DTS REPORTS FIRST QUARTER 2013 FINANCIAL RESULTS TV, PC and Mobile Drive 246% Growth in Network-Connected Revenue CALABASAS, Calif. (May 8, 2013) - DTS, Inc. (Nasdaq: DTSI) today announced financial results for the first quarter ended March 31, 2013.
Revenue for the first quarter was $32.7 million. This compares to $26.9 million in the first quarter of 2012, which included $2.3 million in royalty recoveries. Excluding royalty recoveries, revenue grew 33%, primarily due to continued significant growth in the Companys network-connected business, which grew 246% year-over-year, with particular strength in the strategically important network-connected TV, PC and mobile markets. These results were partially offset by expected declines in sales of DVD-based products, standalone Blu-ray players and PC Blu-ray products.
Non-GAAP net income in the first quarter of 2013 was $4.0 million, or $0.22 per diluted share net of tax, compared to non-GAAP net income of $6.2 million, or $0.37 per diluted share net of tax, in the first quarter of 2012. Consistent with our expectations, non-GAAP operating margin in the first quarter of 2013 was 21%, compared to 38% in the first quarter of 2012.
GAAP net loss in the first quarter of 2013 was $1.5 million, or a loss of $0.08 per share, compared to net income $4.0 million, or $0.24 per diluted share, in the first quarter of 2012. The Companys GAAP results reflect a tax rate of 293% due to a valuation allowance against future tax benefits of approximately $0.10 per share. Due in part to its recent acquisitions, the Company has generated a three-year cumulative pre-tax loss in the US, requiring it to provide the valuation allowance and currently preventing the Company from utilizing these losses to offset other income taxes, which will temporarily create substantial volatility in its tax provisions. As a result, the Companys non-GAAP presentation reflects a more normalized 40% tax rate as management works to resolve the situation.
GAAP operating margin in the first quarter of 2013 was 3%, compared to 26% in the first quarter of 2012. GAAP results for the first quarter of 2013 include $3.0 million, or $0.10 per diluted share net of tax, in stock-based compensation expense; $2.5 million, or $0.08 per diluted share net of tax, in amortization of intangibles; and $388,000, or $0.01 per diluted share net of tax, in acquisition and integration-related costs.
The GAAP and non-GAAP reconciling items for the first 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 Companys website at www.DTS.com.
The Company closed the quarter with cash and investments totaling $76.6 million.
"DTS delivered strong revenue growth in the first quarter, consistent with our expectations, driven again by accelerating momentum in the network-connected markets," said Jon Kirchner, chairman and CEO of DTS, Inc. "The strategic investments we have made in technology, products and content partnerships to expand our network-connected footprint are continuing to translate into meaningful design wins and customer momentum, particularly in mobile. The recent launches of our Headphone:X and DTS Layered Audio technologies continue to generate significant industry excitement. These launches, combined with new product and customer announcements during the quarter from a number of manufacturers, including Toshiba, Asustek, Samsung and Yulong, position us well to continue to drive our network-connected business in 2013 and beyond."
Business Outlook
The Company continues to expect 2013 revenue in the range of $140 to $146 million, including a normal level of royalty recoveries, non-GAAP operating margin in the low- to mid-20s and non-GAAP EPS in the range of $1.05 to $1.20 per diluted share based on a normalized 40% effective tax rate. Stock-based compensation expense is expected to be in the range of $0.44 to $0.47 per diluted share net of tax and amortization of intangibles is expected to be in the range of $0.39 to $0.42 in 2013. On a GAAP basis, the Company expects an operating margin of approximately 3% to 6% and now expects EPS in the range of $(0.05) to $0.00 per diluted share as a result of the unusual tax situation described above.
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 Companys 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 Companys Consolidated Statements of Operations prepared under generally accepted accounting principles (GAAP). These non-GAAP financial measures adjust the Companys 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 Companys GAAP tax rate is currently subject to substantial volatility caused by three-year cumulative pre-tax losses in the US, which now require the Company to record a valuation allowance against all US Federal deferred tax benefits. Management believes that the Companys 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 pretax earnings of the Company. Reconciliations of GAAP to non-GAAP amounts for the periods presented herein are provided in schedules accompanying this release and shoul
