Exhibit 99.1
PRESS RELEASE
DTS Reports Third Quarter 2004 Financial Results
Agoura Hills, Calif. – November 4, 2004 - Digital Theater Systems, Inc. (DTS) (Nasdaq: DTSI) today announced financial results for the third quarter and nine months ended September 30, 2004.
For the third quarter of 2004, DTS reported total revenues of $16.0 million, an increase of 20% over revenue of $13.3 million reported in the third quarter of 2003. Net income attributable to common stockholders was $3.2 million, an increase of 35% over $2.4 million reported in the third quarter of 2003. On a per share basis, net income attributable to common stockholders was $0.18 per diluted share for the third quarter of 2004, compared to $0.16 per diluted share reported in the third quarter of 2003. Diluted weighted average shares outstanding were 18.2 million for the third quarter of 2004 and 15.1 million for the third quarter of 2003.
Gross margins in the third quarter of 2004 improved to 81% from 78% in the third quarter of 2003 and operating margins were 29% compared to 30% in the third quarter of 2003. The Company generated $4.6 million in income from operations and closed the quarter with $113.5 million in cash, cash equivalents, and short- and long-term investments, an increase of $6.3 million over the prior quarter.
“We posted solid growth in our consumer business and strength in our base theatrical audio business in the third quarter, despite lower than expected revenue contribution from our newer theatrical products,” commented Jon Kirchner, President and CEO of DTS. “In our consumer licensing business, we reported 21% year-over-year growth as we continued to see global growth in the home audio/visual market and increasing penetration across a range of consumer electronics devices. Additionally, we made encouraging progress in emerging markets for our audio technology such as car and PC and we received positive news about the mandatory inclusion of DTS technology in the next-generation standards for high definition disc players. This means that DTS will be included in future devices and applications that support the use of next generation optical disc standards, which we expect will include PC drives and gaming platforms, among others.”
“Our base theatrical audio business generated 26% year-over-year growth, and our recent deal with Cinecom in Switzerland provides a concrete example of the potential future growth in the pre-show and subtitle markets. These markets, while expected to be sizable over the long term, are taking longer to develop than we had originally expected, and we are therefore moderating our expectations for revenue from these products, but continue to expect our consumer business to grow in-line with the overall market for DVD and home theater.”
“Looking ahead, we are optimistic about the long-term potential for our business. Our growth and profitability continues to be driven by the strength of our high margin consumer licensing business, which we expect, through the inclusion of our technology in key next generation standards, will be a long-term value driver for years to come. Our activities outside licensing bring us strategic benefits and offer us opportunity for incremental upside growth as the markets evolve. We believe that we are well positioned to capitalize on the broad market acceptance of our technology and our high quality reputation as we further develop our brand globally,” concluded Kirchner.
Conference Call Information
DTS will broadcast a conference call discussing the company’s third quarter results today, Thursday, November 4, 2004, starting at 5:00 p.m. Eastern Time. The live webcast of the call will be available from the Investor Relations section of the company’s corporate website at www.dtsonline.com. A replay of the webcast will begin two hours after the completion of the call, and will be available through November 18, 2004. An audio replay of the call will also be available to investors beginning at 7:00 p.m. ET on November 4, 2004, through November 8, 2004, by dialing 800-405-2236 and entering the passcode 11011668.
About DTS
DTS (Digital Theater Systems, Inc.) (Nasdaq: DTSI) is a digital technology company dedicated to delivering the ultimate entertainment experience. DTS decoders are in virtually every major brand of 5.1-channel surround processors, and there are more than 280 million DTS-licensed consumer electronics products available worldwide. A pioneer in multi-channel audio, DTS technology is in home theatre, car audio, PC and game console products, as well as 5.1 Music Discs, DVD-Video, DVD-Audio and DVD-ROM software. Additionally, DTS is featured on more than 23,000 motion picture screens worldwide. Founded in 1993, DTS is headquartered in Agoura Hills, California and has offices in the United Kingdom, Japan and China. For further information, please visit www.dtsonline.com.
DTS is a trademark of Digital Theater Systems, Inc.
Investor Relations Contacts: | | Press Contact: |
Erica Abrams or Vanessa Lehr
The Blueshirt Group for DTS
415-217-7722
erica@blueshirtgroup.com
vanessa@blueshirtgroup.com | | Kristin Thomson
Director of Public Relations
DTS
818-706-3525
kthomson@dtsonline.com |
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,” “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; 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 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, 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, changes in domestic and international market and political conditions, and other risks and uncertainties more fully described in the Company’s public filings with the Securities and Exchange Commission, available at www.sec.gov. DTS assumes no obligation to update any forward-looking statement to reflect events or circumstances arising after the date on which it was made.
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(TABLES TO FOLLOW)
2
DIGITAL THEATER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
| | As of
December 31,
2003 | | As of
September 30,
2004 | |
| | | | (Unaudited) | |
| | | | | |
ASSETS | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | | $ | 89,341 | | $ | 69,558 | |
Short-term investments | | 10,048 | | 27,268 | |
Accounts receivable, net of allowance for doubtful accounts of $429 and $408 at December 31, 2003 and September 30, 2004, respectively | | 3,962 | | 5,321 | |
Inventories | | 7,552 | | 8,275 | |
Deferred tax assets, net | | 6,025 | | 6,610 | |
Prepaid expenses and other | | 1,846 | | 2,301 | |
Income tax receivable | | 660 | | — | |
Total current assets | | 119,434 | | 119,333 | |
Long-term investments | | 2,998 | | 16,649 | |
Property and equipment, net | | 3,092 | | 3,324 | |
Intangible assets, net | | 424 | | 1,809 | |
Deferred tax assets | | 1,527 | | 2,969 | |
Other assets | | 20 | | 441 | |
Total assets | | $ | 127,495 | | $ | 144,525 | |
| | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
Current liabilities: | | | | | |
Accounts payable | | $ | 2,829 | | $ | 2,589 | |
Accrued expenses | | 5,795 | | 7,248 | |
Income taxes payable | | — | | 975 | |
Total current liabilities | | 8,624 | | 10,812 | |
Commitments and contingencies | | | | | |
Stockholders’ equity: | | | | | |
Preferred stock - $0.0001 par value, 5,000,000 shares authorized at December 31, 2003 and September 30, 2004; no shares issued and outstanding | | — | | — | |
Common stock - $0.0001 par value, 70,000,000 shares authorized at December 31, 2003 and September 30, 2004; 16,512,885 and 17,015,933 issued and outstanding at December 31, 2003 and September 30, 2004, respectively | | 2 | | 2 | |
Additional paid-in capital | | 115,512 | | 120,570 | |
Retained earnings | | 3,357 | | 13,141 | |
Total stockholders’ equity | | 118,871 | | 133,713 | |
| | | | | |
Total liabilities and stockholders’ equity | | $ | 127,495 | | $ | 144,525 | |
DIGITAL THEATER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share amounts)
| | For the Three Months Ended
September 30, | | For the Nine Months Ended
September 30, | |
| | 2003 | | 2004 | | 2003 | | 2004 | |
| | (Unaudited) | |
Revenues: | | | | | | | | | |
Technology and film licensing | | $ | 10,632 | | $ | 13,058 | | $ | 30,310 | | $ | 36,275 | |
Product sales and other revenues | | 2,702 | | 2,894 | | 6,481 | | 8,526 | |
Total revenues | | 13,334 | | 15,952 | | 36,791 | | 44,801 | |
Cost of goods sold: | | | | | | | | | |
Technology and film licensing | | 1,294 | | 1,199 | | 3,179 | | 3,345 | |
Product sales and other revenues | | 1,596 | | 1,911 | | 4,913 | | 5,578 | |
Total cost of goods sold | | 2,890 | | 3,110 | | 8,092 | | 8,923 | |
Gross profit | | 10,444 | | 12,842 | | 28,699 | | 35,878 | |
Operating expenses: | | | | | | | | | |
Selling, general and administrative | | 5,092 | | 6,746 | | 14,948 | | 19,984 | |
Research and development | | 1,304 | | 1,501 | | 3,648 | | 4,401 | |
Total operating expenses | | 6,396 | | 8,247 | | 18,596 | | 24,385 | |
Income from operations | | 4,048 | | 4,595 | | 10,103 | | 11,493 | |
Interest income, net | | 116 | | 373 | | 139 | | 1,122 | |
Other income (expense), net | | (65 | ) | 31 | | (142 | ) | — | |
Legal settlement | | — | | — | | — | | 2,601 | |
Income before provision for income taxes | | 4,099 | | 4,999 | | 10,100 | | 15,216 | |
Provision for income taxes | | 1,407 | | 1,774 | | 3,534 | | 5,432 | |
Net income | | 2,692 | | 3,225 | | 6,566 | | 9,784 | |
Accretion and accrued dividends on preferred stock | | (299 | ) | — | | (1,234 | ) | — | |
Net income attributable to common stockholders | | $ | 2,393 | | $ | 3,225 | | $ | 5,332 | | $ | 9,784 | |
| | | | | | | | | |
Net income attributable to common stockholders per common share: | | | | | | | | | |
Basic | | $ | 0.19 | | $ | 0.19 | | $ | 0.74 | | $ | 0.58 | |
Diluted | | $ | 0.16 | | $ | 0.18 | | $ | 0.59 | | $ | 0.54 | |
Weighted average shares used to compute net income attributable to common stockholders per common share: | | | | | | | | | |
Basic | | 12,691,607 | | 17,005,750 | | 7,227,480 | | 16,805,643 | |
Diluted | | 15,134,737 | | 18,217,995 | | 9,058,898 | | 18,129,068 | |
