Immersion : Quarterly Report for Quarter Ending July 31, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The forward-looking statements involve risks and uncertainties. Forward-looking statements are frequently identified by words such as "anticipates", "believes", "expects", "intends", "may", "can", "will", "places", "estimates", and other similar expressions. However, these words are not the only way we identify forward-looking statements. Examples of forward-looking statements include among other things, any expectations, projections, or other characterizations of future events, or circumstances, and include statements regarding: our strategy and our ability to execute our business plan; our competition and the market in which we operate; our customers and suppliers; our revenue and trends related thereto, and the recognition and components thereof; our costs and expenses, including capital expenditures; our investment of surplus funds and sales of marketable securities seasonality and demand; our investment in research and technology development; changes to general and administrative expenses; our foreign operations and the reinvestment of our earnings related thereto; our investment in and protection of our intellectual property ("IP"); our employees; capital expenditures and the sufficiency of our capital resources; unrecognized tax benefit and tax liabilities; the impact of changes in interest rates and foreign exchange rates, as well as our plans with respect to foreign currency hedging in general; changes in laws and regulations, including with respect to taxes; our plans and estimates related to and the impact of current and future litigation and arbitration and our dividend, stock repurchase and equity distribution programs.

Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Actual results could differ materially from those projected in the forward-looking statements, and therefore, we caution you not to place undue reliance on these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the risk factors contained under Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended April 30, 2025, filed with the Securities and Exchange Commission (the "SEC") on March 12, 2026, as amended on March 13, 2026, Part I, Item 1A, "Risk Factors" in Barnes & Noble Education's Annual Report on Form 10-K for the fiscal year ended May 2, 2025 filed with the SEC on December 23, 2025, and in Part II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q.

Any forward-looking statements made by us in this report speak only as of the date of this report, and we do not intend to update these forward-looking statements after the filing of this report, unless required to do so by applicable law or regulation. You are urged to review carefully and consider our various disclosures in this report and in our other reports publicly disclosed or filed with the SEC that attempt to advise you of the risks and factors that may affect our business.

COMPANY OVERVIEW

Immersion Corporation ("Immersion") was incorporated in 1993 in California and reincorporated in Delaware in 1999. In this Management's Discussion and Analysis of Financial Condition and Results of Operations the terms "Company," "us," "we," or "our" refer to Immersion and its consolidated subsidiaries. Immersion generates license and royalty revenues from a wide range of IP that more fully engage users' sense of touch when operating digital devices. We focus on the following target application areas: mobile devices, wearables, mobile entertainment, console gaming, and automotive.

On June 10, 2024, we acquired a controlling interest in Barnes & Noble Education, Inc., a Delaware corporation ("Barnes & Noble Education"). Please refer toNote 4. Business Combinationfor additional information. The financial results of Barnes & Noble Education have been included in our Condensed Consolidated Financial Statementsfrom the acquisition date of June 10, 2024.

Following June 10, 2024, we operate our business in two operating segments: Immersion and Barnes & Noble Education.

The financial information presented in this Quarterly Report on Form 10-Q includes the financial information of Barnes & Noble Education for the 13 weeks ended August 2, 2025.

RESULTS OF OPERATIONS

Immersion

Immersion generates license and royalty revenues from a wide range of IP that more fully engage users' sense of touch when operating digital devices. We focus on the following target application areas: mobile devices, wearables, mobile entertainment, console gaming and automotive.

We have adopted a business model under which we offer licenses to our patented technology to our customers and offer our customers enabling software, related tools and technical assistance related to integrating our patented technology into our customers' products or enhance the functionality of our patented technology. Our licenses enable our customers to deploy haptic-enabled devices, content and other offerings, which they typically sell under their own brand names. We and our wholly-owned subsidiaries hold more than 400 issued or pending patents worldwide as of July 31, 2025. Our patents cover a wide range of digital technologies and ways in which touch-related technology can be incorporated into and between hardware products and components, systems software, application software, and digital content.

A summary of our results of operation for the three months ended July 31, 2025, and July 31, 2024, is as follows (in thousands, except for percentages):

Revenues

Immersion revenue is primarily derived from fixed fee license agreements and per-unit royalty agreements. Royalty and license revenue is composed of per unit royalties earned based on usage or net sales by licensees and fixed payment license fees charged for our IP and software.

Fixed fee license revenue decreased in the first quarter of the current year by $44.6 million, compared to the comparable period of the prior year, primarily due to a decrease in mobility license revenue as a result of the one-time perpetual license agreements entered in the first quarter of the prior year.

Per-unit royalty revenue remained relatively flat for the three months ended July 31, 2025, compared to the three months ended July 31, 2024.

Geographically, revenues generated in Asia, North America, and Europe for the three months ended July 31, 2025 represented 68%, 5%, and 27%, respectively, of our total revenue as compared to 98%, 0%, and 2%, respectively, for the three months ended July 31, 2024. Revenue varies significantly from period to period due to the timing and geographic location of the company that executes the agreements.

Operating Expenses

A summary of operating expenses for the three months ended July 31, 2025 and July 31, 2024, is as follows (in thousands, except for percentages):

Selling and administrative expenses- Our selling and administrative expenses primarily consisted of employee compensation and benefits including stock-based compensation, legal and other professional fees, external legal costs for patents, office expense, travel, and facilities costs.

Selling and administrative expenses decreased $9.7 million in the three months ended July 31, 2025 as compared to the three months ended July 31, 2024 primarily due to a $3.5 million decrease in compensation, benefits and other personnel related costs, as well as a $5.6 million decrease in legal costs. The decrease in compensation, benefits and other personnel related costs is largely attributable to a decrease in variable compensation. The decrease in legal costs was primarily due to expenses incurred in the prior-year period related to the settlement of patent litigation that did not recur in the current period.

Barnes & Noble Education

Barnes & Noble Education is one of the largest contract operators of physical and virtual bookstores for college and university campuses and K-12 institutions across the United States. Barnes & Noble Education is also a textbook wholesaler, and bookstore management hardware and software provider. Barnes & Noble Education operates 1,143 physical and virtual bookstores, delivering essential educational content and general merchandise within a dynamic omnichannel retail environment.

The Barnes & Noblebrand (licensed from Barnes & Noble Education's former parent) along with its subsidiary brands, BNC and MBS, are synonymous with innovation in bookselling and campus retailing, and are widely recognized and respected brands in the United States. Barnes & Noble Education's large college footprint, reputation, and credibility in the marketplace not only support its marketing efforts to universities, students, and faculty, but are also important to its relationship with leading publishers who rely on Barnes & Noble Education as one of their primary distribution channels.

Seasonality

Barnes & Noble Education's business is highly seasonal, particularly with respect to textbook sales and rentals, with the major portion of sales and operating profit realized during the second and third fiscal quarters when college students generally purchase and rent textbooks for the upcoming semesters and lowest in the first and fourth fiscal quarters. Barnes & Noble Education's quarterly results also may fluctuate depending on the timing of the start of the various schools' semesters, as well as shifts in Barnes & Noble Education's fiscal calendar dates. These shifts in timing may affect the comparability of Barnes & Noble Education's results across periods.

Given the growth ofBNC First Day® affordable access course material programs, the timing of cash collection from the school partners may shift to periods subsequent to when the revenue is recognized. When a school adopts Barnes & Noble Education'sBNC First Day® affordable access course material offerings, cash collection from the school generally occurs after the institution's drop/add dates, which is later in the working capital cycle, particularly in the third quarter given the timing of the Spring Term and Barnes & Noble Education's quarterly reporting period, as compared to direct-to-student point-of-sale transactions where cash is generally collected during the point-of-sale transaction or within a few days from the credit card processor. As a higher percentage of Barnes & Noble Education's sales shift to BNC First Day®affordable access course material offerings, Barnes & Noble Education is focused on efforts to better align the timing of its cash outflows to course material vendors and cash inflows from collections from schools. As the concentration of digital product sales increases, revenue will be recognized earlier during the academic term as digital textbook revenue is recognized upon delivery of the digital content compared to: (i) the rental of physical textbooks where revenue is recognized over the rental period; and (ii) a la carte courseware sales where revenue is recognized when the customer takes physical possession of Barnes & Noble Education's products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of products by Barnes & Noble Education customers for products ordered through its websites and virtual bookstores.

A summary of Barnes & Noble Education's results of operations for the three months ended July 31, 2025 and for the period from June 10, 2024 to July 31, 2024, is as follows (in thousands):

Revenues

Barnes & Noble Education primarily derives its revenues from sale of course materials, which include new, used, rental and digital textbooks. Additionally, at college and university bookstores which Barnes & Noble Education operates, it sells general merchandise, including emblematic apparel and gifts, trade books, computer products, school and dorm supplies, convenience and cafe items and graduation products. Barnes & Noble Education's rental income is primarily derived from the rental of physical textbooks. Barnes & Noble Education also derives revenue from other sources, such as sales of bookstore management, hardware and point-of-sale software, and other services.

Total revenue was $288.2 million during the three months ended July 31, 2025, primarily consisting of $274.2 million product and other sales and $14.0 million of rental sales. Total revenue was $135.1 million during the period from June 10, 2024, to July 31, 2024, primarily consisting of $130.1 million product and other sales and $4.9 million of rental sales. The largest factor impacting the increase in revenues of $153.1 million in the first quarter of the current year compared to the prior year period of June 10, 2024 to July 31, 2024 is that the prior year period had 41 fewer lower days (approximately 45% shorter), representing approximately $118 million of lower revenues calculated on a linear basis. The remaining revenue increase in the current year first quarter revenue from the prior year period is primarily due to growth in the BNC First Dayprograms of $33 million.

Cost of sales

Barnes & Noble Education cost of sales primarily includes costs such as merchandise costs, textbook rental amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to its college and university contracts and other facility related expenses. The cost of sales for the first quarter of the current year was 81% of total revenue which was flat with the cost of sales for the prior year period of June 10, 2024 to July 31, 2024 also at 81%. of total revenue.

Selling and administrative

Barnes & Noble Education selling and administrative expenses consist primarily of employee payroll and store operating expenses. Selling and administrative expenses also include long-term incentive plan compensation expense and general office expenses, such as merchandising, procurement, field support, and finance and accounting. The selling and administrative expenses in the first quarter of the current year were $67.8 million or $31.5 million higher than the prior year period of June 10, 2024 to July 31, 2024 expenses of $36.3 million. The largest factor impacting the significant increase in selling and administrative expenses in the first quarter of the current year compared to the prior year period is that the prior year period had 41 fewer days (approximately 45% shorter) representing approximately $30 million of lower expenses calculated on a linear basis. The remaining higher selling and administrative expenses in the first quarter of the current year compared to the prior year period is primarily due to an increase in employee incentive plan expenses partially off set by lower payroll and related operating expenses.

Depreciation and amortization

Barnes & Noble Education depreciation and amortization expense consisted primarily of depreciation and amortization expense for property and equipment and intangible assets. Depreciation and amortization in the first quarter of the current year was $10.4 million or $5.1 million higher than the prior year period of June 10, 2024 to July 31, 2024 expenses of $5.3 million. The largest factor impacting the increase in depreciation and amortization in the first quarter of the current year compared to the prior year period, is that the prior year period had 41 fewer days (approximately 45% shorter), representing approximately $5.9 million of lower estimated depreciation and amortization expenses calculated on a linear basis. The remaining estimated net decrease in the first quarter of the current year depreciation and amortization is primarily due closed stores and lower capital additions partially offset by additional depreciation based on the third-party valuation of the fair value of the property and equipment. The fair value as of the Closing Date reflects a step-up in basis due to the highly depreciable nature of the property and equipment.

Restructuring and other charges

During the three months ended July 31, 2025, Barnes & Noble Education recognized restructuring and other charges totaling $2.9 million comprised of investigation-related and impairment costs. During the three months ended July 31, 2024, Barnes & Noble Education recognized restructuring and other charges totaling $5.0 million, comprised primarily of $2.0 million of severance primarily related to the resignation of the former Chief Executive Officer on June 11, 2024, $1.1 million related to severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction initiatives and $0.5 million for legal and advisory professional service costs for restructuring and process improvements and other charges. Barnes & Noble Education recognized an increase to additional paid in capital on the Condensed Consolidated Balance Sheetfor the reimbursement of the former Chief Executive Officer severance from VitalSource (a principal stockholder) as part of the June 10, 2024 financing transactions.

Interest and other income (expense), net; Interest expense; and Income tax benefit (expense)

A summary of consolidated interest and other income (expense), net, interest expense, and income taxes for the three months ended July 31, 2025 and July 31, 2024 are as follows (in thousands, except for percentages):

Interest and other income (expense), net- Interest and other income (expense), net consists primarily of interest and dividend income from cash and cash equivalents and marketable debt and equity securities, realized and unrealized gains (losses) on our marketable equity securities, and derivative instruments and realized gains (losses) on our marketable debt securities.

Interest and other income (expense), net decreased $3.0 million during the three months ended July 31, 2025, compared to the three months ended July 31, 2024, primarily due to net gains for the three months ended July 31, 2024 from investments in marketable equity securities and derivative instruments and a $0.3 million increase in interest income.

Interest expense, interest expenses primarily consisted of interest charges related to Barnes & Noble Education's credit facility. Interest expense decreased primarily due to the June 10, 2024 debt financing transaction, lower borrowings, and lower interest rates.

Income tax benefit (expense), the changes in the provision for income taxes are described below:

Immersion

Provision for income taxes for the three months ended July 31, 2025 resulted primarily from estimated domestic and foreign taxes included in the calculation of the effective tax rate. We maintain no valuation allowance against our U.S. federal deferred tax assets and maintain valuation allowance against certain U.S. state and Canadian federal deferred tax assets. The estimated effective tax rate was mainly driven by higher U.S. taxable income which was a result of higher U.S. passive income.

The year-over-year change in provision for income taxes resulted primarily from the change in income from continuing operations across various tax jurisdictions.

In the event that we determine the deferred tax assets are realizable based on an assessment of relevant factors, an adjustment to the valuation allowance may increase income in the period such determination is made. The valuation allowance does not impact our ability to utilize the underlying net operating loss carryforwards.

We also maintain liabilities for uncertain tax positions. As of July 31, 2025, we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $13.3 million, of which $11.7 million could be payable in cash. In addition, interest and penalty of $1.0 million could also be payable in cash in relation to unrecognized tax benefits. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $12.7 million. We account for interest and penalties related to uncertain tax positions as a component of income tax provision. We do not expect to have any significant changes to unrecognized tax benefits during the next twelve months.

Barnes & Noble Education

Barnes & Noble Education recorded an income tax benefit of $8.6 million on pre-tax loss of $26.9 million during the three months ended July 31, 2025, which represented an effective income tax rate of 32.1%.

In assessing the realizability of the deferred tax assets, management considered whether it is more likely than not that some or all of the deferred tax assets would be realized. As of July 31, 2025, Barnes & Noble Education determined that it was more likely than not that it would not realize all deferred tax assets and its tax rate for the current fiscal year reflects this determination. Barnes & Noble Education will continue to evaluate this position.

LIQUIDITY AND CAPITAL RESOURCES

Our cash equivalents, investments - current and investments - noncurrent consist primarily of money-market funds, investments in marketable equity and debt securities and investments in U.S. treasury securities. All marketable securities are stated at fair value. Realized gains and losses on marketable equity securities and marketable debt securities are recorded in Interest and other income (expense), neton the Condensed Consolidated Statements of Operations. Unrealized gains and losses on marketable equity securities are reported as Interest andother income (expense), neton ourCondensed Consolidated Statement of Operations.Unrealized gains and losses on marketable debt securities reported as a component of Accumulated other comprehensive income (loss)on our Condensed Consolidated Balance Sheets.

Cash, cash equivalents, and investments-current - As of July 31, 2025, our cash, cash equivalents, and investments-current totaled $167.5 million, a $6.1 million increase from $161.4 million on April 30, 2025. In addition, as of July 31, 2025, we had restricted cash of $15.0 million.

A summary of select cash flow information for the three months ended July 31, 2025 and July 31, 2024 are as follows (in thousands):

Cash provided by (used in) operating activities- Our operating activities primarily consists of net income adjusted for certain non-cash items including depreciation and amortization, stock-based compensation expense, loss on disposal of property and equipment, deferred income taxes, net (gains) losses on investments in marketable securities, and the effect of changes in operating assets and liabilities.

Net cash provided by (used in) operating activities was $(61.7) million for the three months ended July 31, 2025, a $52.7 million decrease compared to the three months ended July 31, 2024. This cash decrease was primarily due to the timing of payables to vendors for inventory purchases and expenses, offset by increase in Textbook inventory in preparation for Fall rush.

Cash provided by (used in) investing activities- Our investing activities primarily consist of purchases of marketable securities and other investments and proceeds from disposal of marketable securities and other investments; proceeds from issuance of derivative instruments; payments made to settle derivative instruments; and purchases of property and equipment.

Net cash provided by (used in) investing activities was $9.2 million for the three months ended July 31, 2025, an increase of $27.7 million compared to the prior year period, primarily due to the absence of business acquisitions in the current period.

Cash provided by (used in) financing activities- Our financing activities primarily consist of payments of dividend, proceeds from and repayments of credit facility and cash paid for repurchases of our common stock.

Net cash provided by (used in) financing activities during the three months ended July 31, 2025 was $65.4 million primarily consisting of $163.3 million proceeds from borrowing under Barnes & Noble Education's credit facility and $96.4 million in debt repayment and $1.5 million in shares withheld for payroll taxes.

Total cash, cash equivalents, and short-term investments were $167.5 million as of July 31, 2025 of which approximately 20%, or $33.1 million, was held by our foreign subsidiaries and subject to repatriation tax effects.

Immersion Dividends Declared and Dividend Payments

We may continue to invest in, protect, and defend our extensive IP portfolio, which can result in the use of cash in the event of litigation.

On December 29, 2022, the Board approved a stock repurchase program of up to $50.0 million of our common stock for a period of up to twelve months (the "December 2022 Stock Repurchase Program"), which terminated and superseded the stock repurchase program that had been approved by the Board on February 23, 2022. Any stock repurchases may be made through open market and privately negotiated transactions, at such times and in such amounts as management deems appropriate, including pursuant to one or more Rule 10b5-1 trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. Additionally, the Board authorized the use of any derivative or similar instrument to effect stock repurchase transactions, including without limitation, accelerated share repurchase contracts, equity forward transactions, equity option transactions, equity swap transactions, cap transactions, collar transactions, naked put options, floor transactions or other similar transactions or any combination of the foregoing transactions. The December 2022 Stock Repurchase Program does not obligate us to repurchase any dollar amount or number of shares, and the program may be suspended or discontinued at any time. The December 2022 Stock Repurchase Program has been amended various times and the most recent amendment extended the expiration date to December 29, 2026.

During the three months ended July 31, 2025, the Company did not purchase shares under the stock repurchase program. As of July 31, 2025, the Company had $40.6 million available for repurchase under the December 2022 Stock Repurchase Program.

As of the date of this Quarterly Report on Form 10-Q, we believe we have sufficient capital resources to meet our working capital needs for the next twelve months and beyond.

CRITICAL ACCOUNTING ESTIMATES

Our policies regarding the use of estimates and other critical accounting policies are consistent with the disclosures in Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the fiscal year ended April 30, 2025.

Recent Accounting Pronouncements

SeeNote 2. Basis of Presentation and Summary of Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statementsfor information regarding the effect of new accounting pronouncements on our financial statements.