Quarterly Report for Quarter Ending July 31, 2026 (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," "plans," "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 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, 2026, filed with the Securities and Exchange Commission (the "SEC") on July 24, 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, 2026, filed with the SEC on July 9, 2026, 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

Description of Business

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, consumer, mobile entertainment and other content, console gaming, automotive, medical, and commercial.

On June 10, 2024, we acquired a controlling interest in Barnes & Noble Education, Inc., a Delaware corporation ("Barnes & Noble Education"). Please refer to Note 3. Business Combination in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2026, for additional information. The financial results of Barnes & Noble Education have been included in our Condensed Consolidated Financial Statements from 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 condensed consolidated financial statements reflect the consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States ("GAAP"). The results of operations reflected in the condensed consolidated financial statements are presented on a consolidated basis. All material intercompany accounts and transactions have been eliminated in consolidation.

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 1, 2026 and August 2, 2025.

RESULTS OF OPERATIONS

Immersion

Immersion generates license and royalty revenue from a broad portfolio of intellectual property designed to enhance users' sense of touch when interacting with digital devices. The Company focuses on the following target application areas: mobile devices, wearables, consumer, mobile entertainment and other content, console gaming, automotive, medical, and commercial. The Company licenses its patented technology to customers that integrate the technology into their products to enhance functionality. These licenses allow customers to offer haptic-enabled devices, content, and other products, which they typically market under their own brand names.

As of July 31, 2026, the Company and its wholly-owned subsidiaries held approximately 300 issued or pending patents worldwide. These patents cover a broad range of digital technologies and methods for incorporating touch-related technology across hardware products and components, systems software, application software, and digital content.

The following is a summary of our results of operation for the three months ended July 31, 2026 and 2025 (in thousands, except for percentages):

Revenues

Immersion generates revenue primarily from fixed-fee license agreements and per-unit royalty arrangements. Royalty and license revenue includes per-unit royalties based on licensees' usage or net sales, as well as fixed license fees for the Company's intellectual property and software.

For the three months ended July 31, 2026, fixed-fee license revenue increased by $0.1 million or largely flat when compared with the same period in the prior year.

Per-unit royalty revenue was relatively flat for the three months ended July 31, 2026, decreasing $0.2 million compared with the same period in the prior year.

For the three months ended July 31, 2026, revenue generated in Asia, North America, Europe and Africa, represented 67%, 29%, 1% and 3% of total revenue, respectively, compared with 68%, 5%, 27%, and 0%, respectively, in the prior-year period. Revenue may vary significantly from period to period based on the timing of agreements and the geographic location of the contracting entity.

Operating Expenses

The following is a summary of operating expenses for the three months ended July 31, 2026 and 2025 (in thousands, except for percentages):

Selling and administrative expenses primarily consist of employee compensation and benefits (including stock-based compensation), legal and other professional fees, external patent related legal costs, office expenses, travel, and facilities costs.

For the three months ended July 31, 2026, selling and administrative expenses decreased by $0.2 million compared with the same prior year period primarily due to lower stock-based and variable compensation.

Barnes & Noble Education

Description of Business

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 one of the largest textbook wholesalers, and inventory management hardware and software providers. Barnes & Noble Education operates 1,062 physical and virtual bookstores, delivering essential educational content and general merchandise within a dynamic omnichannel retail environment.

The strengths of its business include the ability to compete by developing new products and solutions to meet market needs, its large operating footprint with direct access to students and faculty, and well-established, deep relationships with academic partners and stable long-term contracts and well-recognized brands. Barnes & Noble Education provides product and service offerings designed to address the most pressing issues in higher education, including affordable access, enhanced convenience and improved affordability through innovative course material delivery models designed to drive improved student experiences and outcomes. Barnes & Noble Education offers the BNC First Day® affordable access course material programs, consisting of First Day Complete and First Day, which provide faculty-required course materials on or before the first day of class at below market rates, as compared to the total retail price for the same course materials if purchased separately (a la carte), and students are billed the below market rate directly by the institution as a course charge or included in tuition. These programs have allowed Barnes & Noble Education to reverse historical long-term trends in course materials revenue declines, which has been observed at those schools where such programs have been adopted, and improve predictability of future results. Barnes & Noble Education continues to see strong institutional interest in First Day Complete® and First Day® programs, reflecting an ongoing shift by colleges and universities toward affordable access course material models that increase student participation and improve access to required course materials.

Barnes & Noble Education expects to continue to introduce scalable and advanced solutions focused largely on the student and customer experience, expand the e-commerce capabilities and accelerate such capabilities through service providers, Fanatics Retail Group Fulfillment, LLC ("Fanatics") and Fanatics Lids College, Inc. D/B/A "Lids" ("Lids") (and together with Fanatics, referred to herein as the "F/L Relationship"), win new accounts, and expand the revenue opportunities through strategic relationships. Barnes & Noble Education expects gross comparable store general merchandise sales to increase over the long term, as the product assortments continue to emphasize and reflect changing consumer trends, and evolve the presentation concepts and merchandising of products in stores and online, which will be further enhanced and accelerated through the F/L Relationship. Fanatics and Lids, acting as the service providers, provide unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of the logo general merchandise business.

The Barnes & Noble brand (licensed from the former parent corporation) along with the 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. The large college footprint, reputation, and credibility in the marketplace not only support the marketing efforts to universities, students, and faculty, but are also important to the relationship with leading publishers who rely on Barnes & Noble Education as one of their primary distribution channels.

For additional information related to the business of Barnes & Noble Education, see Part I - Item 1. Business in the Annual Report on Form 10-K for the fiscal year ended May 2, 2026, filed with the SEC on July 9, 2026.

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 our results across periods.

Product sales are recognized when the customer takes physical possession of the products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of the products by the customers for products ordered through Barnes & Noble Education's websites and virtual bookstores. Revenue from the sale of digital textbooks, which contains a single performance obligation, is recognized upon delivery of the digital content as product revenue in the condensed consolidated financial statements. Revenue from the rental of physical textbooks is deferred and recognized over the rental period based on the passage of time commencing at the point of sale, when control of the product transfers to the customer and is recognized as rental income in the condensed consolidated financial statements. Depending on the product mix offered under the BNC First Day® offerings, revenue recognized is consistent with our policies for product, digital and rental sales, net of an anticipated opt-out or return provision.

BNC First Day® Affordable Access Course Material Programs

Given the growth of the BNC 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 the BNC 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 our 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 the sales shift to BNC First Day® affordable access course material program offerings, Barnes & Noble Education is focused on efforts to better align the timing of the 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 when the digital content is made available to the customer 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 the customers for products ordered through Barnes & Noble Education's websites and virtual bookstores.

Elements of Results of Operations

The sales are primarily derived from the sale of course materials, which include new, used, rental and digital textbooks and general merchandise, including emblematic apparel and gifts, trade books, computer products, school and dorm supplies, convenience and cafe items and graduation products. The rental income is primarily derived from the rental of physical textbooks. Barnes & Noble Education also derives revenue from other sources, such as sales of inventory management, hardware and point-of-sale software, and other services.

The cost of sales primarily includes costs such as merchandise costs, textbook rental amortization, warehouse costs related to inventory management and order fulfillment, certain payroll costs, and management service agreement costs, including rent expense, related to college and university contracts and other facility related expenses.

The selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include long-term incentive plan compensation expense, insurance, and general office expenses, such as merchandising, procurement, field support, and professional services.

The following is a summary of Barnes & Noble Education's results of operations for the three months ended July 31, 2026 and 2025 (in thousands):

Revenues

Total revenue was $290.6 million for the three months ended July 31, 2026, consisting of $276.9 million of product and other sales and $13.7 million of rental sales. Total revenue for the comparable prior year period was $288.2 million, including $274.2 million of product and other sales and $14.0 million of rental sales. The $2.4 million increase in revenue is primarily due to higher comparable store sales of $11.8 million and new store sales of $11.5 million, largely driven by a $10.3 million increase from BNC First Day® programs, partially offset by lower sales from closed stores of $18.0 million and $2.9 million of other sales declines.

Cost of sales

Cost of sales was 81% of total revenue for the three months ended July 31, 2026, has remained flat as a percent of revenue compared to 81% for the three months ended July 31, 2025. The flat current year quarter percentage of cost compared to the comparable period of the prior year was primarily due to higher lease amortization expenses due to unfavorable lease adjustments offset by lower contract costs as a percentage of sales related to university contracts as a result of the shift to digital and First Day models and lower performing school contracts not renewed.

Selling and administrative expenses

Selling and administrative expenses were $67.3 million for the three months ended July 31, 2026, a decrease of $0.5 million compared to the three months ended July 31, 2025. This decrease was primarily due to lower operating expenses, including lower technology expenses, service charges, partially offset by incremental bad debt expense.

Depreciation and amortization expense

Barnes & Noble Education's depreciation and amortization expense consists primarily of depreciation of property and equipment and amortization of intangible assets.

Depreciation and amortization expense was $10.2 million for the three months ended July 31, 2026, a decrease of $0.2 million, or relatively flat compared to the three months ended July 31, 2025.

Other (income) expense

During the three months ended July 31, 2026, Barnes & Noble Education recognized other income of $0.7 million, comprised primarily of a $1.7 million cash receipt from the release of funds previously held in escrow offset by $0.5 million of legal and professional fees.

During the three months ended July 31, 2025, Barnes & Noble Education recognized other (income) expense totaling $2.9 million, primarily comprised of restructuring and investigation-related costs.

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

A summary of consolidated interest income and other income (expense), net, interest expense, and income taxes for the three months ended July 31, 2026 and 2025 are as follows (in thousands, except for percentages):

Interest income and other income (expense), net

Immersion's interest income and other income (expense), net consists primarily of interest and dividend income earned on cash and cash equivalents and marketable debt and equity securities; realized and unrealized gains and losses on marketable equity securities and derivative instruments.

Interest income and other income (expense), net increased by $7.4 million for the three months ended July 31, 2026, compared with the corresponding period in the prior year. This increase was driven primarily by a $7.8 million favorable period-over-period change in realized and unrealized gains and losses on marketable equity securities and derivative instruments, from a $6.0 million net gain in the prior-year quarter to a $13.8 million net gain in the current quarter. The increase was partially offset by reduction in interest income by $0.2 million, primarily due to lower invested balances in fixed-income securities and lower interest rates.

Interest expense, net

Barnes & Noble Education's interest expense, net decreased by $1.0 million to $1.8 million during the three months ended July 31, 2026, from $2.8 million during the three months ended July 31, 2025. The decrease was primarily due to lower borrowings.

Income tax benefit (expense)

Immersion

Income tax benefit (expense) for the three months ended July 31, 2026, 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 change in 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 Income tax benefit (expense) 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, 2026, we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $9.0 million, all of the $9.0 million could be payable in cash. In addition, interest and penalties of $1.9 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 $10.9 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 $8.2 million on pre-tax loss of $22.1 million during the three months ended July 31, 2026, which represented an effective income tax rate of 36.9% and 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, 2026, 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 securities, and investments in U.S. treasury securities. All marketable securities are stated at fair value. Realized gains and losses on marketable equity securities are recorded in Interest income and other income (expense), net on the Condensed Consolidated Statements of Operations. Unrealized gains and losses on marketable equity securities are reported as Interest income and other income (expense), net on our Condensed 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, 2026, our cash, cash equivalents, and investments - current totaled $209.5 million, a $29.0 million increase from $180.5 million on April 30, 2026. As of July 31, 2026, approximately 3.4% or $7.1 million, was held by foreign subsidiaries and may be subject to repatriation tax effects. In addition, as of July 31, 2026 and April 30, 2026, we had restricted cash of $13.7 million and $19.8 million, respectively.

The following is select cash flow information for the three months ended July 31, 2026 and 2025 (in thousands):

Cash used in operating activities

Our operating activities primarily consist 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 used in operating activities was $43.6 million for the three months ended July 31, 2026, a decrease of $18.1 million compared to the three months ended July 31, 2025. The decrease was primarily driven by a reduction in the increase in accounts receivables and inventories from the prior year period amount and partially offset by a reduction in the increase of accounts payable and accrued liabilities from the prior year period amount.

Cash provided by investing activities

Investing activities primarily include purchases and sales of marketable securities and other investments, proceeds from and settlements of derivative instruments, and purchases of property and equipment.

Net cash provided by investing activities was $26.2 million for the three months ended July 31, 2026, an increase of $17.0 million compared to the three months ended July 31, 2025. The increase was primarily driven by higher proceeds from sales or maturities of marketable securities, derivative instruments and other investments, partially offset by higher purchases of marketable and other investments.

Cash provided by financing activities

Financing activities primarily include dividend payments, borrowings and repayments under our credit facility, and repurchases of our common stock.

Net cash provided by financing activities was $47.9 million for the three months ended July 31, 2026, a decrease of $17.5 million compared to the three months ended July 31, 2025. The decrease was primarily driven by lower proceeds from borrowings and higher dividend payments to stockholders.

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.

Immersion Stock Repurchase Program

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 Exchange Act. 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, 2026, the Company did not purchase shares under the December 2022 Stock Repurchase Program. As of July 31, 2026, the Company had $39.3 million available for repurchase under the December 2022 Stock Repurchase Program.

Barnes & Noble Education Stock Repurchase Program

On December 14, 2015, the Board of Directors authorized a stock repurchase program of up to $50 million in the aggregate outstanding Barnes & Noble Education's common stock. The stock repurchase program is carried out at the direction of Barnes & Noble Education's management (which may include a plan under Rule 10b5-1 of the Exchange Act. The stock repurchase program may be suspended, terminated, or modified at any time. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. During the three months ended July 31, 2026, Barnes & Noble Education did not purchase shares under the stock repurchase program. As of July 31, 2026, approximately $26.7 million remains available under the Barnes & Noble Education 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, 2026.

Recent Accounting Pronouncements

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