InvenSense (INVN) is expected to release its earnings report next week, and there are a few things smart investors should pay close attention to when the results come in. The motion sensor company, which has a close relationship with Samsung (NASDAQOTH: SSNLF), has been engaged in a court battle with its biggest competitor, STMicroelectronics (STM 1.86%), over patent rights.

The stock sold off since the company announced a negative revision to its forecast last quarter, but seems to have recovered since. Here are two things to pay attention to in InvenSense's third-quarter earnings release.

Non-GAAP EPS
InvenSense will put its Non-GAAP EPS number near the top of its earnings release. Although it's not a perfect indicator of where the company stands, it gives a little bit better picture of the company's growth year-over-year.

One of the biggest things that has affected InvenSense's earnings this fiscal year has been its ongoing litigation fees regarding the STMicroelectronics case. InvenSense has countered STMicroelectronics, which has only added to the legal fees. Last quarter, InvenSense spent about $2.5 million on patent litigation legal expenses -- knocking about 3.5% off its operating margin.

STMicroelectronics has over 900 MEMS-related patents and patent applications worldwide. It's quite an impressive portfolio, and one of its biggest strengths, but it still lags behind the production capabilities of InvenSense in terms of size and integration.

Non-GAAP EPS is a quick-and-dirty way to factor in these one-time expenses, but note that the metric also discounts stock-based compensation. Stock-based compensation has grown steadily over the last year -- it increased from $2 million to $3.4 million year over year in the prior quarter. This is in line with the company's increase in headcount and the company's improved stock price.

In the year-ago quarter, InvenSense reported Non-GAAP EPS of $0.19 per share. The company forecast just $0.16 to $0.18 in non-GAAP EPS for the December quarter. This is what disappointed investors and caused a sell-off. The long-term outlook is still strong though.

Gross margin
The March quarter saw very low margins for InvenSense -- about 50% gross margin -- which the company has bounced back from nicely. But gross margin expansion stagnated last quarter at 52%, and the company expects a similar number when it reports its December quarter.

In its year-ago quarter, InvenSense reported a 53% gross margin, and it expects to return to the mid-50s as it reduces costs and its new products gain traction. Look for progress toward that goal when it reports.

One thing that's been keeping its gross margin down is the ever-increasing volume it receives from its biggest customer -- Samsung. Last quarter, Samsung accounted for 36% of sales. InvenSense chips are found in Samsung's Galaxy line of smartphones as well as its new Galaxy Gear smartwatch.

InvenSense estimates that it has a 50% market share of Samsung's demand for MEMS with STMicrolectronics taking most of the other half. Nonetheless, InvenSense thinks it can improve its position with Samsung, and expects the electronics maker to account for more than one-third of sales again in the December quarter.

As a large customer, Samsung is able to get InvenSense's best pricing. Because Samsung makes up such a large portion of the company's sales, there's significant pressure on gross margin.

InvenSense hinted at a "near-term opportunity at another large mobile OEM customer" in its last conference call. Diversification away from Samsung could help its gross margin, but a large customer would also likely have the same effect as Samsung sales -- gross margin pressure.

InvenSense's best bet for margin improvement is transitioning its customers to its newest products, particularly its second-generation 6-axis product -- the MPU-6500. The company expects 6-axis products to account for the majority of its unit and revenue shipments, so look for a continued ramp of the MPU-6500 line to help improve gross margin.

Separate the noise
It's important to know what to look for, but just as important to know what to ignore. Earnings season can create a lot of noise as analysts react to results. Just remember, InvenSense has a strong position in a growing market and is set up for great long-term growth.

Look for continued growth on comparable metrics like non-GAAP EPS and expansion in gross margin as its customers transition to its newest products. If that doesn't come in this quarterly report, which is what the company forecast last time, look to see what the company is forecasting for next quarter.