DTS Reports Third Quarter 2015 Financial Results

Calabasas, California, UNITED STATES


CALABASAS, Calif., Nov. 9, 2015 (GLOBE NEWSWIRE) -- DTS, Inc. (Nasdaq:DTSI), a leader in high-definition audio solutions and audio enhancement technologies, today announced financial results for the third quarter ended September 30, 2015.

"Q3 was a challenging quarter, impacted by softening market conditions and slower than expected releases of certain partner products. Despite these short term headwinds, we are making solid progress in strengthening multiple DTS ecosystems across mobile, wireless audio, cinema and auto," said Jon Kirchner, chairman and CEO of DTS, Inc. "While we are disappointed with our financial performance, we are taking steps to strategically build a larger and stronger licensing platform. Significantly, we completed the acquisition of iBiquity, which will contribute meaningful growth in revenues, profits and cash flow in 2016 and beyond."

Financial Comparison
  Q3 2015 Q3 2014
Revenue $30.7 million $35.7 million
 Year-to-Year Growth Rate (14%)*  
 
GAAP Net Income (Loss) $(2.8) million $3.9 million
GAAP Earnings (Loss) Per Share** $(0.16) $0.22
 
Non-GAAP Operating Margin 26.9% 27.4%
Non-GAAP Net Income $5.7 million $6.7 million
Non-GAAP Earnings Per Share** $0.32 $0.39
*Excluding royalties from compliance activities, revenue in Q3 2015 was $29.6 million, a decrease of 9% compared to $32.5 million in Q3 2014
**Earnings per diluted share net of tax
 
Other GAAP Results
  Q3 2015 Amount Per Diluted Share*
Stock-Based Compensation $3.0 million $0.12
Amortization of Intangibles $2.7 million $0.10
*Amount per diluted share net of 30% tax rate

DTS closed the quarter with cash and investments totaling $95.6 million dollars. 

The GAAP and non-GAAP reconciling items for the quarters ended September 30, 2015 and 2014 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

With the addition of iBiquity, the Company's preliminary 2016 outlook for revenue is in the range of $180 million to $190 million, with non-GAAP operating margin in the low-to-mid 30s, and non-GAAP diluted EPS in the range of $2.15 to $2.30. This outlook reflects the Company's ability to drive meaningful cost efficiencies, resulting in EBITDA north of $60 million. On a GAAP basis, preliminary estimates are for 2016 operating margins in the range of 10% to 15%, and diluted EPS of $0.75 to $0.90.

For 2015, the Company is revising its full year revenue outlook to the range of $130 million to $135 million. The Company now expects non-GAAP diluted EPS in the range of $1.00 to $1.10. The Company also expects non-GAAP operating margins in the low 20s. On a GAAP basis, the Company expects a number of acquisition, integration and restructuring related charges which will impact near- term profitability, some of which are currently under evaluation. Excluding the portion of such charges under evaluation, the Company currently expects operating margins in the range of (6)% to (2)% and loss per share in the range of $0.25 to $0.20.

This 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 by excluding charges and the related estimated income tax effects for stock-based compensation, the amortization of intangible assets, acquisition and integration related expenses, and realignment costs. Over the past several years, the Company's GAAP tax rate has varied substantially. As a result of the completion of an international restructuring in 2014, management believes the most appropriate measure for its estimated annual effective tax rate is approximately 30%. 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 November 9, 2015

DTS will host a conference call and live webcast at 1:30 p.m. Pacific Time to discuss the third quarter ended September 30, 2015 results. To access the conference call, dial 1-888-523-1225 or 1-719-457-2628 (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 9, 2015 through 11:59 p.m. Pacific Time, November 16, 2015, by dialing 1-888-203-1112 or 1-719-457-0820 (outside the U.S. and Canada) and entering pass code 1150454.

About DTS, Inc.

Since 1993, DTS, Inc. (Nasdaq:DTSI) has been dedicated to making the world sound better. Through its pioneering audio solutions for mobile devices, home theater systems, cinemas and beyond, DTS provides incredibly high-quality, immersive and engaging audio experiences to listeners everywhere. DTS technology is integrated in more than two billion devices globally, and the world's leading video and music streaming services are increasingly choosing DTS to deliver premium sound to their listeners' network-connected devices. For more information, please visit www.dts.com.

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 2015; 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 Company's ability to penetrate the on-line and mobile content delivery market and adapt DTS' 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, 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 key customers or licensees, changes in domestic and international market and political conditions, unanticipated changes in 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)
     
  As of As of
  September 30, December 31,
  2015 2014
  (Unaudited)
ASSETS    
Current assets:    
Cash and cash equivalents  $ 72,297  $ 99,435
Short-term investments  23,264  --
Accounts receivable, net  12,851  12,364
Deferred income taxes  12,767  12,095
Prepaid expenses and other current assets  4,410  5,892
Income taxes receivable  2,028  3,925
Total current assets  127,617  133,711
Property and equipment, net   27,178  27,089
Intangible assets, net  41,899  48,543
Goodwill  50,356  50,356
Deferred income taxes  29,822  26,176
Other long-term assets  3,419  2,395
Total assets  $ 280,291  $ 288,270
     
LIABILITIES AND STOCKHOLDERS' EQUITY     
Current liabilities:    
Accounts payable   $ 5,848  $ 4,492
Accrued expenses  13,633  16,761
Deferred revenue  7,996  10,827
Income taxes payable  1,670  294
Current portion of long-term debt  8,750  5,000
Total current liabilities  37,897  37,374
Long-term debt  16,250  20,000
Other long-term liabilities  11,345  11,993
     
Stockholders' equity:    
Preferred stock  --  --
Common stock  3  3
Additional paid-in capital  255,554  241,053
Treasury stock, at cost  (111,331)  (92,184)
Accumulated other comprehensive income  811  808
Retained earnings  69,762  69,223
Total stockholders' equity   214,799  218,903
Total liabilities and stockholders' equity  $ 280,291  $ 288,270
 
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,
  2015 2014 2015 2014
  (Unaudited)
     
Revenue  $ 30,673  $ 35,676  $ 99,036  $ 108,700
Cost of revenue  2,702  3,302  8,229  8,093
Gross profit  27,971  32,374  90,807  100,607
Operating expenses:        
Selling, general and administrative  21,348  18,712  59,317  60,013
Research and development  9,320  9,092  28,559  27,098
Change in fair value of contingent consideration  (400)  200  (400)  300
Total operating expenses  30,268  28,004  87,476  87,411
Operating income (loss)  (2,297)  4,370  3,331  13,196
Interest and other expense, net  (173)  (149)  (792)  (132)
Income (loss) before income taxes  (2,470)  4,221  2,539  13,064
Provision (benefit) for income taxes  332  352  2,000  (12,131)
Net income (loss)  $ (2,802)  $ 3,869  $ 539  $ 25,195
         
Net income (loss) per common share:        
Basic  $ (0.16)  $ 0.23  $ 0.03  $ 1.47
Diluted  $ (0.16)  $ 0.22  $ 0.03  $ 1.45
         
Weighted average shares outstanding:        
Basic  17,255  17,126  17,431  17,149
Diluted  17,255  17,418  18,167  17,392
 
DTS, INC.
     
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
     
  For the Nine Months Ended
  September 30,
  2015 2014
  (Unaudited)
Cash flows from operating activities:  
Net income  $ 539  $ 25,195
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization   10,838  10,826
Stock-based compensation charges   8,678  8,062
Deferred income taxes   (5,310)  (19,189)
Tax shortfalls from stock-based awards   --  (654)
Excess tax benefits from stock-based awards   (914)  (20)
Change in fair value of contingent consideration  (400)  300
Other   353  (122)
Changes in operating assets and liabilities, net of business acquisitions:    
Accounts receivable   (669)  (8,544)
Prepaid expenses and other assets   881  1,469
Accounts payable, accrued expenses and other liabilities   (1,884)  3,321
Deferred revenue  (2,831)  2,140
Income taxes receivable/payable  4,758  2,993
Net cash provided by operating activities   14,039  25,777
Cash flows from investing activities:    
Purchases of available-for-sale investments  (34,666)  --
Maturities of available-for-sale investments  8,800  --
Sales of available-for-sale investments  2,502  --
Cash paid for business acquisitions  --  (3,200)
Sale of other assets  --  725
Purchases of property and equipment   (2,525)  (1,242)
Purchases of intangible assets  (1,853)  (575)
Other investing activities  (300)  --
Net cash used in investing activities   (28,042)  (4,292)
Cash flows from financing activities:    
Proceeds from long-term borrowings  --  30,000
Repayment of long-term borrowings  --  (30,000)
Proceeds from the issuance of common stock under stock-based compensation plans  7,962  2,245
Cash paid for shares withheld for taxes  (2,864)  (765)
Excess tax benefits from stock-based awards   914  20
Purchases of treasury stock   (19,147)  (7,495)
Net cash used in financing activities   (13,135)  (5,995)
Net change in cash and cash equivalents   (27,138)  15,490
Cash and cash equivalents, beginning of period   99,435  66,025
Cash and cash equivalents, end of period   $ 72,297  $ 81,515
 
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,
  2015 2014 2015 2014
Cost of revenue:        
GAAP cost of revenue  $ 2,702  $ 3,302  $ 8,229  $ 8,093
Amortization of intangible assets  2,392  2,200  7,146  6,497
Non-GAAP cost of revenue  $ 310  $ 1,102  $ 1,083  $ 1,596
         
Selling, general and administrative:        
GAAP selling, general and administrative  $ 21,348  $ 18,712  $ 59,317  $ 60,013
Amortization of intangible assets  266  134  792  776
Stock-based compensation  2,268  1,987  6,395  6,040
Acquisition and integration related costs*  4,130  185  4,130  185
Realignment costs  --  --  --  785
Non-GAAP selling, general and administrative  $ 14,684  $ 16,406  $ 48,000  $ 52,227
         
Research and development:        
GAAP research and development  $ 9,320  $ 9,092  $ 28,559  $ 27,098
Stock-based compensation  770  678  2,283  2,022
Acquisition and integration related costs*  1,125  8  1,125  8
Realignment costs  --  --  --  333
Non-GAAP research and development  $ 7,425  $ 8,406  $ 25,151  $ 24,735
         
Operating income:        
GAAP operating income (loss)  $ (2,297)  $ 4,370  $ 3,331  $ 13,196
Amortization of intangible assets  2,658  2,334  7,938  7,273
Stock-based compensation  3,038  2,665  8,678  8,062
Acquisition and integration related costs*  5,255  193  5,255  193
Change in fair value of contingent consideration  (400)  200  (400)  300
Realignment costs  --  --  --  1,118
Non-GAAP operating income  $ 8,254  $ 9,762  $ 24,802  $ 30,142
Non-GAAP operating income as a % of revenue 27% 27% 25% 28%
         
Net income:        
GAAP net income (loss)  $ (2,802)  $ 3,869  $ 539  $ 25,195
Amortization of intangible assets  2,658  2,334  7,938  7,273
Stock-based compensation  3,038  2,665  8,678  8,062
Acquisition and integration related costs*  5,255  193  5,255  193
Change in fair value of contingent consideration  (400)  200  (400)  300
Realignment costs  --  --  --  1,118
Adjustment for income taxes  (2,092)  (2,532)  (5,203)  (21,134)
Non-GAAP net income  $ 5,657  $ 6,729  $ 16,807  $ 21,007
         
Non-GAAP diluted income per common share  $ 0.32  $ 0.39  $ 0.93  $ 1.21
         
Non-GAAP weighted average diluted shares outstanding  17,855  17,418  18,167  17,392
         
* On October 1, 2015, DTS completed its acquisition of iBiquity Digital Corporation
On August 14, 2014, DTS completed its acquisition of Manzanita Systems, Inc.
 
Non-GAAP Financial Targets
     
The following tables show the Company's fiscal year 2015 GAAP guidance reconciled to non-GAAP financial targets.
     
  Fiscal Year 2015
  Low High
   
Operating income as a % of revenue:    
     
GAAP operating income (loss) as a % of revenue (6)% (2)%
Amortization of intangible assets 10% 10%
Stock-based compensation 9% 9%
Acquisition and integration related costs 7% 7%
Non-GAAP operating income as a % of revenue 20% 24%
     
     
Net income per diluted share:    
     
GAAP net income (loss) per diluted share  $ (0.25)  $ (0.20)
Amortization of intangible assets  0.70  0.74
Stock-based compensation  0.68  0.68
Change in fair value of contingent consideration  (0.02)  (0.02)
Acquisition and integration related costs  0.54  0.56
Adjustment for income taxes  (0.65)  (0.66)
Non-GAAP net income per diluted share  $ 1.00  $ 1.10
     
Weighted average shares used to compute non-GAAP net income per diluted share (millions)  18.0  18.0
     
Note: Acquisition and integration related costs for 2015 are still under evaluation and are subject to change.
 
Non-GAAP Financial Targets
     
The following tables show the Company's fiscal year 2016 GAAP guidance reconciled to non-GAAP financial targets.
     
  Fiscal Year 2016
  Low High
   
Operating income as a % of revenue:    
     
GAAP operating income as a % of revenue 10% 15%
Amortization of intangible assets 12% 13%
Stock-based compensation 8% 8%
Non-GAAP operating income as a % of revenue 30% 36%
     
Net income per diluted share:    
     
GAAP net income per diluted share  $ 0.75  $ 0.90
Amortization of intangible assets  1.28  1.28
Stock-based compensation  0.75  0.75
Adjustment for income taxes  (0.63)  (0.63)
Non-GAAP net income per diluted share  $ 2.15  $ 2.30
     
Weighted average shares used to compute non-GAAP net income per diluted share (millions)  18.4  18.4
     
Note: The 2016 guidance excludes the impact of acquisition and integration related costs, as such amounts are currently under evaluation.


        

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