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DTS Reports First Quarter Fiscal 2014 Financial Results

May 12, 2014 --

CALABASAS, Calif., May 12, 2014 (GLOBE NEWSWIRE) -- DTS, Inc. (Nasdaq:DTSI), a leader in high-definition audio solutions and audio enhancement technologies, today announced financial results for the first quarter ended March 31, 2014.



"DTS started off the year with record organic revenue and strong earnings growth, with non-GAAP net income up nearly 60% for the quarter. We believe that our Q1 performance puts us solidly on track to achieve our 2014 goals," said Jon Kirchner, chairman and CEO of DTS, Inc. "With the launch of Headphone:X on the world's first 2K smartphone during the quarter, along with a supporting content service, we expect 2014 to be a year marked by meaningful progress across our key program initiatives. Headphone:X and Play-Fi represent cutting edge solutions that we expect to lay an exciting foundation for our future growth as we continue to redefine the connected consumer entertainment experience."





























































































 

Financial Comparison

 

Q1 2014

Q1 2013

Revenue

$36.8 million

$32.7 million

 Year-over-Year Growth Rate

13%

 

 

GAAP Net Income/(Loss)

$5.6 million

$(1.5 million)

GAAP Earnings/(Loss) Per Share*

$0.32

($0.08)

 

Non-GAAP Operating Margin

24%

21%

Non-GAAP Net Income

$6.3 million

$4.0 million

Non-GAAP Earnings Per Share*

$0.36

$0.22

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

 

 

Other GAAP Results

 

Q1 2014

Amount Per Diluted Share*

Stock-Based Compensation

$2.5 million

$0.10

Amortization of Intangibles

$2.4 million

$0.10

Realignment Costs

$1.1 million

$0.05

*Amount Per Diluted Share Net of Tax @ 28%


DTS closed the quarter with cash and investments totaling $62.8 million and bought back 374,200 shares as part of the approved 2 million share buyback program. 


The GAAP and non-GAAP reconciling items for the quarters ended March 31, 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 continues to expect full year revenue in the range of $132 to $138 million, including a normal level of royalty recoveries, non-GAAP operating margins in the mid-20s and non-GAAP diluted EPS in the range of $1.20 to $1.40 based on a 30% effective tax rate. Stock-based compensation expense is expected to be in the range of $0.41 to $0.47 per diluted share net of tax and amortization of intangibles is expected to be in the range of $0.41 to $0.45 per diluted share net of tax. The Company expects its tax rate, for both GAAP and non-GAAP purposes, to be approximately 30% in 2014. On a GAAP basis, the Company expects operating profit of approximately 7% to 10% and EPS in the range of $0.38 to $0.48 per diluted share net of tax.



The Company continues to expect growth in 2014 to primarily come 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 U.S., which required the Company to record a valuation allowance against all U.S. Federal deferred tax benefits. For the first quarter of 2013, the Company's non-GAAP earnings included a normalized 40% effective tax rate as management believed that the Company's inability to utilize its U.S. deferred tax benefits would be temporary. In 2014, the Company affected a complex restructuring of certain intellectual property rights which addressed the issue of U.S. taxable income and generated a $3.5 million discrete item credit in its first quarter of 2014 tax provision. With the Company's global entity structure now optimized, management believes the appropriate measure for its first quarter 2014 results is to use its actual effective tax rate excluding the discrete item adjustments – approximately 28% – 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 May 12, 2014



DTS will host a conference call and live webcast at 1:30 p.m. Pacific Time to discuss the first quarter ended March 31, 2014 results. To access the conference call, dial 1-877-941-9205 or 1-480-629-9771 (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, May 12, 2014 through 11:59 p.m. Pacific Time, May 26, 2014, by dialing 1-800-406-7325 or 1-303-590-3030 (outside the U.S. and Canada) and entering pass code 4681067#.



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, except per share amounts)

 

 

 

 

As of

March 31,

2014

As of

December 31,

2013

 

(Unaudited)

ASSETS

Current assets:

 

 

Cash and cash equivalents

 $ 57,809

 $ 66,025

Short-term investments

 5,007

 5,004

Accounts receivable, net 

 16,875

 11,637

Deferred income taxes

 5,727

 5,787

Prepaid expenses and other current assets

 3,782

 5,480

Income taxes receivable

 2,263

 2,826

Total current assets

 91,463

 96,759

Property and equipment, net 

 29,121

 30,116

Intangible assets, net

 48,180

 50,225

Goodwill

 48,418

 48,418

Deferred income taxes

 19,163

 11,667

Other long-term assets

 4,568

 4,613

Total assets

 $ 240,913

 $ 241,798

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY 

Current liabilities:

 

 

Accounts payable 

 $ 2,928

 $ 2,802

Accrued expenses

 10,659

 12,142

Deferred revenue

 7,966

 10,262

Total current liabilities

 21,553

 25,206

Long-term debt

 30,000

 30,000

Other long-term liabilities

 6,406

 3,480

 

 

 

Stockholders' equity:

 

 

Preferred stock

 — 

 — 

Common stock

 3

 3

Additional paid-in capital

 226,691

 224,971

Treasury stock, at cost

 (92,184)

 (84,689)

Accumulated other comprehensive income

 789

 747

Retained earnings

 47,655

 42,080

Total stockholders' equity 

 182,954

 183,112

Total liabilities and stockholders' equity

 $ 240,913

 $ 241,798














































































































































 

 

 

DTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts)

 

 

 

 

For the Three Months Ended

March 31,

 

2014

2013

 

(Unaudited)

 

 

 

Revenue

 $ 36,835

 $ 32,728

Cost of revenue

 2,331

 2,322

Gross profit

 34,504

 30,406

Operating expenses:

 

 

Selling, general and administrative

 22,605

 21,690

Research and development

 8,823

 7,679

Total operating expenses

 31,428

 29,369

Operating income

 3,076

 1,037

Interest and other income (expense), net

 (214)

 (245)

Income before income taxes

 2,862

 792

Provision (benefit) for income taxes

 (2,713)

 2,324

Net income (loss)

 $ 5,575

 $ (1,532)

 

 

 

Net income (loss) per common share:

 

 

Basic

 $ 0.32

 $ (0.08)

Diluted

 $ 0.32

 $ (0.08)

 

 

 

Weighted average shares outstanding:

 

 

Basic

 17,284

 18,218

Diluted

 17,571

 18,218
































































































































































































 

 

 

DTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

 

 

 

 

For the Three Months Ended

March 31,

 

2014

2013

 

(Unaudited)

Cash flows from operating activities:

 

 

Net income (loss)

 $ 5,575

 $ (1,532)

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

 

 

Depreciation and amortization 

 3,633

 3,837

Stock-based compensation charges 

 2,469

 3,013

Deferred income taxes 

 (3,575)

 362

Tax benefits (shortfalls) from stock-based awards 

 (269)

 (319)

Excess tax (benefits) shortfalls from stock-based awards 

 (2)

 3

Other 

 149

 31

Changes in operating assets and liabilities:

 

 

Accounts receivable 

 (5,300)

 (731)

Prepaid expenses and other assets 

 1,619

 929

Accounts payable, accrued expenses and other liabilities 

 (2,458)

 (4,257)

Deferred revenue

 (2,296)

 (621)

Income taxes receivable 

 563

 574

Net cash provided by operating activities 

 108

 1,289

Cash flows from investing activities:

 

 

Purchases of available-for-sale investments

 (3)

 (5,059)

Maturities of available-for-sale investments

 --

 7,749

Purchases of property and equipment 

 (200)

 (773)

Purchases of intangible assets

 (148)

 (260)

Net cash provided by (used in) investing activities 

 (351)

 1,657

Cash flows from financing activities:

 

 

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

 186

 97

Repurchases and retirement of common stock for restricted stock tax withholdings

 (666)

 (767)

Excess tax benefits (shortfalls) from stock-based awards 

 2

 (3)

Purchases of treasury stock 

 (7,495)

 --

Net cash used in financing activities 

 (7,973)

 (673)

Net change in cash and cash equivalents 

 (8,216)

 2,273

Cash and cash equivalents, beginning of period 

 66,025

 57,831

Cash and cash equivalents, end of period 

 $ 57,809

 $ 60,104






























































































































































































































































 

 

 

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

March 31,

 

2014

2013

Cost of revenue:

 

 

GAAP cost of revenue

 $ 2,331

 $ 2,322

Amortization of intangible assets

 2,143

 2,203

Non-GAAP cost of revenue

 $ 188

 $ 119

 

 

 

Selling, general and administrative:

 

 

GAAP selling, general and administrative

 $ 22,605

 $ 21,690

Amortization of intangible assets

 214

 250

Stock-based compensation

 1,798

 2,301

Acquisition and integration related costs*

 --

 350

Realignment costs

 785

 --

Non-GAAP selling, general and administrative

 $ 19,808

 $ 18,789

 

 

 

Research and development:

 

 

GAAP research and development

 $ 8,823

 $ 7,679

Amortization of intangible assets

 --

 --

Stock-based compensation

 671

 712

Acquisition and integration related costs*

 --

 38

Realignment costs

 333

 --

Non-GAAP research and development

 $ 7,819

 $ 6,929

 

 

 

Operating income:

 

 

GAAP operating income

 $ 3,076

 $ 1,037

Amortization of intangible assets

 2,357

 2,453

Stock-based compensation

 2,469

 3,013

Acquisition and integration related costs*

 --

 388

Realignment costs

 1,118

 --

Non-GAAP operating income

 $ 9,020

 $ 6,891

Non-GAAP operating income as a % of revenue

24%

21%

 

 

 

Net income (loss):

 

 

GAAP net income (loss)

 $ 5,575

 $ (1,532)

Amortization of intangible assets

 2,357

 2,453

Stock-based compensation

 2,469

 3,013

Acquisition and integration related costs*

 --

 388

Realignment costs

 1,118

 --

Adjustment for income taxes

 (5,197)

 (334)

Non-GAAP net income

 $ 6,322

 $ 3,988

 

 

 

Non-GAAP diluted income per common share

 $ 0.36

 $ 0.22

 

 

 

Non-GAAP weighted average diluted shares outstanding

 17,571

 18,449

 

 

 

* In 2012, the Company acquired SRS Labs, Inc. and the assets of 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

7%

10%

Amortization of intangible assets

8%

9%

Stock-based compensation

8%

9%

Non-GAAP operating income as a % of revenue

23%

28%

 

 

 

 

 

 

Net income per diluted share:

 

 

 

 

 

GAAP net income per diluted share

 $ 0.38

 $ 0.48

Amortization of intangible assets

 0.58

 0.64

Stock-based compensation

 0.58

 0.67

Tax adjustments

 (0.34)

 (0.39)

Non-GAAP net income per diluted share

 $ 1.20

 $ 1.40

 

 

 

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

 18.0

 18.0

CONTACT: Investor Contact

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



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