferred tax assets in the future and most importantly, it does not reflect our long-term financial outlook for 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 defined 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 dilutive 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 a lesser extent decreased revenue from gaming. Of these amounts variable royalties totaled $25.6 million in 2016 and fixed 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, our breakdown by line of business as a percentage of total revenues was as follows; 57% for 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 $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 considerations, 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 are currently expecting 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 from 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.
Vic Viegas
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 see the market with new used 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 in 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've had a number of positive customer, product and market announcements that I'd like to call your attention to.
We completed an early renewal of our agreement with LG for TouchSense technology and basic haptics patent license. LG has been a licensee since 2006 and as a strategic customer across their mobile and wearables product offerings.
Additionally, we renewed agreements with mobile OEM's Meitu and Gionee. We entered into a multi-year licensing agreement with Grayhill, a designer and manufacturer of intuitive human interface components and custom solutions.
We announced a multi-year 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 the 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'd like to walk you through an update on each of these areas. In 2016, we 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 OEM's 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 gain 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 non-visual feedback mechanism for wearable devices whether in smart watches, sports watches or fitness bands. 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 early efforts with rumble on the Sony Playstation and Microsoft Xbox console platforms to our most recent multi-year agreement with Nintendo on their new Nintendo switch platform.
Our work with game developers has allowed us to build partnerships with third-party peripheral 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 and vehicles become 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.
Now -- 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 IPRs with the Patent and Trademark Office, challenging the validity of all of the seven patents in the litigation.
At this point, of the nine IPRs, two have been instituted by 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 IPRs in the coming months and the remainder in August 2017.
Finally, we expect the Patent and 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 and our position and our ability to reach an outcome that will appropriately compensate us for our innovations and resulting in patent portfolio.
Finally, we recently announced that we have entered into a cooperation agreement with VIEX 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 VIEX’s independent nominee, Daniel P.
McCurdy at the company's 2017 annual meeting of stockholders on Friday June 2nd, 2017. Additionally, Immersion has also agreed to submit to a stockholder vote a binding proposal to declassify the board of directors.
We are 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 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 plus 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 and IP increasingly will be recognized as a must have by existing and new customers leading to measurable value creation and growth in 2017 and beyond.
With that said, and as we close out the year, I'd 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
[Operator Instructions] We'll take our first question from Charlie Anderson with Dougherty & Company.
Charlie Anderson
Yeah. Thanks for taking my questions.
I just wanted to start with maybe the litigation expense, you guys mentioned 18 million to 22 million in ’17. Can you remind us what it was for the full year of ’16 and then Q4 as well?
And then you mentioned that Q1 is going to be the largest OpEx, is that primarily driven by litigation. I wondered if you could frame for us how much of that 18 million to 22 million occurs in Q1 just so we don’t get our models wrong here.
Nancy Erba
Yeah. 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 will hit more heavily in Q1.
Charlie Anderson
Okay. Got it.
And then are you guys, is this 18 to 22, I mean, we’re assuming this is mostly Apple and the IPRs or you’re also reserving some amount for potential other litigation, any color there would be helpful?
Nancy Erba
I mean, certainly, we have a legal strategy that we're executing to. We’re not going to break down what's included or not included in that 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.
Charlie Anderson
Perfect. And then a question for Vic.
Vic, I don't know if I've seen more consolidation in IP than 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 available to you here beyond the litigation strategy, are there partnering activities, are there other things you could potentially do here to help along with your strategy?
Thanks so much.
Vic Viegas
Sure. Yeah.
There's quite a few options that we have. We're 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 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 a lawsuit. There are a lot of other strategic options available and we're going to continue to consider those as we move through 2017 and beyond.
Charlie Anderson
All right. And then just one quick housekeeping on tax rate for ’17 with what happened in Q4, is there any change to the tax rate?
Nancy Erba
Yes. Given the valuation allowance, we’ll probably what I'm going to guide you to as a just a nominal expense that will be our cash tax, so you can think of somewhere in the 5% range.
Operator
And we'll take our next question from Josh Nichols with B. Riley and Company.
Josh Nichols
Yeah. Thanks for taking my question.
Real quick, just want to go over one or two of the underlying assumptions. Just really wanted to know what's included in guidance.
It's already been inked, but more importantly really what's in guidance that’s kind of still on the come at this point?
Vic Viegas
The guidance we're providing, the 38 to 42, we see that as kind of our core business. The bulk of that is signed agreements, however, some of those agreements call for a 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, but we have a lot of confidence in that that core number 38 to 42.
We think there's still plenty of upside to that tied to the pipeline that I referred to. There is obviously Sony and Motorola stand out 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.
Josh Nichols
Right. So any revenue you received from Sony regarding US controllers or Motorola if you were to get a license that would just be upside to the current guidance, correct?
Vic Viegas
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’ve not renewed the agreement with Motorola.
So we're still trying to work through those, but either of those could continue in some form of enforcement where we hope to have those resolved and become revenue in 2017.
Josh Nichols
Great. And then historically, I know the company has been able to significantly increase mobile license fees whenever a lot of these agreements came up for renewal, but now that the market is getting a little bit more mature on the mobile front, is that still the case as haptics usage has kind of proliferated throughout most of the platforms or are we reaching a more steady state matured phase where longer term license agreements might be signed with maybe less increases than before whenever not as many devices used haptics?
Nancy Erba
I think you need to think about the continued innovation that's happening, so the technology and the licensing that is occurring isn't on the same technology that was in existence in the time period that you're referencing. So we continue to grow our portfolio, as you know, we’re the leader we believe in pressure and that will garner, that would give us the ability to continue on that trajectory where the royalty rates are increasing over time.
Vic Viegas
Josh, I'd also add that the value of haptics is growing substantially and so we do pass along those increases. And the value is generated through richer experiences, whether it's social media gaming, 360 video, these are applications features that people are asking for.
We're developing solutions for and therefore we're providing more value. So we're not at the early introductory phase anymore, we’re not heavily discounting prices.
We're at a truer value of our deals, but we're still able to pass along some increase in the pricing.
Josh Nichols
Thanks for clarifying that. And then last question, I believe you mentioned you're still in a standstill agreement with Samsung and that expires sometime this year, but you haven't mentioned exactly when?
Was it still the case?
Vic Viegas
That’s correct. Yeah.
That’s still the case.
Operator
[Operator Instructions] We'll take our next question from James Medvedev with Cowen and Company.
James Medvedev
So let me just start with, I want to make sure I’ve got the math right on this. The 60 -- in terms of expenses, it’s 60 million to 63 million gap minus share based compensation and then plus on the order of $20 million for litigation.
That’s the expense sort of situation for 2017, is that about right?
Nancy Erba
Yes.
James Medvedev
Okay. I just want to make sure I got 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.
Nancy Erba
The seasonality has historically been Q4 and Q1 are heavier weighted for our revenue, just given our tightness to the gaming market and mobile in terms of their seasonality of sales. So you can -- I would expect that to be about the same this year as well.
Vic Viegas
And Jim, I think on the guidance for 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.
James Medvedev
Okay. Understood.
And that's of course as soon as things are wrapped up, assuming they get wrapped up, I guess we will just see 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 before you take the tax allowance?
Nancy Erba
It actually has two parts. It’s actually a 12 quarter and then about a year or two, 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 that we’re in, but we had to include all of the expense.
So really about what weighed the decision that we made to go with the full valuation allowance this quarter.
James Medvedev
Okay. And just can you tell us how much NOLs, what's the total of the NOLs federal, state, foreign?
Nancy Erba
So I don’t have that in front of me. I could get that for you later, but I don’t have that in front to me.
James Medvedev
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?
Vic Viegas
No. I don’t think it’s reflective of our long term growth opportunities.
I think it's taking a snapshot of where we're at, given some of the uncertainty that we have with Apple, Samsung, Sony and Motorola. We are building a base a business, obviously LG’s renewals, Meitu, Gionee, Nintendo, those are all adding to existing customers and an existing base of business, but right now, we're 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 that once we've established that, that will get us back to a base of business that then can grow based on success in 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've kind of taken a step back, given some of the pushback from a few of these companies.
Operator
[Operator Instructions] And we'll take our next question from Matthew Galinko with Sidoti.
Matthew Galinko
Hey, good afternoon, guys. 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?
Vic Viegas
Yeah. 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.
So it's a great preview feature for the service and 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're getting lots of interest from not only the ad agencies, but the creative and brands to add haptics because of the measurable improvement it has in a lot of the retention and engagement metrics. So it's one piece of the overall solution, having the cloud delivery capability gives us the ability to deliver optimized experiences based on 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. So we're excited by the advances that we have made recently in this space.
Matthew Galinko
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?
Vic Viegas
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. So we're building out that capability and offering a wider suite of solutions to a broader audience of mobile ads.
So we're still making the investments, not only on the technical side, but then also on the market facing side in terms of building out our sales and our market support teams to engage their customers to build this very exciting new opportunity for us.
Matthew Galinko
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?
Vic Viegas
Yeah. We see continued growth at 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 teams.
So still making good investments. We're seeing the results of those investments and believe that continued investment is still appropriate.
Operator
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.
Vic Viegas
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.
Operator
This concludes today's call Thank you for your participation. You may now disconnect.