DTS Reports Fourth Quarter and Fiscal 2015 Financial Results

Calabasas, California, UNITED STATES


CALABASAS, Calif., March 02, 2016 (GLOBE NEWSWIRE) -- DTS, Inc. (Nasdaq:DTSI), a leader in high-definition audio solutions and audio enhancement technologies, today announced financial results for the fourth quarter and fiscal year ended December 31, 2015.

“Our fourth quarter results were solid, driven by higher than anticipated revenue contributions from iBiquity and strong game console production,” said Jon Kirchner, chairman and CEO, DTS, Inc. “Although 2015 was a challenging year, we maintained our focus on the network-connected markets where we materially advanced the development of ecosystems for our mobile and wireless audio solutions. Last week at Mobile World Congress, the Jade 2 smartphone from Acer became the world's first global smartphone to incorporate both Play-Fi® and Headphone:X®. Additionally, the acquisition of iBiquity has expanded our footprint in the automotive markets, increased the scale and profitability of our business, and strengthened our best-in-class suite of audio solutions, positioning us for continued growth in 2016 and beyond.”

Financial Comparison
 Q4 2015Q4 2014
Revenue$ 39.2 million$ 35.2 million
  Year-over-Year Growth Rate    11%            
 
GAAP Net Income (Loss) $ (12.8) million$ 1.9 million
GAAP Diluted Earnings (Loss) Per Share       $(0.74)                       $ 0.11         
 
Non-GAAP Operating Margin    19%            26%        
Non-GAAP Net Income$   4.2 million$   6.2 million
Non-GAAP Earnings Per Share*       $0.23            0.34         
 
 FY 2015FY 2014
Revenue$ 138.2 million   $ 143.9 million
  Year-over-Year Growth Rate    (4)%            
 
GAAP Net Income (Loss) $ (12.3) million $  27.1 million
GAAP Diluted Earnings (Loss) Per Share   $(0.71)           1.55         
 
Non-GAAP Operating Margin    23%            27%        
Non-GAAP Net Income$  21.2 million$ 27.2 million
Non-GAAP Earnings Per Share*       $1.17            1.55         
 
Supplemental Information
 Q4 2015Amount Per Diluted Share*
Stock-Based Compensation$ 3.6 million $0.14         
Amortization of Intangibles$ 5.6 million$0.22         
Acquisition, Integration, Realignment and Legal Costs $ 13.2 million$0.52         
 
 FY 2015Amount Per Diluted Share*
Stock-Based Compensation        $ 12.3 million        $0.47         
Amortization of Intangibles$ 13.6 million$0.52         
Acquisition, Integration, Realignment and Legal Costs$ 18.8 million$0.73         
*Amount Per Diluted Share Net of Tax @ 30%


Excluding royalties from compliance activities, revenue for the fourth quarter 2015 was $37.3 million, an increase of 15% compared to $32.5 million in the fourth quarter of 2014. Excluding royalties from compliance activities, revenue for the fiscal year ended December 31, 2015 was $132.7 million, an increase of 2% compared to $130.6 million in 2014.

Included in the fourth quarter and full year 2015 results was $4.6 million in revenue, $0.9 million in cost of goods sold and $6.8 million in operating expenses from the recently acquired HD Radio business.

The Company closed the year with cash and investments totaling $61.9 million. 

The GAAP and non-GAAP reconciling items for the quarters and years ended December 31, 2015 and 2014 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.

Business Outlook

For fiscal year 2016, the Company expects revenue in the range of $180 to $190 million. The Company expects growth in 2016 to primarily come from the automotive, mobile and wireless audio markets. 

The Company expects non-GAAP operating margins in the low-to-mid 30s and non-GAAP diluted EPS in the range of $2.10 to $2.25. 

In 2016, stock-based compensation expense is expected to be in the range of $0.52 to $0.53 per diluted share net of tax and amortization of intangibles is expected to be in the range of $0.87 to $0.89 per diluted share net of tax. The Company expects its tax rate excluding discrete items, for both GAAP and non-GAAP purposes, to be approximately 30%. On a GAAP basis, the Company expects operating margins in the range of 10% to 15% and diluted EPS in the range of $0.70 to $0.85. 

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, realignment and certain legal 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 March 2, 2016

DTS will host a conference call and live webcast at 1:30 p.m. Pacific Time to discuss the fourth quarter and fiscal year 2015 results. To access the conference call, dial 1-800-768-6544 or 1-785-830-7990 (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, March 2, 2016 through 11:59 p.m. Pacific Time, March 9, 2016, by dialing 1-888-203-1112 or 1-719-457-0820 (outside the U.S. and Canada) and entering pass code 2489005#.

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, cinema, automobiles and more, 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.

Copyright 2016, 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 2016; 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 
      December 31, December 31, 
       2015   2014  
      (Unaudited) 
ASSETS 
Current assets:      
 Cash and cash equivalents $  52,208  $  99,435  
 Short-term investments    9,657     -  
 Accounts receivable, net    12,454     12,364  
 Deferred income taxes    -     12,095  
 Prepaid expenses and other current assets    5,855     5,892  
 Income taxes receivable    4,130     3,925  
  Total current assets    84,304     133,711  
Property and equipment, net     29,022     27,089  
Intangible assets, net    157,936     48,543  
Goodwill       108,726     50,356  
Deferred income taxes    24,018     26,176  
Other long-term assets    3,934     2,395  
   Total assets $  407,940  $  288,270  
          
          
          
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:      
 Accounts payable  $  5,979  $  4,492  
 Accrued expenses    22,960     16,761  
 Deferred revenue    5,711     10,827  
 Income taxes payable    123     294  
 Current portion of long-term debt    21,486     5,000  
  Total current liabilities    56,259     37,374  
Long-term debt     136,666     20,000  
Other long-term liabilities    9,983     11,993  
          
Stockholders' equity:     
 Preferred stock    -     -  
 Common stock    3     3  
 Additional paid-in capital    258,660     241,053  
 Treasury stock, at cost    (111,331)    (92,184) 
 Accumulated other comprehensive income    778     808  
 Retained earnings    56,922     69,223  
  Total stockholders' equity     205,032     218,903  
   Total liabilities and stockholders' equity $  407,940  $  288,270  
          

 

           
DTS, INC. 
           
CONSOLIDATED STATEMENTS OF OPERATIONS 
(Amounts in thousands, except per share amounts) 
           
           
   For the Three Months Ended For the Twelve Months Ended 
   December 31, December 31, 
    2015   2014   2015   2014  
   (Unaudited) 
       
Revenue $  39,173  $  35,213  $  138,209  $  143,913  
Cost of revenue   6,848     3,002     15,077     11,095  
Gross profit   32,325     32,211     123,132     132,818  
Operating expenses:        
 Selling, general and administrative   32,959     18,557     92,276     78,570  
 Research and development   14,426     10,200     42,985     37,298  
 Change in fair value of contingent consideration   (20)    100     (420)    400  
  Total operating expenses   47,365     28,857     134,841     116,268  
Operating income (loss)   (15,040)    3,354     (11,709)    16,550  
Interest and other expense, net   (1,463)    (281)    (2,255)    (413) 
Income (loss) before income taxes   (16,503)    3,073     (13,964)    16,137  
Provision (benefit) for income taxes   (3,663)    1,125     (1,663)    (11,006) 
Net income (loss)$  (12,840) $  1,948  $  (12,301) $  27,143  
           
Net income (loss) per common share:        
 Basic$  (0.74) $  0.11  $  (0.71) $  1.58  
 Diluted$  (0.74) $  0.11  $  (0.71) $  1.55  
           
Weighted average shares outstanding:        
 Basic   17,291     17,272     17,396     17,180  
 Diluted   17,291     18,062     17,396     17,561  
           

 

       
DTS, INC. 
       
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Amounts in thousands) 
       
       
   For the Twelve Months Ended 
   December 31, 
    2015   2014  
   (Unaudited) 
Cash flows from operating activities:  
Net income (loss)$  (12,301) $  27,143  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
 Depreciation and amortization    17,692     14,404  
 Stock-based compensation charges    12,266     10,492  
 Deferred income taxes    1,288     (14,740) 
 Tax shortfalls from stock-based awards    -     (310) 
 Excess tax benefits from stock-based awards    -     (518) 
 Change in fair value of contingent consideration   (420)    400  
 Amortization of debt issuance costs   888     -  
 Other    680     117  
 Changes in operating assets and liabilities, net of business acquisitions:   
  Accounts receivable    12,992     (377) 
  Prepaid expenses and other assets    1,128     (1,799) 
  Accounts payable, accrued expenses and other liabilities    4,026     6,600  
  Deferred revenue   (6,135)    459  
  Income taxes receivable/payable   (8,651)    (805) 
  Payment of iBiquity employee incentive plan   (19,288)    -  
  Net cash provided by operating activities    4,165     41,066  
Cash flows from investing activities:    
 Purchases of available-for-sale investments   (34,666)    -  
 Maturities of available-for-sale investments   22,300     5,000  
 Sales of available-for-sale investments   6,502     -  
 Cash paid for business acquisitions, net   (156,563)    (3,200) 
 Sale of other assets   -     725  
 Purchases of property and equipment    (4,275)    (1,579) 
 Purchases of intangible assets   (2,675)    (2,025) 
 Other investing activities   (300)    -  
  Net cash used in investing activities    (169,677)    (1,079) 
Cash flows from financing activities:    
 Proceeds from long-term borrowings   160,000     30,000  
 Repayment of long-term borrowings   (25,000)    (35,000) 
 Payment of contingent consideration   -     (500) 
 Payment of debt issuance costs   (3,642)    -  
 Proceeds from the issuance of common stock under stock-based compensation plans   8,987     6,717  
 Cash paid for shares withheld for taxes   (2,913)    (817) 
 Excess tax benefits from stock-based awards    -     518  
 Purchases of treasury stock    (19,147)    (7,495) 
  Net cash provided by (used in) financing activities    118,285     (6,577) 
  Net change in cash and cash equivalents    (47,227)    33,410  
Cash and cash equivalents, beginning of period    99,435     66,025  
Cash and cash equivalents, end of period $  52,208  $  99,435  
       

 

           
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 Twelve
Months Ended
 
   December 31, December 31, 
    2015   2014   2015   2014  
Cost of revenue:        
 GAAP cost of revenue$  6,848  $  3,002  $  15,077  $  11,095  
  Amortization of intangible assets   5,099     2,296     12,245     8,793  
 Non-GAAP cost of revenue$  1,749  $  706  $  2,832  $  2,302  
           
Selling, general and administrative:        
 GAAP selling, general and administrative$  32,959  $  18,557  $  92,276  $  78,570  
  Amortization of intangible assets   524     248     1,316     1,024  
  Stock-based compensation   2,717     1,779     9,112     7,819  
  Acquisition*, integration, realignment and legal costs   10,746     534     15,152     1,504  
 Non-GAAP selling, general and administrative$  18,972  $  15,996  $  66,696  $  68,223  
           
Research and development:        
 GAAP research and development$  14,426  $  10,200  $  42,985  $  37,298  
  Stock-based compensation   871     651     3,154     2,673  
  Acquisition*, integration, realignment and legal costs   2,494     147     3,619     488  
 Non-GAAP research and development$  11,061  $  9,402  $  36,212  $  34,137  
           
Operating income:        
 GAAP operating income (loss)$  (15,040) $  3,354  $  (11,709) $  16,550  
  Amortization of intangible assets   5,623     2,544     13,561     9,817  
  Stock-based compensation   3,588     2,430     12,266     10,492  
  Acquisition*, integration, realignment and legal costs   13,240     681     18,771     1,992  
  Change in fair value of contingent consideration   (20)    100     (420)    400  
 Non-GAAP operating income$  7,391  $  9,109  $  32,469  $  39,251  
 Non-GAAP operating income as a % of revenue 19%  26%  23%  27% 
           
Net income:        
 GAAP net income (loss)$  (12,840) $  1,948  $  (12,301) $  27,143  
  Amortization of intangible assets   5,623     2,544     13,561     9,817  
  Stock-based compensation   3,588     2,430     12,266     10,492  
  Acquisition*, integration, realignment and legal costs   13,240     681     18,771     1,992  
  Change in fair value of contingent consideration   (20)    100     (420)    400  
  Adjustment for income taxes   (5,441)    (1,523)    (10,727)    (22,657) 
 Non-GAAP net income$  4,150  $  6,180  $  21,150  $  27,187  
           
 Non-GAAP diluted income per common share$  0.23  $  0.34  $  1.17  $  1.55  
           
 Non-GAAP weighted average diluted shares outstanding   17,877     18,062     18,094     17,561  
           
* 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 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 13%  13%  
  Stock-based compensation 7%  7%  
 Non-GAAP operating income as a % of revenue 30%  35%  
        
        
Net income per diluted share:     
        
 GAAP net income per diluted share$  0.70  $  0.85   
  Amortization of intangible assets   1.25     1.33   
  Stock-based compensation   0.73     0.78   
  Adjustment for income taxes   (0.58)    (0.71)  
 Non-GAAP net income per diluted share$  2.10  $  2.25   
        
 Weighted average shares used to compute non-GAAP     
  net income per diluted share (millions)   18.0     18.0   
        

 

 


        

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