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DTS Reports Strong Second Quarter 2014 Financial Results

(August 11, 2014)

CALABASAS, Calif., Aug. 11, 2014 (GLOBE NEWSWIRE) -- DTS, Inc. (Nasdaq:DTSI), a leader in high-definition audio solutions, today announced financial results for the second quarter ended June 30, 2014.



"DTS achieved strong revenue and earnings growth in the second quarter, with double-digit organic growth driven by progress in TV and game console markets as well as continued progress on our comprehensive royalty audit program," said Jon Kirchner, chairman and CEO of DTS, Inc. "Importantly, we continue to see momentum in key areas of our business and market interest in innovative technologies like Play-Fi and Headphone:X. Our progress in the first half coupled with a growing product release pipeline has caused us to raise our full year outlook. Looking ahead, we remain focused on the large and attractive opportunities in network-connected devices, including smartphones, TVs and PCs, and expect to see accelerating organic growth over the next few years."






























































































 

Financial Comparison

 

Q2 2014

Q2 2013

Revenue

$36.2 million

$27.2 million

Year-over-Year Growth Rate

33%

 

 

 

 

GAAP Net Income/(Loss)

$7.0 million

$(2.0) million

GAAP Earnings/(Loss) Per Share*

$0.41

$(0.11)

 

 

 

Non-GAAP Operating Margin

31%

13%

Non-GAAP Net Income

$8.0 million

$2.1 million

Non-GAAP Earnings Per Share*

$0.47

$0.11

*Earnings/(Loss) Per Diluted Share Net of Tax

 

Other GAAP Results

 

Q2 2014

Amount Per Diluted Share*

Stock-Based Compensation

$2.9 million

$0.12

Amortization of Intangibles

$2.6 million

$0.11

*Amount Per Diluted Share Net of Tax @ 30%

 

 

 


DTS closed the quarter with cash and investments totaling $69.5 million and generated $5.5 million in operating cash flow.


The GAAP and non-GAAP reconciling items for the quarters ended June 30, 2014 and 2013 can be found in the "Non-GAAP Financial Metrics" schedule attached to this press release and on the investor relations portion of the Company's website at www.DTS.com.




Business Outlook



The Company raised its outlook for the full year and now expects revenue in the range of $137 to $142 million, non-GAAP operating margins in the mid to upper 20s and non-GAAP diluted EPS in the range of $1.40 to $1.50 based on a 30% effective tax rate. Stock-based compensation expense is expected to be in the range of $0.42 to $0.46 per diluted share net of tax and amortization of intangibles is expected to be in the range of $0.36 to $0.40 per diluted share net of tax. On a GAAP basis, the Company expects its effective tax rate to be approximately negative 5% to negative 10%, which is net of five to six million dollars of discrete item credits. The Company expects GAAP operating margins of approximately 9% to 11% and GAAP diluted EPS in the range of $0.85 to $0.95.



The Company continues to expect its organic growth in 2014 to come primarily from the network-connected markets, specifically connected TVs, mobile devices and PCs. Network-connected markets are expected to represent more than 50% of total revenue in 2014.



Use of Non-GAAP Financial Information



Included within this press release are non-GAAP financial measures that supplement the Company's Consolidated Statements of Operations prepared under generally accepted accounting principles (GAAP). These non-GAAP financial measures adjust the Company's actual results prepared under GAAP to exclude charges and the related income tax effect for stock-based compensation, the amortization of intangible assets, and certain acquisition, integration and restructuring-related costs. Over the past several years, the Company's GAAP tax rate has been subject to substantial variability caused by three-year cumulative pre-tax losses in the US, which required the Company to record a valuation allowance against all United States Federal deferred tax benefits. For the second quarter of 2013, the Company's pre-tax earnings included a normalized 40% effective tax rate as management believed that the Company's inability to utilize its US deferred tax benefits would be temporary. In 2014, the Company effected a complex restructuring of certain intellectual property rights which addressed the issue of US taxable income. With the Company's global entity structure now optimized, management believes the appropriate measure for its second quarter 2014 results is to impute a normalized 30% effective tax rate on the pre-tax earnings of the Company. Reconciliations of GAAP to non-GAAP amounts for the periods presented herein are provided in schedules accompanying this release and should be considered together with the Consolidated Statements of Operations. These non-GAAP measures are not meant as a substitute for GAAP, but are included solely for informational and comparative purposes. The Company's management believes that this information can assist investors in evaluating the Company's operational trends, financial performance, and cash generating capacity. Management believes these non-GAAP measures allow investors to evaluate DTS' financial performance using some of the same measures as management. However, the non-GAAP financial measures should not be regarded as a replacement for or superior to corresponding, similarly captioned, GAAP measures.



Conference Call Information for August 11, 2014



DTS will host a conference call and live webcast at 1:30 p.m. Pacific Time to discuss the second quarter ended June 30, 2014 results. To access the conference call, dial 1-888-287-5563 or 1-719-325-2361 (outside the U.S. and Canada). A live webcast of the call will be available from the Investor Relations section of the Company's corporate website at www.dts.com and via replay beginning two hours after the completion of the call. An audio replay of the call will also be available to investors beginning at 4:30 p.m. Pacific Time, August 11, 2014 through 4:30 p.m. Pacific Time, August 18, 2014, by dialing 1-888-203-1112 or 1-719-457-0820 (outside the U.S. and Canada) and entering pass code 3860665.



About DTS, Inc.



DTS, Inc. (Nasdaq:DTSI) is a premier audio solutions provider for high-definition entertainment experiences—anytime, anywhere, on any device. DTS exists to make the world sound better. DTS' audio solutions are designed to enable recording, delivery and playback of simple, personalized, and immersive high-definition audio, and are incorporated by hundreds of licensee customers around the world into an array of consumer electronics devices. From a renowned legacy as a pioneer in high definition multi-channel audio, DTS became a mandatory audio format in the Blu-ray Disc™ standard and is now increasingly deployed in enabling digital delivery of compelling movies, music, games and other forms of digital entertainment to a growing array of network-connected consumer devices. DTS technology is in televisions, personal computers, smartphones, tablets, digital media players, video game consoles, Blu-ray Disc players, audio/video receivers, soundbars, DVD based products, automotive audio systems, set-top-boxes, and home theater systems. Founded in 1993, DTS' corporate headquarters are located in Calabasas, California. DTS also has offices in Los Gatos and Santa Ana, California, Washington, China, France, Hong Kong, Ireland, Japan, Singapore, South Korea, Taiwan and the United Kingdom. Copyright 2014, DTS, Inc. DTS, the Symbol, and DTS and the Symbol together are registered trademarks of DTS, Inc. All other trademarks are the properties of their respective owners. All rights reserved.



Forward-Looking Statements



This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks, uncertainties, assumptions and other factors which, if they do not materialize or prove correct, could cause DTS' results to differ materially from historical results or those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements containing the words "planned," "expects," "believes," "intends," "strategy," "opportunity," "anticipates" and similar words. These statements may include, among others, plans, strategies and objectives of management for future operations; any statements regarding proposed new products, services or developments; any statements regarding future economic conditions, financial or operating performance, or future effective tax rates, including statements regarding overall profitability in 2014; any statements regarding anticipated growth in the network-connected markets and in the Blu-ray, automotive and home AV markets; statements of belief and any statements of assumptions underlying any of the foregoing. The potential risks and uncertainties that could cause actual growth and results to differ materially include, but are not limited to, our ability to penetrate the on-line and mobile content delivery market and adapt our technologies for that market, the continued decline in optical disc-based product sales, the rapidly changing and competitive nature of the digital audio, consumer electronics and entertainment markets, the Company's inclusion in or exclusion from governmental and industry standards, continued customer acceptance of the Company's technology, products, services and pricing, risks related to ownership and enforcement of intellectual property, the continued release and availability of entertainment content containing DTS audio soundtracks, success of the Company's research and development efforts, risks related to integrating acquisitions, greater than expected costs, the departure of key employees, negative trends in the general economy, continued weakness in the global financial markets and decreases in consumer confidence, a loss of one or more of our key customers or licensees, changes in domestic and international market and political conditions, unanticipated changes in our tax provisions and other risks and uncertainties more fully described in DTS' public filings with the Securities and Exchange Commission, including DTS' most recent Forms 10-K and 10-Q, available at www.sec.gov. Readers are urged not to place undue reliance on these forward looking statements, which speak only as of the date of this press release. DTS does not intend to update any forward-looking statement contained in this press release to reflect events or circumstances arising after the date hereof.



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DTS, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

 

 

 

 

 

 

 

As of

As of

 

June 30,

December 31,

 

2014

2013

 

(Unaudited)

ASSETS

 

 

Current assets:

 

 

Cash and cash equivalents

 $ 64,498

 $ 66,025

Short-term investments

 5,003

 5,004

Accounts receivable, net

 21,541

 11,637

Deferred income taxes

 9,051

 5,787

Prepaid expenses and other current assets

 3,737

 5,480

Income taxes receivable

 7,322

 2,826

Total current assets

 111,152

 96,759

Property and equipment, net

 28,469

 30,116

Intangible assets, net

 46,014

 50,225

Goodwill

 48,418

 48,418

Deferred income taxes

 13,432

 11,667

Other long-term assets

 4,155

 4,613

Total assets

 $ 251,640

 $ 241,798

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

Current liabilities:

 

 

Accounts payable

 $ 2,317

 $ 2,802

Accrued expenses

 9,980

 12,142

Deferred revenue

 8,149

 10,262

Total current liabilities

 20,446

 25,206

Long-term debt

 30,000

 30,000

Other long-term liabilities

 7,014

 3,480

 

 

 

Stockholders' equity:

 

 

Preferred stock

 —

 —

Common stock

 3

 3

Additional paid-in capital

 230,900

 224,971

Treasury stock, at cost

 (92,184)

 (84,689)

Accumulated other comprehensive income

 791

 747

Retained earnings

 54,670

 42,080

Total stockholders' equity

 194,180

 183,112

Total liabilities and stockholders' equity

 $ 251,640

 $ 241,798

 

 

 


















































































































































































































 

 

 

 

 

DTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

For the Six Months Ended

 

June 30,

June 30,

 

2014

2013

2014

2013

 

(Unaudited)

 

 

 

 

 

Revenue

 $ 36,189

 $ 27,188

 $ 73,024

 $ 59,916

Cost of revenue

 2,460

 2,412

 4,791

 4,734

Gross profit

 33,729

 24,776

 68,233

 55,182

Operating expenses:

 

 

 

 

Selling, general and administrative

 18,796

 18,749

 41,401

 40,439

Research and development

 9,183

 7,842

 18,006

 15,521

Total operating expenses

 27,979

 26,591

 59,407

 55,960

Operating income (loss)

 5,750

 (1,815)

 8,826

 (778)

Interest and other income (expense), net

 231

 (174)

 17

 (419)

Income (loss) before income taxes

 5,981

 (1,989)

 8,843

 (1,197)

Provision (benefit) for income taxes

 (1,034)

 38

 (3,747)

 2,362

Net income (loss)

 $ 7,015

 $ (2,027)

 $ 12,590

 $ (3,559)

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

Basic

 $ 0.41

 $ (0.11)

 $ 0.73

 $ (0.19)

Diluted

 $ 0.41

 $ (0.11)

 $ 0.72

 $ (0.19)

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

Basic

 17,038

 18,306

 17,161

 18,263

Diluted

 17,190

 18,306

 17,379

 18,263

 

 

 

 

 



















































































































































































































 

 

 

DTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

 

 

 

 

 

 

 

For the Six Months Ended

 

June 30,

 

2014

2013

 

(Unaudited)

Cash flows from operating activities:

 

 

Net income (loss)

 $ 12,590

 $ (3,559)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

Depreciation and amortization

 7,403

 7,758

Stock-based compensation charges

 5,397

 5,925

Deferred income taxes

 (7,291)

 (1,305)

Tax shortfalls from stock-based awards

 (320)

 (391)

Excess tax shortfalls from stock-based awards

 --

 24

Other

 (14)

 81

Changes in operating assets and liabilities:

 

 

Accounts receivable

 (9,987)

 (2,047)

Prepaid expenses and other assets

 1,732

 330

Accounts payable, accrued expenses and other liabilities

 (2,706)

 (4,629)

Deferred revenue

 (2,113)

 698

Income taxes receivable

 897

 760

Net cash provided by operating activities

 5,588

 3,645

Cash flows from investing activities:

 

 

Purchases of available-for-sale investments

 --

 (5,005)

Maturities of available-for-sale investments

 --

 15,440

Sale of other assets

 725

 --

Purchases of property and equipment

 (798)

 (1,355)

Purchases of intangible assets

 (399)

 (484)

Net cash provided by (used in) investing activities

 (472)

 8,596

Cash flows from financing activities:

 

 

Proceeds from the issuance of common stock under stock-based compensation plans

 1,544

 1,403

Repurchases and retirement of common stock for restricted stock tax withholdings

 (692)

 (804)

Excess tax shortfalls from stock-based awards

 --

 (24)

Purchases of treasury stock

 (7,495)

 (2,754)

Net cash used in financing activities

 (6,643)

 (2,179)

Net change in cash and cash equivalents

 (1,527)

 10,062

Cash and cash equivalents, beginning of period

 66,025

 57,831

Cash and cash equivalents, end of period

 $ 64,498

 $ 67,893

 

 

 

















































































































































































































































































































































































 

 

 

 

 

Non-GAAP Financial Metrics

(Amounts in thousands, except per share amounts)

 

 

 

 

 

The following tables show the Company's GAAP financial metrics reconciled to non-GAAP financial metrics included in this release.

 

 

 

 

 

 

 

For the Three Months Ended

For the Six Months Ended

 

June 30,

June 30,

 

2014

2013

2014

2013

Cost of revenue:

 

 

 

 

GAAP cost of revenue

 $ 2,460

 $ 2,412

 $ 4,791

 $ 4,734

Amortization of intangible assets

 2,154

 2,235

 4,297

 4,438

Non-GAAP cost of revenue

 $ 306

 $ 177

 $ 494

 $ 296

 

 

 

 

 

Selling, general and administrative:

 

 

 

 

GAAP selling, general and administrative

 $ 18,796

 $ 18,749

 $ 41,401

 $ 40,439

Amortization of intangible assets

 428

 264

 642

 514

Stock-based compensation

 2,255

 2,204

 4,053

 4,505

Acquisition and integration related costs*

 --

 47

 --

 397

Realignment costs

 --

 --

 785

 --

Non-GAAP selling, general and administrative

 $ 16,113

 $ 16,234

 $ 35,921

 $ 35,023

 

 

 

 

 

Research and development:

 

 

 

 

GAAP research and development

 $ 9,183

 $ 7,842

 $ 18,006

 $ 15,521

Stock-based compensation

 673

 708

 1,344

 1,420

Acquisition and integration related costs*

 --

 --

 --

 38

Realignment costs

 --

 --

 333

 --

Non-GAAP research and development

 $ 8,510

 $ 7,134

 $ 16,329

 $ 14,063

 

 

 

 

 

Operating income:

 

 

 

 

GAAP operating income (loss)

 $ 5,750

 $ (1,815)

 $ 8,826

 $ (778)

Amortization of intangible assets

 2,582

 2,499

 4,939

 4,952

Stock-based compensation

 2,928

 2,912

 5,397

 5,925

Acquisition and integration related costs*

 --

 47

 --

 435

Realignment costs

 --

 --

 1,118

 --

Non-GAAP operating income

 $ 11,260

 $ 3,643

 $ 20,280

 $ 10,534

Non-GAAP operating income as a % of revenue

31%

13%

28%

18%

 

 

 

 

 

Net income (loss):

 

 

 

 

GAAP net income (loss)

 $ 7,015

 $ (2,027)

 $ 12,590

 $ (3,559)

Amortization of intangible assets

 2,582

 2,499

 4,939

 4,952

Stock-based compensation

 2,928

 2,912

 5,397

 5,925

Acquisition and integration related costs*

 --

 47

 --

 435

Realignment costs

 --

 --

 1,118

 --

Adjustment for income taxes

 (4,481)

 (1,350)

 (9,836)

 (1,684)

Non-GAAP net income

 $ 8,044

 $ 2,081

 $ 14,208

 $ 6,069

 

 

 

 

 

Non-GAAP diluted income per common share

 $ 0.47

 $ 0.11

 $ 0.82

 $ 0.33

 

 

 

 

 

Non-GAAP weighted average diluted shares outstanding:

 17,190

 18,478

 17,379

 18,463

 

 

 

 

 

 

 

 

 

 

* On July 20, 2012, DTS completed its acquisition of SRS Labs, Inc. in a cash-and-stock transaction.

   On July 5, 2012, DTS completed its acquisition of assets from Phorus, Inc. and Phorus, LLC.

 

 

 

 

 

















































































































































 

 

 

Non-GAAP Financial Targets

 

 

 

The following tables show the Company's fiscal year 2014 GAAP guidance reconciled to non-GAAP financial targets.

 

 

 

 

 

 

 

Fiscal Year 2014

 

Low

High

 

 

 

Operating income as a % of revenue:

 

 

 

 

 

GAAP operating income as a % of revenue

9%

11%

Amortization of intangible assets

7%

8%

Stock-based compensation

7%

8%

Realignment costs

1%

1%

Non-GAAP operating income as a % of revenue

24%

28%

 

 

 

 

 

 

Net income per diluted share:

 

 

 

 

 

GAAP net income per diluted share

 $ 0.85

 $ 0.95

Amortization of intangible assets

 0.51

 0.57

Stock-based compensation

 0.60

 0.66

Realignment costs

 0.06

 0.07

Tax adjustments

 (0.62)

 (0.75)

Non-GAAP net income per diluted share

 $ 1.40

 $ 1.50

 

 

 

Weighted average shares used to compute Non-GAAP net income per diluted share (millions)

 17.5

 17.5

 

 

 

CONTACT: Investor Contact

DTS, Inc.
Geri Weinfeld
Director, Investor Relations
geri.weinfeld@dts.com
(818) 436-1231



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