DTS Reports First Quarter 2007 Financial Results

May 17, 2007

Source: DTS

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DTS, Inc. today announced financial results for the first quarter of 2007. In addition, DTS announced that it has filed its Quarterly Report on Form 10-Q for the period ended March 31, 2007 with the Securities and Exchange Commission.

Beginning this quarter, the Company is reporting the results of its consumer licensing business as continuing operations, and reporting the activities of its digital cinema business as discontinued operations. Income (loss) from discontinued operations, net of tax will appear as a single line item below income from continuing operations on the Company’s statement of operations.

For continuing operations for the first quarter of 2007, DTS reported revenue of $12.6 million and income of $2.0 million, or $0.11 per diluted share. This compares to revenue and income of $20.7 million and $6.7 million, or $0.36 per diluted share, respectively, reported in the first quarter of 2006. Included in first quarter 2006 revenue was $10.0 million in royalty recovery payments, compared to under $1.0 million in the first quarter of 2007. Excluding royalty recoveries, revenue grew 10% in the first quarter of 2007 relative to the first quarter of 2006. Stock based compensation under FAS 123R totaled $0.7 million, or $0.02 per diluted share net of tax, for the first quarter of 2007, compared to $0.6 million, or $0.02 per diluted share net of tax, for the first quarter of 2006.

“The major contributors to growth in the first quarter included initial revenue from next generation high definition products and continued strength in the car market, which in the quarter comprised in excess of 5% and 15% of revenue from continuing operations, respectively,” commented Jon Kirchner, president and CEO of DTS, Inc. “Gross margins were strong at 98%, reflecting the benefits of our high-margin licensing model.

“SG&A expenses in the first quarter increased approximately 11% to $8.1 million, as the consumer business fully absorbed certain costs that were previously shared among divisions. We also increased headcount over last year to support our business growth and will continue to invest in operating infrastructure to support a highly competitive global company. Our goal is to achieve operating margins of 20% or better in 2007, and we are pleased to have started strong with operating margins in the first quarter at over 21%,” continued Kirchner.

In the first quarter of 2007, the Company identified an error in its accrued interest income balances related to 2005 and 2006 that was corrected during the first quarter of 2007. The correction had the effect of reducing short-term investments and decreasing interest income by $0.7 million, or $0.03 per diluted share net of tax.

“We believe that our solid results in the first quarter form a firm foundation for us to achieve our full year expectations of $53.0 to $58.0 million dollars in revenue, and EPS from continuing operations of $0.40 to $0.47 per diluted share. We are excited about our future and confident that we are well positioned for the acceleration in the trend toward high quality, high definition digital entertainment,” concluded Kirchner.

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