Form 8-K DTS, INC. For: Aug 08

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August 8, 2016 4:13 PM EDT

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

Date of Report (Date of earliest event reported): August 8, 2016

 

DTS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 000-50335 77-0467655
(State or other jurisdiction
of incorporation)		 (Commission
File Number)		 (I.R.S. Employer
Identification No.)

 

5220 Las Virgenes Road

Calabasas, CA

 91302
(Address of principal executive offices) (Zip Code)

 

(818) 436-1000

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

 

Item 2.02Results of Operations and Financial Condition

 

On August 8, 2016, DTS, Inc. (the “Registrant”) issued a press release announcing its financial results for the quarter ended June 30, 2016 and related information and posted an investor presentation containing financial information and certain estimated guidance on its website (www.dts.com) in connection with the announcement of such financial information. Copies of the press release and investor presentation are furnished as Exhibits 99.1 and 99.2 hereto, respectively, and the information in Exhibits 99.1 and 99.2 is incorporated herein by reference.

 

The information in this Current Report, including Exhibits 99.1 and 99.2, is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any registration statement or other document filed with the Securities and Exchange Commission, except as shall be expressly set forth by specific reference in such filing. In addition, information on the Registrant’s website is not incorporated by reference into this Current Report and should not be considered part of this Current Report.

 

Item 9.01Financial Statements and Exhibits

 

(d)Exhibits

 

99.1Press release dated August 8, 2016 of the Registrant, announcing its financial results for the quarter ended June 30, 2016 and related information.

 

99.2Q2 2016 investor presentation dated August 8, 2016, containing financial information and certain estimated guidance.

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. 

 

  DTS, INC.  
       
Date: August 8, 2016      
  By: /s/ Melvin Flanigan  
    Melvin Flanigan  
    Executive Vice President, Finance
and Chief Financial Officer
(principal financial and accounting officer)		  

 

 

 

 

Exhibit Index

 

Exhibit No.   Description  
99.1  

Press release dated August 8, 2016 of the Registrant, announcing its financial results for the quarter ended June 30, 2016 and related information.

 

  
99.2   Q2 2016 investor presentation dated August 8, 2016, containing financial information and certain estimated guidance.  

  

 

Exhibit 99.1
 

DTS Reports Second Quarter Fiscal 2016 Financial Results



DTS Raises Fiscal 2016 Revenue and Earnings Outlook and Announces First Quarterly Dividend

CALABASAS, Calif., Aug. 8, 2016 /PRNewswire/ -- DTS, Inc. (Nasdaq: DTSI), a leader in high-definition audio solutions and audio enhancement technologies, today announced financial results for the second quarter ended June 30, 2016.

"We had a strong second quarter driven by solid performance in automotive and continued momentum across the mobile markets. We also renewed several contracts in the home category and saw additional penetration of DTS:X in the AVR market. As a result of this strong performance, we are raising the low end of our full year 2016 revenue outlook and increasing our earnings outlook to reflect our confidence in the second half of 2016," said Jon Kirchner, chairman and CEO of DTS.

Kirchner continued, "Importantly, our business continues to generate improving operating margins and strong cash flow, and we are focused on optimizing our balance sheet and cash flow to generate value for shareholders. As a result, our Board of Directors has approved the addition of a quarterly cash dividend to our capital allocation strategy. Under this program, the initial quarterly dividend has been set at $0.02 per share. This is an important milestone and reiterates our commitment to growing the business through continued investments in our technology portfolio, and responsibly returning capital to shareholders through dividends and opportunistic share repurchases. These actions reflect our confidence in the future of DTS and our ability to create long-term value."

Financial Comparisons


Q2 2016

Q2 2015

Revenue

$

48.7 million

$

34.4 million

Year-over-Year Growth Rate

41%


GAAP Operating Margin

19%

11%

GAAP Net Income

$

4.7 million

$

2.3 million

GAAP Earnings Per Share*

$

0.26

$

0.12


Non-GAAP Operating Margin

38%

27%

Non-GAAP Net Income

$

12.1 million

$

6.2 million

Non-GAAP Earnings Per Share**

$

0.67

$

0.34


Supplemental Information


Q2 2016

Amount Per
Diluted Share**

Stock-Based Compensation

$

3.0 million

$

0.12

Amortization of Intangibles

$

5.6 million

$

0.22


*Amount Per Diluted Share Net of Tax

**Amount Per Diluted Share Net of Estimated Tax @ 30%

DTS closed the quarter with cash and cash equivalents totaling $43.8 million.

The GAAP and non-GAAP reconciling items for the quarters ended June 30, 2016 and 2015 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

As a result of better-than-expected performance in the second quarter, the Company is revising its outlook for the full year 2016. The Company now expects revenue in the range of $185 to $190 million. The Company expects growth in 2016 to come from the mobile and automotive markets.

On a GAAP basis, the Company expects operating margins in the range of 10% to 15% and diluted earnings per share in the range of $0.70 to $0.80. The Company expects non-GAAP operating margins in the low-to-mid 30s and non-GAAP diluted earnings per share in the range of $2.18 to $2.28.

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.

Cash Dividend

The Company declared a cash dividend of $0.02 per common share to be paid on August 31, 2016 to shareholders of record at the close of business on August 22, 2016.

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, and acquisition, integration, and restructuring related costs. Over the past several years, the Company's GAAP tax rate has varied substantially. As a result of recent international restructurings, management believes the most appropriate measure for its estimated annual effective tax rate is approximately 30% and as such, a 30% tax rate has been used in the computation of non-GAAP net income. 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 August 8, 2016

DTS will host a conference call and live webcast at 1:30 p.m. Pacific Time to discuss the second quarter ended June 30, 2016 results. A live webcast of the call will be available on the investor relations website at http://investor.dts.com and via replay beginning two hours after the completion of the call. To access the conference call, dial 1-888-713-3587 or 1-913-312-1462 (outside the U.S. and Canada). An audio replay of the call will also be available to investors beginning at 4:30 p.m. Pacific Time, August 8, 2016 through 4:30 p.m. Pacific Time, August 17, 2016. You can register for the replay by clicking here and entering 3443727.

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, automotive 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' 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 technologies, 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 automotive, home and mobile 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, our ability to penetrate the on-line and mobile content delivery market and adapt our technologies for that market, our ability to further penetrate the automotive, home and mobile markets, 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 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)



















As of

As of



June 30,

December 31,



2016

2015



(Unaudited)

ASSETS

Current assets:




Cash and cash equivalents

$    43,762

$     52,208


Short-term investments

-

9,657


Accounts receivable, net

20,447

12,454


Prepaid expenses and other current assets

6,342

5,855


Income taxes receivable

2,084

4,130

Total current assets

72,635

84,304

Property and equipment, net 

27,971

29,022

Intangible assets, net

147,920

157,936

Goodwill


87,625

108,726

Deferred income taxes

40,843

24,018

Other long-term assets

7,288

3,934

Total assets

$   384,282

$   407,940






















LIABILITIES AND STOCKHOLDERS' EQUITY 

Current liabilities:




Accounts payable 

$       4,420

$       5,979


Accrued expenses

12,503

22,960


Deferred revenue

3,204

5,711


Income taxes payable

104

123


Current portion of long-term debt, net

31,486

21,486

Total current liabilities

51,717

56,259

Long-term debt, net

105,923

136,666

Other long-term liabilities

9,990

9,983






Stockholders' equity:




Preferred stock

-

-


Common stock

3

3


Additional paid-in capital

265,054

258,660


Treasury stock, at cost

(111,331)

(111,331)


Accumulated other comprehensive income

782

778


Retained earnings

62,144

56,922

Total stockholders' equity 

216,652

205,032

Total liabilities and stockholders' equity

$   384,282

$   407,940

DTS, INC.








CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts)





















For the Three Months Ended

For the Six Months Ended

June 30,

June 30,

2016

2015

2016

2015

(Unaudited)




Revenue

$ 48,655

$ 34,426

$ 93,850

$ 68,363

Cost of revenue

6,211

2,743

12,302

5,527

Gross profit

42,444

31,683

81,548

62,836

Operating expenses:







Selling, general and administrative

20,771

18,186

45,280

37,969


Research and development

12,612

9,611

25,299

19,239

Total operating expenses

33,383

27,797

70,579

57,208

Operating income

9,061

3,886

10,969

5,628

Interest and other expense, net

(1,240)

(458)

(2,399)

(619)

Income before income taxes

7,821

3,428

8,570

5,009

Provision for income taxes

3,136

1,141

3,348

1,668

Net income

$  4,685

$  2,287

$  5,222

$  3,341








Net income per common share:







Basic

$    0.27

$    0.13

$    0.30

$    0.19


Diluted

$    0.26

$    0.12

$    0.29

$    0.18








Weighted average shares outstanding:







Basic

17,568

17,580

17,489

17,521


Diluted

17,965

18,415

17,867

18,326

DTS, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)
















For the Six Months Ended


June 30,


2016

2015


(Unaudited)

Cash flows from operating activities:

Net income

$   5,222

$   3,341

Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization 

13,396

7,181


Stock-based compensation charges 

6,740

5,640


Deferred income taxes 

(2,392)

(2,029)


Excess tax benefits from stock-based awards 

(71)

(1,696)


Amortization of debt issuance costs

306

-


Other 

(104)

310


Changes in operating assets and liabilities:





Accounts receivable 

(7,816)

(4,419)

Prepaid expenses and other assets 

126

2,339

Accounts payable, accrued expenses and other liabilities 

(10,806)

(7,369)

Deferred revenue

(2,507)

(1,068)

Income taxes receivable/payable

4,226

1,948

Net cash provided by operating activities 

6,320

4,178

Cash flows from investing activities:




Purchases of available-for-sale investments

(13,635)

(32,344)


Maturities of available-for-sale investments

11,125

-


Sales of available-for-sale investments

12,125

-


Purchases of property and equipment 

(1,453)

(1,544)


Purchases of intangible assets

(1,378)

(1,660)


Other investing activities

-

(300)

Net cash provided by (used in) investing activities 

6,784

(35,848)

Cash flows from financing activities:




Repayments of long-term borrowings

(20,938)

-


Payment of contingent consideration

(480)

-


Holdback and other payments related to acquisitions

(370)

-


Proceeds from the issuance of common stock under stock-based compensation plans

2,375

7,664


Cash paid for shares withheld for taxes

(2,208)

(2,774)


Excess tax benefits from stock-based awards 

71

1,696


Purchases of treasury stock 

-

(19,147)

Net cash used in financing activities 

(21,550)

(12,561)

Net change in cash and cash equivalents 

(8,446)

(44,231)

Cash and cash equivalents, beginning of period 

52,208

99,435

Cash and cash equivalents, end of period 

$  43,762

$  55,204

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 Six Months Ended

June 30,

June 30,

2016

2015

2016

2015

Cost of revenue:







GAAP cost of revenue

$   6,211

$   2,743

$  12,302

$   5,527

Amortization of intangible assets

5,038

2,386

9,974

4,754


Non-GAAP cost of revenue

$   1,173

$      357

$   2,328

$      773








Selling, general and administrative:







GAAP selling, general and administrative

$  20,771

$  18,186

$  45,280

$  37,969

Amortization of intangible assets

534

261

1,077

526

Stock-based compensation

2,073

1,990

4,874

4,127

Acquisition, integration and restructuring related costs*

726

-

1,006

-


Non-GAAP selling, general and administrative

$  17,438

$  15,935

$  38,323

$  33,316








Research and development:







GAAP research and development

$  12,612

$   9,611

$  25,299

$  19,239

Stock-based compensation

881

752

1,866

1,513

Acquisition, integration and restructuring related costs*

147

-

163

-


Non-GAAP research and development

$  11,584

$   8,859

$  23,270

$  17,726








Operating income:







GAAP operating income

$    9,061

$   3,886

$  10,969

$    5,628

Amortization of intangible assets

5,572

2,647

11,051

5,280

Stock-based compensation

2,954

2,742

6,740

5,640

Acquisition, integration and restructuring related costs*

873

-

1,169

-


Non-GAAP operating income

$  18,460

$   9,275

$  29,929

$  16,548









GAAP operating income as a % of revenue

19%

11%

12%

8%


Non-GAAP operating income as a % of revenue

38%

27%

32%

24%








Net income:







GAAP net income

$   4,685

$   2,287

$   5,222

$   3,341

Amortization of intangible assets

5,572

2,647

11,051

5,280

Stock-based compensation

2,954

2,742

6,740

5,640

Acquisition, integration and restructuring related costs*

873

-

1,169

-

Adjustment for income taxes

(2,030)

(1,504)

(4,911)

(3,111)


Non-GAAP net income

$  12,054

$   6,172

$  19,271

$  11,150









GAAP diluted income per common share

$     0.26

$     0.12

$     0.29

$     0.18


Non-GAAP diluted income per common share

$     0.67

$     0.34

$     1.08

$     0.61









Weighted average diluted shares outstanding

17,965

18,415

17,867

18,326








* On October 1, 2015, DTS completed its acquisition of iBiquity Digital Corporation

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

$0.80

Amortization of intangible assets

1.25

1.33

Stock-based compensation

0.73

0.78

Adjustment for income taxes

(0.50)

(0.63)


Non-GAAP net income per diluted share

$2.18

$2.28





Weighted average shares used to compute non-GAAP net income per diluted share (millions)

18.0

18.0

DTS Logo

Logo - http://photos.prnewswire.com/prnh/20160725/392708LOGO



CONTACT: Investor Contact, DTS, Inc., Geri Weinfeld, Director, Investor Relations, [email protected], (818) 436-1231

 

Exhibit 99.2

 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 1 DTS INVESTOR PRESENTATION Q2 2016 AUGUST 8, 2016

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 2 During this presentation, management may make forward - looking statements within the meaning of Section 27 A of the U . S . Securities Act of 1933 , as amended, and Section 21 E of the U . S . Securities Exchange Act of 1934 , as amended . Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward - looking statements, which generally are not historical in nature . Such statements are subject to known and unknown risks, uncertainties or other factors that may cause the company’s actual results to be materially different from historical results or any results expressed or implied during this presentation . Information regarding risks and uncertainties that could cause actual results to differ materially and more detailed disclosures concerning the risks facing our business may be found in periodic reports that we file with the SEC including DTS’ most recent forms 10 - K and 10 - Q, available at www . sec . gov . The information in this presentation related to projections or other forward - looking statements, including, but not limited to, statements regarding future financial or operating performance are based on current expectations and we expressly disclaim any responsibility to update forward - looking statements should circumstances change . Forward - looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict . Although we believe the expectations reflected in any forward - looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward - looking statements . Reconciliation of GAAP to Non - GAAP financial measures can be found on the Investor Relations section of our website at www . dts . com . SAFE HARBOR

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 3 ~45% <15% <40% 2016E Revenue Breakdown by Market Home Mobile Automotive Stock/Financial Information FY Financial Highlights and 2016 Outlook ($ Millions, except per share data) Price per share $26.45 90 Day Avg. Volume 68,106 Shares O/S 17.6M Market Cap $466M Cash $43.8M OCF Year - to - Date $6.3M 2013 2014 2015 2016E Revenue $125.1 $143.9 $138.2 $185 - $190 EPS – GAAP $0.86 $1.55 $(0.71)** $0.70 - $0.80 EPS – Non - GAAP* $1.07 $1.55 $1.17** $2.18 - $2.28 *Excludes the impact of certain items and the related tax effects, including stock - based compensation costs, amortization of int angible assets, change in fair value of contingent consideration, impairment of intangibles, acquisition and integration costs, restructuring and reali gnm ent costs, and certain legal costs, as applicable. The Company’s 2013 tax rates were subject to significant volatility while management worked to address a t hree year cumulative tax loss situation in the U.S. For Non - GAAP purposes, the Company is utilizing a normalized rate of 30% in 2016, 2015, 2014 and 2013 **Includes $4.6 million in revenue, $6.8 million operating expenses and $0.9 million in cost of goods sold from iBiquity 2015A 2016E $138M $185M - $190M Revenue 2015A vs. 2016E DTS, INC. 6/30/16 SNAPSHOT Intro Home Mobile Auto Outlook

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 4 DTS OVERVIEW Leading Global Audio Solutions Provider ▪ Brand recognized for high quality and innovation ▪ IP licensing model: high margin, low capex, diversified revenue streams ▪ Solid and increasing operating cash flows ▪ Highly defensible intellectual property portfolio, ~600 issued U.S. patents ▪ More than 1/3 of revenue driven by automotive, a sustainable and predictable growth market ▪ Multiple growth opportunities, including increased penetration in home, mobile, and auto ▪ Additional upside with hybrid radio , pre - processing and data services opportunities ▪ Commitment to long - term shareholder value creation $125M $144M $138M 2013 2014 2015 2016 $28M $39M $32M $61M (E) 2013 2014 2015 2016 FY Revenue FY *Non - GAAP Operating Income Intro Home Mobile Auto Results *Non - GAAP reconciliations can be found in appendix B of the presentation and the appendix of the earnings release dated 3/17/14 , 3/2/15, 3/2/16, 5/9/16 and 8/8/16 $187.5M (E)

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 5 Intro Home Mobile Auto Results ENTERTAINMENT EVOLUTION The Shift Towards IoT Convenience Capability

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 6 THE TREND TOWARDS HIGH QUALITY ENTERTAINMENT Companies and consumers recognize the importance of premium entertainment • Momentum is building around high - resolution video and audio is next • Immersive audio gaining traction in both cinema and home theaters • OEMs have begun to market sound quality as a way to differentiate products • Consumers in China have downloaded billions of songs via premium services Evolution of Content The ‘Sound Matters’ Effect Intro Home Mobile Auto Results

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 7 Innovative Technology IC and OEM Footprint Market Opportunities Scalable Business Model Mobile Automotive Home Content Automotive Intro Home Mobile Auto Results DTS BUSINESS DRIVERS

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 8 Non - DTS Encoded Content DTS Content Non - DTS Enabled Products DTS Enabled Products Content Drives OEM Demand OEM Footprint Pulls New DTS Content New DTS Content New Licensees/ Models Intro Home Mobile Auto Results Innovative Tech DRIVING ECOSYSTEMS AT DTS Innovative Technology Accelerates Content and Licensee Adoption

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 9 Growing IP Portfolio Notes: 1. Chart represents issued patents 2. As of May 2016, DTS has 306 patents pending INNOVATIVE TECHNOLOGY • Team includes PhDs recognized as leaders in audio technology 174 184 218 374 431 502 606 2009 2010 2011 2012 2013 2014 2015 Acquired SRS Labs in 2012 Acquired iBiquity in 2015 World Class Audio Engineering Team • Hundreds of patents protecting unique and innovative audio technologies Wireless Audio Digital Radio Codec and Audio Processing Delivering End - to - End Solutions Intro Home Mobile Auto Results

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 10 CONTENT Studios DTS Tools Intro Home Mobile Auto DTS Licensed Products Cinema/Streaming/Broadcast Results

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 11 IC AND OEM FOOTPRINT DTS Licenses to all Major CE OEMs DTS IP is Deployed on all Major ICs Intro Home Mobile Auto Results

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 12 Automotive Home Mobile TVs Blu - ray stand alone players AVRs Soundbars Wireless speakers Game consoles Set - top - boxes Smartphones Tablets PCs Gaming headsets Auto - head units Broadcast infrastructure MARKET OPPORTUNITIES Today DTS is Integrated in More Than 2B Units Worldwide Intro Home Mobile Auto Results TAM = ~290M units TAM = ~2B units TAM = ~100M units *TAM: Total addressable market

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 13 Expansion of Play - Fi Ecosystem Play - Fi modules drive higher revenue Play - Fi on more devices (AVRs, Set - top - boxes) DTS:X/ Headphone:X enable advanced functionality ASP Expansion Licensed Units Q2 2016 Highlights • Play - Fi products from McIntosh launched at retail this quarter • Warcraft, Secret Life of Pets, Now you See Me 2, Skiptrace , League of Gods released in DTS:X in theaters • Partnership formed with Paramount Home Media Distribution Target Opp. Advanced Processing TVs/ Soundbars Intro Home Mobile Auto Results TAM = ~40M units Targeting ~10% penetration TAM = ~250M units Targeting ~60% penetration Broader implementation across lower priced devices TAM 2015A 2020E $110M - $120M $90M Target Opportunity 2016E – 2020E TVs, Wireless Speakers, Soundbars , Consoles, Blu - ray, etc. HOME

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 14 2015A 2020E $60M - $70M $20M Target Opportunity 2016E – 2020E • 14 ASUS phones and tablets released with Headphone:X • Momentum building in gaming accessories with partners including: o Turtlebeach , Logitech, SteelSeries, Madcatz Phones, Tablets, Accessories and PCs MOBILE *JP Morgan Research 4/12/16 Intro Home Mobile Auto Results Q2 2016 Highlights Increasing Penetration in Large Market End - to - end audio solutions offer higher value DTS - enabled content drives demand Headphone:X for VR adds key functionality ASP Expansion Licensed Units Target Opp. Virtual Reality Products TAM = ~2B units Targeting ~25% penetration TAM = ~13M VR capable PCs and ~48M mobile phones* Growth in VR drives demand for mobile products TAM

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 15 • Neural launched in the Honda Civic, “2016 North American Car of the Year “ • Penetration of HD Radio in new cars sold in the U.S. continued to increase • Expanded broadcaster footprint in Canada – adding Rogers Radio Stations in Toronto and Vancouver 2015A 2020E $100M - $110M $20M* Target Opportunity 2016E – 2020E Auto Head Units AUTOMOTIVE Intro Home Mobile Auto Results Q2 2016 Highlights DTS portfolio adds increased functionality Value - added services Continued design wins DTS portfolio adds increased functionality Value - added services ASP Expansion Licensed Units Target Opp. TAM = ~17M units Targeting ~60% penetration TAM = ROW ~80M units CAN, MEX ~3M units Expand into Canada, Mexico and beyond TAM Expand U.S. Penetration Geographic Expansion & Hybrid Radio *includes only one partial quarter of HD Radio revenue

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 16 2020E Non - GAAP* Financial Targets Revenue $270M - $300M Operating Margin 40% - 45% EPS** $4.50 - $5.85 Attractive Effective Tax Rate (20 - 25%) Minimal Capex Requirements Operating Cash Flow $100M+ SCALABLE MODEL Intro Home Mobile Auto Results *Non - GAAP reconciliations can be found at the end of this presentation. **Assumes static share count of 18M, but note that share count is likely to change over time

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 17 Revenue Operating Income Operating Margin EPS Intro Home Mobile Auto FY 2016E FY 2015A YoY Change $185M - $190M $138.2M 34% - 37% $56M - $67M $32.5M 72% - 106% 30% - 35% 23% 30% - 52% $2.18 - $2.28 $1.17 86% - 95% Q2 2016 Q2 2015 YoY Change $48.7M $34.4M 41% $18.5M $9.3M 99% 38% 27% 41% $0.67 $0.34 97% Annual Quarterly FINANCIAL RESULTS 2016 Non - GAAP* Results and Revised Outlook Results *Non - GAAP reconciliations can be found in appendix B of the presentation and the appendix of the earnings release dated 8/9/15, 3/2/16 and 8/8/16

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 18 Intro Home Mobile Auto CAPITAL ALLOCATION Disciplined Approach Focused on Optimizing Shareholder Value Solid Balance Sheet • Cash + Investments as of 6/30/16: $43.8M • Total debt as of 6/30/16: ~$139M x Began payments under existing line in Q1 / ~$5.5M per quarter x Additional payment made in Q2 of $10M Optimal Use of Capital • Focus on returning value to shareholders x First quarterly cash dividend starting at $0.02/share x Buybacks to date: $173M / 7M shares x 2 million share buyback program announced March 2014 x 1,025,800 shares remaining as of June 2016 • Disciplined M&A approach • Maintaining cash for operating and strategic needs and returning value to shareholders Results

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 19 $45M $75M $107M $122M $147M $154M $173M $30M $32M $15M $25M $7M $19M FY2007 - FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 Cumulative Cash Returned Share Buyback *In 2012, DTS used 2,307,139 treasury shares for consideration for the acquisition of SRS Intro Home Mobile Auto * CAPITAL ALLOCATION Returning Value to Shareholders Results

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 20 DTS SUMMARY ▪ Brand recognized for high quality and innovation ▪ High margin IP licensing model has multiple revenue sources and low capex, projected to generate solid and growing operating cash flows ▪ Strong, highly defensible intellectual property portfolio with ~600 U.S. patents ▪ More than 1/3 of the business is automotive - sustained and predictable growth, driven by relationships with every major automaker serving the U.S. market ▪ Multiple growth opportunities, including increased penetration in home, mobile, and auto ▪ Additional opportunities with hybrid radio , pre - processing and data services ▪ Commitment to long - term shareholder value creation and responsibly returning capital to shareholders

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 21 DTS INVESTOR PRESENTATION Q2 2016

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 22 APPENDIX A Non-GAAP Financial Targets The following tables show the Company's fiscal year 2020 GAAP guidance reconciled to non-GAAP financial targets. Low High Operating income as a % of revenue: GAAP operating income as a % of revenue 28% 34% Amortization of intangible assets 6% 5% Stock-based compensation 6% 6% Non-GAAP operating income as a % of revenue 40% 45% Net income per diluted share: GAAP net income per diluted share 3.12$ 4.47$ Amortization of intangible assets 0.84 0.84 Stock-based compensation 0.94 0.94 Adjustment for income taxes (0.40) (0.40) Non-GAAP net income per diluted share 4.50$ 5.85$ Weighted average shares used to compute non-GAAP net income per diluted share (millions) 18.0 18.0 Fiscal Year 2020 *Provided on earnings call dated 5/9/16

 
 

Information on this slide is confidential property of DTS. Any unauthorized copying is strictly prohibited. © 2016 DTS, Inc. 23 APPENDIX B *Provided on earnings call dated 8/8/16 The following tables show the Company's fiscal year 2016 GAAP guidance reconciled to non-GAAP financial targets. 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$ 0.80$ Amortization of intangible assets 1.25 1.33 Stock-based compensation 0.73 0.78 Adjustment for income taxes (0.50) (0.63) Non-GAAP net income per diluted share 2.18$ 2.28$ Weighted average shares used to compute non-GAAP net income per diluted share (millions) 18.0 18.0 Fiscal Year 2016 Non-GAAP Financial Targets

 

 


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