DTS Reports Third Quarter 2013 Financial Results Network-Connected Markets Continue to Lead Growth CALABASAS, Calif., Nov. 6, 2013 (GLOBE NEWSWIRE) -- DTS, Inc. (Nasdaq:DTSI) today announced financial results for the third quarter ended September 30, 2013. "Our third quarter results reflect increasing penetration in the network-connected markets, which were up more than 100% year over year," said Jon Kirchner, chairman and CEO of DTS, Inc. "We continue to proactively position the business for future growth in a dynamic environment, and we are encouraged by the progress we are making in the connected television, mobile, PC and wireless audio categories. Our efforts are helping to lay the foundation for a transformative audio entertainment ecosystem. From our mobile Headphone:X technology, which is driving excitement among artists, labels, studios and product manufacturers, to Play-Fi, which is the only technology available that enables wireless audio in the home across Android, iOS and Windows, DTS is helping redefine the entertainment experience for today's connected consumer. As we enter the holiday period amidst some broader CE market weakness, we remain confident in our strategic direction and growth prospects as we look into 2014 and beyond." Quarterly Financial Comparison Q3 2013 Q3 2012 Revenue $28.2 million $22.2 million Year-over-year growth rate 27% 8% GAAP Net income/(loss) $2.0 million $(19.1) million GAAP Earnings/(loss) per share* $0.11 $(1.04) Non-GAAP Operating margin 21% 2% Non-GAAP Net income/(loss) $3.6 million $(11.1) million Non-GAAP Earnings/(loss) per share* $0.19 $(0.61) *Earnings/(loss) per diluted share net of tax Other GAAP Results Q3 2013 Amount per diluted share* Stock-based compensation $2.8 million $0.09 Amortization of intangibles $2.5 million $0.08 Acquisition and integration- related costs $1.1 million $0.04 Net adjustment to Phorus-related intangibles ($2.5 million) ($0.08) and contingent consideration *Amount per diluted share net of tax The Company generated $11.4 million in cash flow from operations during the third quarter of 2013, compared to $6.7 million during the third quarter of 2012, and closed the quarter with cash and investments totaling $81.1 million. The GAAP and non-GAAP reconciling items for the third quarters of 2013 and 2012 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 expects 2013 revenue in the lower end of its previously-stated range of $130 to $136 million. Non-GAAP operating margin is expected to be in the low- to mid-20s and non-GAAP EPS in the range of $0.98 to $1.12 per diluted share based on a normalized 40% effective tax rate.Stock-based compensation expense is expected to be in the range of $0.38 to $0.41 per diluted share net of tax and amortization of intangibles is expected to be in the range of $0.32 to $0.35 per share net of tax in 2013.On a GAAP basis, the inclusion of the carrying value adjustments relating to the Phorus assets and liability noted above net to an increase in the Company's expected GAAP operating margin of approximately 2 percentage points and expected GAAP EPS of approximately $0.08 per diluted share.As a result, the Company expects a GAAP operating margin of approximately 5% to 8% and GAAP EPS in the range of $0.03 to $0.08 per diluted share. The outlook is based on a number of assumptions that the Company believes are reasonable at the time of this press release.Information regarding potential risks that could cause the actual results to differ from these forward-looking statements is set forth below and in the Company's filings with the Securities and Exchange Commission. 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.In addition, the Company's GAAP tax rate is currently subject to substantial variability caused by three-year cumulative pre-tax losses in the US, which require the Company to record a valuation allowance against all US Federal deferred tax benefits.Management believes that the Company's inability to utilize its US deferred tax benefits is temporary, and as a result, the appropriate measure for its effective tax rate, until such time as the valuation allowance issue is resolved, is to impute a normalized 40% 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 Wednesday, November 6, 2013 DTS will host a conference call and live webcast at 1:30 p.m. Pacific Time to discuss the third quarter results.To access the conference call, dial 1-877-941-6010 or 1-480-629-9770 (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 6, 2013 through 11:59 p.m. Pacific Time, November 13, 2013, by dialing 1-800-406-7325 or 1-303-590-3030 (outside the U.S. and Canada) and entering pass code 4646564#. About DTS, Inc. DTS, Inc. (Nasdaq:DTSI) is a premier audio solutions provider for high-definition entertainment experiences—anytime, anywhere, on any device. DTS' audio solutions enable delivery and playback of clear, compelling high-definition audio, which is incorporated by hundreds of licensee customers around the world, into billions of consumer electronic 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 automotive audio systems, digital media players, DVD players, game consoles, home theaters, PCs, set-top boxes, smartphones, surround music content and every device capable of playing Blu-ray™ discs. Founded in 1993, DTS' corporate headquarters is 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. Copyright 2013, 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 or financial or operating performance; any statements regarding the Company's future use of deferred tax benefits and future effective tax rates; 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, the continued decline in optical disc-based product sales, our ability to penetrate the on-line and mobile content delivery market and adapt our technologies for that market, 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. DTS-I DTS, INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except per share amounts) As of As of September 30, December 31, 2013 2012 (Unaudited) ASSETS Current assets: Cash and cash equivalents $73,586 $57,831 Short-term investments 2,542 14,214 Accounts receivable, net of allowance for doubtful accounts of $1,061 and $679 at September 30, 2013 6,916 9,460 and December 31, 2012, respectively Deferred income taxes 1,395 1,998 Prepaid expenses and other current assets 4,282 4,875 Income taxes receivable 3,113 5,107 Total current assets 91,834 93,485 Property and equipment, net 31,009 33,325 Intangible assets, net 52,296 61,400 Goodwill 48,418 48,418 Deferred income taxes 4,320 605 Long-term investments 5,002 5,000 Other assets 4,824 4,826 Total assets $237,703 $247,059 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $2,905 $2,796 Accrued expenses 9,947 15,861 Deferred revenue 9,217 7,659 Total current liabilities 22,069 26,316 Long-term debt 30,000 30,000 Other long-term liabilities 5,604 9,817 Stockholders' equity: Preferred stock -- $0.0001 par value, 5,000 shares authorized at September 30, 2013 and December 31, — — 2012; no shares issued and outstanding Common stock -- $0.0001 par value, 70,000 shares authorized at September 30, 2013 and December 31, 2012; 20,897 and 20,710 shares issued at September 3 3 30, 2013 and December 31, 2012, respectively; 17,985 and 18,208 outstanding at September 30, 2013 and December 31, 2012, respectively Additional paid-in capital 222,796 213,787 Treasury stock, at cost - 2,912 and 2,502 shares at September 30, 2013 and December 31, 2012, (68,266) (59,848) respectively Accumulated other comprehensive income 743 659 Retained earnings 24,754 26,325 Total stockholders' equity 180,030 180,926 Total liabilities and stockholders' equity $237,703 $247,059 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, 2013 2012 2013 2012 (Unaudited) Revenue $ 28,159 $ 22,235 $ 88,075 $ 70,874 Cost of revenue 2,433 2,105 7,167 2,493 Gross profit 25,726 20,130 80,908 68,381 Operating expenses: Selling, general and 18,784 25,322 59,223 57,311 administrative Research and development 7,490 7,625 23,011 16,915 Change in fair value of (5,300) -- (5,300) -- contingent consideration Impairment of intangible 2,820 -- 2,820 -- assets Total operating expenses 23,794 32,947 79,754 74,226 Operating income (loss) 1,932 (12,817) 1,154 (5,845) Interest and other income (27) 19 (446) (67) (expense), net Income (loss) before provision for income 1,905 (12,798) 708 (5,912) taxes Provision (benefit) for (83) 6,288 2,279 9,884 income taxes Net income (loss) $1,988 $ (19,086) $ (1,571) $ (15,796) Net income (loss) per common share: Basic $0.11 $(1.04) $(0.09) $(0.92) Diluted $0.11 $(1.04) $(0.09) $(0.92) Weighted average shares outstanding: Basic 18,191 18,329 18,239 17,104 Diluted 18,445 18,329 18,239 17,104 DTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) For the Three Months For the Nine Months Ended Ended September 30, September 30, 2013 2012 2013 2012 (Unaudited) Cash flows from operating activities: Net income (loss) $1,988 $ (19,086) $ (1,571) $ (15,796) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 3,952 3,578 11,710 6,292 Stock-based compensation charges 2,849 2,842 8,774 8,358 Deferred income taxes (1,936) 7,158 (3,241) 3,185 Tax benefits (shortfalls) from 58 (2,967) (333) 108 stock-based awards Excess tax shortfalls (benefits) (72) 2,966 (48) (312) from stock-based awards Change in fair value of (5,300) -- (5,300) -- contingent consideration Impairment of intangible assets 2,820 -- 2,820 -- Other 481 241 562 381 Changes in operating assets and liabilities, net of business acquisitions: Accounts receivable 4,591 5,292 2,544 6,366 Prepaid expenses and other (160) (204) 170 (325) assets Accounts payable, accrued 15 4,863 (4,614) 6,301 expenses and other liabilities Deferred revenue 860 1,918 1,558 2,390 Income taxes receivable 1,234 57 1,994 349 Net cash provided by operating 11,380 6,658 15,025 17,297 activities Cash flows from investing activities: Purchases of held-to-maturity -- -- -- (3,450) investments Purchases of available-for-sale (9) -- (5,014) (42,074) investments Maturities of held-to-maturity -- 2,585 -- 20,120 investments Maturities of available-for-sale 1,244 3,147 16,684 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 (967) (1,370) (2,322) (2,813) equipment Purchases of intangible assets (332) (242) (816) (422) Net cash provided by (used in) (64) (21,627) 8,532 (32,294) investing activities Cash flows from financing activities: Proceeds from the issuance of common stock under stock-based 69 36 1,472 1,411 compensation plans Repurchases and retirement of common stock for restricted stock (100) (11) (904) (966) tax withholdings Excess tax benefits (shortfalls) 72 (2,966) 48 312 from stock-based awards Proceeds from long-term -- 30,000 -- 30,000 borrowings Purchases of treasury stock (5,664) (3,846) (8,418) (5,881) Net cash provided by (used in) (5,623) 23,213 (7,802) 24,876 financing activities Net change in cash and cash 5,693 8,244 15,755 9,879 equivalents Cash and cash equivalents, 67,893 48,579 57,831 46,944 beginning of period Cash and cash equivalents, end of $ 73,586 $ 56,823 $ 73,586 $ 56,823 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, 2013 2012 2013 2012 Cost of revenue: GAAP cost of revenue $2,433 $2,105 $7,167 $2,493 Amortization of 2,267 2,037 6,705 2,400 intangible assets Non-GAAP cost of revenue $166 $68 $462 $93 Selling, general and administrative: GAAP selling, general $ 18,784 $ 25,322 $ 59,223 $ 57,311 and administrative Amortization of 274 210 788 297 intangible assets Stock-based compensation 2,139 2,258 6,644 6,682 Acquisition and integration related 1,131 7,286 1,528 10,057 costs* Non-GAAP selling, general and $15,240 $ 15,568 $ 50,263 $ 40,275 administrative Research and development: GAAP research and $7,490 $7,625 $ 23,011 $ 16,915 development Amortization of -- -- -- 90 intangible assets Stock-based compensation 710 584 2,130 1,676 Acquisition and integration related -- 882 38 894 costs* Non-GAAP research and $6,780 $6,159 $ 20,843 $ 14,255 development Operating income (loss): GAAP operating income $1,932 $ (12,817) $1,154 $(5,845) (loss) Amortization of 2,541 2,247 7,493 2,787 intangible assets Stock-based compensation 2,849 2,842 8,774 8,358 Acquisition and integration related 1,131 8,168 1,566 10,951 costs* Change in fair value of (5,300) -- (5,300) -- contingent consideration Impairment of intangible 2,820 -- 2,820 -- assets Non-GAAP operating $5,973 $440 $16,507 $ 16,251 income Non-GAAP operating 21% 2% 19% 23% income as a % of revenue Net income (loss): GAAP net income (loss) $1,988 $(19,086) $ (1,571) $ (15,796) Amortization of 2,541 2,247 7,493 2,787 intangible assets Stock-based compensation 2,849 2,842 8,774 8,358 Acquisition and integration related 1,131 8,168 1,566 10,951 costs* Change in fair value of (5,300) -- (5,300) -- contingent consideration Impairment of intangible 2,820 -- 2,820 -- assets Tax impact of the above (2,461) (5,303) (4,145) (7,695) items Non-GAAP net income $3,568 $ (11,132) $9,637 $(1,395) (loss) Non-GAAP diluted income $0.19 $(0.61) $0.52 $(0.08) (loss) per common share Weighted average shares 18,445 18,329 18,457 17,104 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 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 5% 8% Amortization of intangible assets 8% 9% Stock-based compensation 9% 10% Change in fair value of contingent consideration -4% -4% Impairment of intangible assets 2% 2% Acquisition and integration related costs* 1% 1% Non-GAAP operating income as a % of revenue 21% 26% Net income per diluted share: GAAP net income per diluted share $ 0.03 $ 0.08 Amortization of intangible assets 0.53 0.59 Stock-based compensation 0.63 0.68 Change in fair value of contingent consideration (0.29) (0.29) Impairment of intangible assets 0.15 0.15 Acquisition and integration related costs* 0.07 0.09 Tax adjustments (0.14) (0.18) Non-GAAP net income per diluted share $ 0.98 $ 1.12 Weighted average shares used to compute Non-GAAP net income 18.5 18.5 per diluted share (millions) CONTACT: Media & Investor Contacts Sard Verbinnen & Co for DTS, Inc. John Christiansen/Jenny Gore email@example.comfirstname.lastname@example.org (415) 618-8750/(312) 895-4700 DTS, Inc. Logo
DTS Reports Third Quarter 2013 Financial Results
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