DTS Reports Third Quarter 2012 Results 41% Increase in Network-Connected Revenue Drives Year-Over-Year Growth in Slowing Consumer Electronics Environment Acquisition-Related Accounting and Taxes Materially Impact 2012 Earnings CALABASAS, Calif., Nov. 8, 2012 (GLOBE NEWSWIRE) -- DTS, Inc. (Nasdaq:DTSI) today announced financial results for the third quarter ended September 30, 2012. Revenue for the third quarter was $22.2 million, including 41% year-over-year growth from the network-connected markets. This compares to revenue of $20.5 million in the third quarter of 2011. There were no royalty recoveries in the third quarter of 2012 or 2011. The 8% year-over-year growth in total revenue resulted from continued growth in the network-connected markets, particularly in connected TVs and mobile, as well as the automotive market. Blu-ray revenue was essentially flat year-over-year and up 17% sequentially. These results were partially offset by declining demand for DVD, stand-alone DMP and broadcast products. Non-GAAP operating income in the third quarter of 2012 was $440 thousand, or 2% of revenue.Non-GAAP net loss was $11.1 million, or a loss of $0.61 per diluted share net of tax, compared to non-GAAP net income of $4.5 million, or $0.26 per diluted share net of tax, in the third quarter of 2011.This net loss was primarily the result of the accounting treatment of the SRS acquisition, under which the Company recognized costs related to the acquisition without being able to recognize most of the associated revenue.This net loss was also the result of the tax impact of lower profitability on our global licensing entity located in Ireland.Under current Irish tax law, approximately $5 million of foreign withholding taxes paid over the course of 2012 are now not eligible for credit or carry-forward, a condition that is expected to persist until the end of 2012. GAAP net loss was $19.1 million, or a loss of $1.04 per diluted share, compared to net income of $2.9 million, or $0.17 per diluted share, in the third quarter of 2011.GAAP net loss for the third quarter of 2012 includes $8.2 million, or $0.27 per diluted share net of tax, of acquisition and integration-related costs; $2.8 million, or $0.09 per diluted share net of tax, of stock-based compensation expense; and $2.2 million, or $0.07 per diluted share net of tax, of amortization of intangibles. The GAAP and non-GAAP reconciling items for the third quarters of 2012 and 2011 can be found in the "Non-GAAP Financial Metrics" schedule attached to this press release and on the investor relations section of the Company's website at www.DTS.com. The Company generated $6.7 million in cash flow from operations during the third quarter of 2012, compared to $4.0 million during the third quarter of 2011, and closed the quarter with cash and investments of $80.7 million. "Consistent with our strategy, DTS delivered attractive revenue growth in the network-connected markets despite what has been a challenging macroeconomic environment," said Jon Kirchner, chairman and CEO of DTS, Inc."We are pleased with our progress in the network-connected markets this quarter, which includes several recent smartphone and tablet product announcements. Looking ahead, with the SRS integration expected to be complete by year-end, DTS is well-positioned to capitalize on the significant market opportunities being created by an increasingly connected world.While our results through 2012 will continue to be impacted by significant acquisition-related noise, we believe the long-term prospects for our strategic markets are very much intact and we remain focused on accelerating growth in a difficult environment." Business Outlook DTS management expects continued long-term growth in the network-connected space, but in light of a softening near-term business environment, the Company has reduced its fiscal 2012 revenue expectations to a range of $100 to $105 million.Additionally, the accounting treatment and the related tax impact of the SRS acquisition are expected to cause 2012 non-GAAP operating margin to be approximately 20% and non-GAAP EPS to be in the range of $0.05 to $0.20 per diluted share net of tax, excluding the charges and the related income tax effect for stock-based compensation, the amortization of intangible assets, and certain acquisition-related charges. In 2012, stock-based compensation expense is expected to be in the range of $0.38 to $0.39 per share net of tax, amortization of intangibles is expected to be in the range of $0.19 to $0.20, and acquisition- and integration-related expenses are expected to be between $0.48 and $0.51. On a GAAP basis, management expects an operating loss of approximately 10% and a per-share loss in the range of $0.90 to $1.00. Additionally, DTS management expects to resolve certain issues involving the Company's Irish structure with the IRS in the fourth quarter.If the matter is resolved as and when expected, there will be a sizable charge in DTS' 2012 tax provision, not reflected above, followed by meaningful improvements in the Company's effective tax rates beginning in 2013. For 2013, DTS now expects revenue of $140 to $150 million and operating margins in the low- to mid-20s as a percent of revenue.Management will provide additional background on its outlook during the investor conference call scheduled today, November 8, 2012. 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 and integration-related charges.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 regarding as a replacement for (or superior to) corresponding, similarly captioned, GAAP measures. Conference Call Information for Thursday, November 8, 2012 DTS will broadcast a conference call today, Thursday, November 8, 2012, starting at 1:30 p.m. Pacific Time, to discuss the third quarter results.To access the conference call, dial 1-877-941-1466 or 1-480-629-9724 (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, November 8, 2012 through 11:59 p.m. Pacific Time, November 15, 2012, by dialing 1-800-406-7325 or 1-303-590-3030 (outside the U.S. and Canada) and entering pass code 4572564#. About DTS, Inc. DTS, Inc. (Nasdaq:DTSI) is dedicated to making digital entertainment exciting, engaging and effortless by providing state-of-the-art audio technology to over a billion consumer electronics products worldwide. 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. With the acquisition of SRS Labs, Inc., DTS strengthens its position as a leader in providing end-to-end audio solutions to the rapidly growing network entertainment sector.DTS technology is in car audio systems, digital media players, DVD players, game consoles, home theaters, PCs, set-top boxes, smart phones, surround music content and every device capable of playing Blu-ray discs. Founded in 1993, DTS' corporate headquarters are located in Calabasas, California with its licensing operations headquartered in Limerick, Ireland. DTS also has offices in Los Gatos and Santa Ana, California, Washington, China, France, Hong Kong, Japan, Singapore, South Korea, Taiwan and the United Kingdom. The DTS, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=11752 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 or financial or operating performance; 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, the transition to the next generation optical drives and consumer adoption of such technology, 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 associated with the Company's ability to successfully integrate SRS Labs' operations and employees, risks related to integrating acquisitions, greater than expected costs, the departure of key employees, the current financial crisis and global economic downturn, a loss of one or more of our key customers or licensees, changes in domestic and international market and political conditions, and other risks and uncertainties more fully described in DTS' public filings with the Securities and Exchange Commission, available at www.sec.gov. 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. DTS-I DTS, INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except per share amounts) As of As of September 30, December 31, 2012 2011 (Unaudited) ASSETS Current assets: Cash and cash equivalents $56,823 $46,944 Short-term investments 23,840 38,697 Accounts receivable, net of allowance for doubtful accounts of $541 and $251 at September 30, 2012 and 4,592 5,322 December 31, 2011, respectively Deferred income taxes 1,263 1,296 Prepaid expenses and other current assets 2,987 1,823 Income taxes receivable, net 2,442 2,591 Total current assets 91,947 96,673 Property and equipment, net 33,193 32,800 Intangible assets, net 79,277 6,549 Goodwill 52,431 1,257 Deferred income taxes 14,830 13,574 Long-term investments -- 6,922 Other assets 2,432 1,695 Total assets $274,110 $159,470 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $2,184 $1,056 Accrued expenses 13,759 3,605 Deferred revenue 4,017 1,121 Total current liabilities 19,960 5,782 Long-term debt 30,000 — Deferred income taxes 24,760 — Other long-term liabilities 21,744 7,886 Stockholders' equity: Preferred stock -- $0.0001 par value, 5,000 shares authorized at September 30, 2012 and December 31, — — 2011; no shares issued and outstanding Common stock -- $0.0001 par value, 70,000 shares authorized at September 30, 2012 and December 31, 2011; 20,666 and 20,536 shares issued at September 3 3 30, 2012 and December 31, 2011, respectively; 18,729 and 16,536 outstanding at September 30, 2012 and December 31, 2011, respectively Additional paid-in capital 201,730 192,819 Treasury stock, at cost - 1,938 and 4,000 shares at September 30, 2012 and December 31, 2011, (51,194) (107,222) respectively Accumulated other comprehensive income 680 644 Retained earnings 26,427 59,558 Total stockholders' equity 177,646 145,802 Total liabilities and stockholders' equity $274,110 $159,470 DTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share amounts) For the Three Months Ended For the Nine Months Ended September 30, September 30, 2012 2011 2012 2011 (Unaudited) Revenue $22,235 $20,546 $70,874 $67,910 Cost of revenue 2,105 217 2,493 643 Gross profit 20,130 20,329 68,381 67,267 Operating expenses: Selling, general and 25,322 12,784 57,311 39,608 administrative Research and development 7,625 3,364 16,915 9,759 Total operating expenses 32,947 16,148 74,226 49,367 Operating income (loss) (12,817) 4,181 (5,845) 17,900 Interest and other income 19 348 (67) 322 (expense), net Income (loss) before provision for income (12,798) 4,529 (5,912) 18,222 taxes Provision for income 6,288 1,627 9,884 7,030 taxes Net income (loss) $(19,086) $2,902 $(15,796) $11,192 Net income (loss) per common share: Basic $(1.04) $0.17 $(0.92) $0.65 Diluted $(1.04) $0.17 $(0.92) $0.63 Weighted average shares outstanding: Basic 18,329 16,910 17,104 17,131 Diluted 18,329 17,434 17,104 17,768 DTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) For the Three Months Ended For the Nine Months Ended September 30, September 30, 2012 2011 2012 2011 (Unaudited) Cash flows from operating activities: Net income (loss) $(19,086) $2,902 $(15,796) $11,192 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and 3,578 1,365 6,292 3,867 amortization Stock-based compensation 2,842 2,369 8,358 6,756 charges Deferred income taxes 7,158 620 3,185 470 Tax benefits (shortfalls) (2,967) (139) 108 76 from stock-based awards Excess tax shortfalls (benefits) from 2,966 124 (312) (30) stock-based awards Other 241 166 381 362 Changes in operating assets and liabilities, net of business acquisitions: Accounts receivable 5,292 (453) 6,366 2,633 Prepaid expenses and (204) (332) (325) (809) other assets Accounts payable, accrued expenses and other 4,863 (1,689) 6,301 (4,622) liabilities Deferred revenue 1,918 (1,064) 2,390 (4,643) Income taxes receivable 57 147 349 (715) Net cash provided by 6,658 4,016 17,297 14,537 operating activities Cash flows from investing activities: Purchases of held-to-maturity -- (2,672) (3,450) (36,583) investments Purchases of available-for-sale -- (771) (42,074) (12,888) investments Maturities of held-to-maturity 2,585 13,026 20,120 55,686 investments Maturities of available-for-sale 3,147 -- 22,092 -- investments Sales of held-to-maturity 9,109 -- 9,109 -- investments Sales of available-for-sale 24,760 -- 24,760 -- investments Cash paid for business (59,616) -- (59,616) -- acquisitions, net Purchases of property and (1,370) (909) (2,813) (2,443) equipment Purchases of intangible (242) (140) (422) (413) assets Net cash provided by (used in) investing (21,627) 8,534 (32,294) 3,359 activities Cash flows from financing activities: Proceeds from the issuance of common stock 36 595 1,411 3,596 under stock-based compensation plans Repurchases and retirement of common (11) (31) (966) (1,511) stock for restricted stock tax withholdings Excess tax benefits (shortfalls) from (2,966) (124) 312 30 stock-based awards Proceeds from long-term 30,000 -- 30,000 -- borrowings Purchases of treasury (3,846) (14,387) (5,881) (26,810) stock Net cash provided by (used in) financing 23,213 (13,947) 24,876 (24,695) activities Net change in cash and 8,244 (1,397) 9,879 (6,799) cash equivalents Cash and cash equivalents, beginning of 48,579 36,342 46,944 41,744 period Cash and cash equivalents, end of $56,823 $34,945 $56,823 $34,945 period 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 Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Cost of revenue: GAAP cost of revenue $2,105 $217 $2,493 $643 Amortization of 2,037 184 2,400 549 intangible assets Stock-based -- 3 -- 8 compensation Non-GAAP cost of $68 $30 $93 $86 revenue Selling, general and administrative: GAAP selling, general $25,322 $12,784 $57,311 $39,608 and administrative Amortization of 210 117 297 322 intangible assets Stock-based 2,258 1,950 6,682 5,546 compensation Acquisition and integration related 7,286 -- 10,057 -- costs* Non-GAAP selling, general and $15,568 $10,717 $40,275 $33,740 administrative Research and development: GAAP research and $7,625 $3,364 $16,915 $9,759 development Amortization of -- 44 90 134 intangible assets Stock-based 584 416 1,676 1,202 compensation Acquisition and integration related 882 -- 894 -- costs* Non-GAAP research and $6,159 $2,904 $14,255 $8,423 development Operating income (loss): GAAP operating income $(12,817) $4,181 $(5,845) $17,900 (loss) Amortization of 2,247 345 2,787 1,005 intangible assets Stock-based 2,842 2,369 8,358 6,756 compensation Acquisition and integration related 8,168 -- 10,951 -- costs* Non-GAAP operating $440 $6,895 $16,251 $25,661 income Non-GAAP operating income as a % of 2% 34% 23% 38% revenue Net income (loss): GAAP net income (loss) $(19,086) $2,902 $(15,796) $11,192 Amortization of 2,247 345 2,787 1,005 intangible assets Stock-based 2,842 2,369 8,358 6,756 compensation Acquisition and integration related 8,168 -- 10,951 -- costs* Tax impact of the above (5,303) (1,086) (7,695) (3,104) items Non-GAAP net income $(11,132) $4,530 $(1,395) $15,849 (loss) Non-GAAP diluted income $(0.61) $0.26 $(0.08) $0.89 (loss) per common share Weighted average shares 18,329 17,434 17,104 17,768 outstanding: * 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 2012 GAAP guidance reconciled to non-GAAP financial targets. Fiscal Year 2012 Low High Operating income (loss) as a % of revenue: GAAP operating loss as a % of revenue (10)% (8)% Amortization of intangible assets 6 6 Stock-based compensation 11 11 Acquisition and integration related costs* 12 12 Non-GAAP operating income as a % of revenue 19% 21% Net income (loss) per diluted share: GAAP net loss per diluted share $(1.00) $(0.90) Amortization of intangible assets 0.32 0.33 Stock-based compensation 0.64 0.66 Acquisition and integration related costs* 0.66 0.71 Tax impact of the above items (0.57) (0.60) Non-GAAP net income per diluted share $0.05 $0.20 Weighted average shares used to compute Non-GAAP net income per diluted share 17.5 17.5 (millions) * 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. The following table shows the Company's fiscal year 2013 GAAP guidance reconciled to Non-GAAP financial targets. Fiscal Year 2013 Low High Operating income as a % of revenue: GAAP operating income as a % of revenue 4% 9% Amortization of intangible assets 8 8 Stock-based compensation 9 9 Non-GAAP operating income as a % of revenue 21% 26% CONTACT: Media & Investor Contacts Sard Verbinnen & Co John Christiansen/Jenny Gore firstname.lastname@example.orgemail@example.com (415) 618-8750 DTS, Inc. Logo
DTS Reports Third Quarter 2012 Results
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