Tessera Technologies Announces Third Quarter 2015 Results

Total revenue of $67.4 million, above the Company’s guidance range

Raises 2015 recurring revenue estimate to $240 million

Repurchased $40.0 million of common stock during the quarter

SAN JOSE, Calif.--()--Tessera Technologies, Inc. (NASDAQ: TSRA) (the “Company” or “we”) today announced financial results for the third quarter of 2015. Total revenue was $67.4 million, above the Company’s guidance range of $64 to $66 million. GAAP net income for the third quarter of 2015 was $32.5 million, or $0.62 per diluted share, and non-GAAP net income was $34.8 million, or $0.65 per diluted share.

“Our third quarter financial results were above our expectations, reflecting execution on growth initiatives and the strength and stability of our business model,” said Tom Lacey, CEO of Tessera Technologies, Inc. “Our acquisition of Ziptronix in August enhances our extensive intellectual property portfolio in the 2.5D and 3D-IC markets, and Ziptronix’s recently announced collaboration with Fraunhofer IZM-ASSID is an example of the range of new business opportunities we now address. FotoNation continues to build its roster of customers and development partners with the recent addition of leading phone and imaging companies QiKU, Huawei and Socionext. We are pleased to have delivered the seventh consecutive quarter of GAAP and non-GAAP profitability and we see strong momentum as we enter 2016.”

Third Quarter 2015 Results

Total revenue was $67.4 million in the third quarter of 2015, compared with revenue of $93.3 million in the third quarter of 2014. Recurring revenue was $66.4 million in the third quarter of 2015, compared with recurring revenue of $47.3 million in the third quarter of 2014. Third quarter 2015 revenue included $1.0 million of episodic revenue, compared with episodic revenue of $46.0 million in the third quarter of 2014 from our settlement with Powertech Technology, Inc.

Operating expenses were $27.6 million in the third quarter of 2015, compared with $31.3 million in the third quarter of 2014, a decrease of $3.7 million, or 12%. Litigation expense in the third quarter of 2015 decreased by $2.9 million, or 50%, from the third quarter of 2014, due to settlements reached during fiscal 2014 and 2015. Research and development (R&D) and selling, general and administrative (SG&A) expenses decreased by a combined $1.3 million, or 6%, compared with the prior year.

Net income was $32.5 million, or $0.62 per diluted share, compared with net income for the third quarter of 2014 of $108.7 million, or $2.04 per diluted share. Results for the third quarter of 2015 were favorably impacted by the reversal of valuation allowances of $6.3 million. Results for the third quarter of 2014 were favorably impacted by the reversal of a valuation allowance of $48.0 million on deferred tax assets in the U.S., and by an episodic revenue payment of $46.0 million.

Non-GAAP net income for the third quarter of 2015 was $34.8 million, or $0.65 per diluted share, compared with non-GAAP net income in the third quarter of 2014 of $47.1 million, or $0.87 per diluted share. Non-GAAP net income is defined as income and operating expenses adjusted for discontinued operations, restructuring and other exit costs, acquired intangible asset amortization, charges for acquired in-process research and development, stock-based compensation expense, impairment charges on long-lived assets and goodwill, and related tax effects.

Balance Sheet

Total current assets were $431.3 million as of September 30, 2015, a decrease of $44.2 million from December 31, 2014. Cash, cash equivalents and short-term investments were $387.2 million as of September 30, 2015, a decrease of $47.2 million from December 31, 2014. The decline in cash in the first nine months of the fiscal year was due to the previously announced acquisition of Ziptronix for $38.6 million, common stock repurchases of $97.5 million and the payment of $31.5 million of dividends, largely offset by cash generated from operating activities.

Dividends

On September 18, 2015, the Company paid $10.4 million to stockholders of record as of August 28, 2015, for the quarterly cash dividend of $0.20 per share of common stock.

Additionally, on October 28, 2015, the Board of Directors approved a regular quarterly dividend of $0.20 per share of common stock, payable on December 15, 2015 to stockholders of record on November 24, 2015.

Stock Repurchase Program

During the third quarter of 2015, the Company repurchased 1,191,000 shares of common stock for an aggregate amount of $40.0 million. These purchases were executed under the Company’s stock repurchase program. As of September 30, 2015, the Company had approximately $51.1 million remaining under its current repurchase program.

Financial Guidance

For the fourth quarter of 2015, the Company’s guidance is as follows:

  • Total revenue is expected to be between $60 million and $62 million;
  • GAAP earnings per share are expected to be between $0.39 and $0.41 per diluted share;
  • Non-GAAP earnings per share are expected to be between $0.50 and $0.52 per diluted share.

The Company raised its baseline recurring revenue guidance by $5 million to approximately $240 million for fiscal year 2015.

Conference Call Information

The Company will hold its third quarter ended September 30, 2015, earnings conference call at 2:00 PM Pacific time (5:00 PM Eastern time) on Tuesday, November 3. To access the call in the U.S., please dial (888) 723-9308, and for international callers dial (615) 489-8916, approximately 10 minutes prior to the start of the conference call. The conference ID is 62433699. The conference call will also be broadcast live over the Internet at www.tessera.com and available for replay for 90 days at www.tessera.com. In addition, a replay of the call will be available via telephone for two business days, beginning two hours after the call. To listen to the telephone replay in the U.S., please dial (855) 859-2056. International callers please dial (404) 537-3406. Enter access code 62433699.

Safe Harbor Statement

This document contains forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ significantly from those projected, particularly with respect to the Company's financial results and guidance and new business opportunities. Material factors that may cause results to differ from the statements made include the plans or operations relating to the businesses of the Company; market or industry conditions; changes in patent laws, regulation or enforcement, or other factors that might affect the Company's ability to protect or realize the value of its intellectual property; the expiration of license agreements and the cessation of related royalty income; the failure, inability or refusal of licensees to pay royalties; initiation, delays, setbacks or losses relating to the Company's intellectual property or intellectual property litigations, or invalidation or limitation of key patents; fluctuations in operating results due to the timing of new license agreements and royalties, or due to legal costs; the risk of a decline in demand for semiconductors and products utilizing FotoNation technologies; failure by the industry to use technologies covered by the Company's patents; the expiration of the Company's patents; the Company's ability to successfully complete and integrate acquisitions of businesses; the risk of loss of, or decreases in production orders from, customers of acquired businesses; financial and regulatory risks associated with the international nature of the Company's businesses; failure of the Company's products to achieve technological feasibility or profitability; failure to successfully commercialize the Company's products; changes in demand for the products of the Company's customers; limited opportunities to license technologies due to high concentration in the markets for semiconductors and related products and smartphone imaging; and the impact of competing technologies on the demand for the Company's technologies. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this release. The Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended Dec. 31, 2014, and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, include more information about factors that could affect the Company's financial results. The Company assumes no obligation to update information contained in this press release. Although this release may remain available on the Company's website or elsewhere, its continued availability does not indicate that the Company is reaffirming or confirming any of the information contained herein.

About Tessera Technologies, Inc.

Tessera Technologies, Inc., including its Invensas, FotoNation and Ziptronix subsidiaries, licenses its technologies and intellectual property to customers for use in areas such as mobile computing and communications, memory and data storage, and 3DIC technologies, among others. Our technologies include semiconductor packaging and interconnect solutions, and products and solutions for mobile and computational imaging, , including our FaceToolsTM, FacePowerTM, FotoSavvyTM, DigitalApertureTM, LifeFocusTM, face beautification, red-eye removal, High Dynamic Range, autofocus, panorama, and image stabilization intellectual property. For more information call 1.408.321.6000 or visit www.tessera.com.

Tessera, the Tessera logo, FotoNation, the FotoNation logo, Ziptronix, the Ziptronix logo, FaceSavvy, FaceTools, FacePower, DigitalAperture, and LifeFocus are trademarks or registered trademarks of affiliated companies of Tessera Technologies, Inc. in the United States and other countries. All other company, brand and product names may be trademarks or registered trademarks of their respective companies.

Recurring and Episodic Revenue

Recurring revenue is defined as revenue from payments made pursuant to a license agreement or other agreement that are scheduled to occur over at least one year of time. Episodic revenue is revenue other than revenue payable over at least one year pursuant to a contract. Episodic revenue includes non-recurring engineering fees, initial license fees, back payments resulting from audits, damages awards from courts or other tribunals, and lump sum settlement payments. Although the royalty revenue reported by the Company’s licensees on a quarterly basis is generally not assured, for ease of reference, the Company refers to these revenues as “recurring revenue”.

Importantly, a source of episodic revenue may become a source of recurring revenue, when, for example, a company settles litigation with the Company by paying a settlement amount and entering into a license agreement that calls for an initial license fee and ongoing royalty payment over several years. In that scenario, the settlement amount would be episodic revenue, as would the initial license fee, and the ongoing royalties would be recurring revenue.

Discontinued Operations

In January of 2014, the Company announced the cessation of all mems|cam manufacturing operations. This was the Company's last manufacturing operation. The Company has classified the expenses of its DigitalOptics business as discontinued operations starting with the first quarter of 2014, and also reclassified results from this business to discontinued operations for all prior reporting periods.

Non-GAAP Financial Measures

In addition to disclosing financial results calculated in accordance with U.S. Generally Accepted Accounting Principles (GAAP), the Company’s earnings release contains non-GAAP financial measures adjusted for discontinued operations, either one-time or ongoing non-cash acquired intangibles amortization charges, acquired in-process research and development, all forms of stock-based compensation, impairment charges on long-lived assets and goodwill, gain on sale of patents, restructuring and other related exit costs, and related tax effects. The non-GAAP financial measures also exclude the effects of FASB Accounting Standards Codification 718, “Stock Compensation” upon the number of diluted shares used in calculating non-GAAP earnings per share. Management believes that the non-GAAP measures used in this release provide investors with important perspectives into the Company’s ongoing business performance. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements should be carefully evaluated. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. All financial data is presented on a GAAP basis except where the Company indicates its presentation is on a non-GAAP basis.

Set forth below are reconciliations of non-GAAP net income (loss) to the Company’s reported GAAP net income (loss) for the third quarter of 2015 and non-GAAP earnings per share to GAAP earnings per share guidance for the fourth quarter of 2015.

 
TESSERA TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 
 
  September 30,   December 31,
  2015     2014  
 
ASSETS
Current assets:
Cash and cash equivalents $ 32,028 $ 50,908
Short-term investments 355,157 383,513
Accounts receivable, net 795 4,478
Short-term deferred tax assets 16,425 19,334
Other current assets   26,899     17,277  
Total current assets   431,304     475,510  
 
Intangible assets, net 96,502 72,925
Long-term deferred tax assets 5,514 21,759
Other assets   17,603     6,929  
Total assets $ 550,923   $ 577,123  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 892 $ 3,509
Accrued legal fees 3,638 4,143
Accrued liabilities 9,780 16,157
Deferred revenue   7,757     10,217  
Total current liabilities   22,067     34,026  
 
Long-term deferred tax and other liabilities 2,632 1,738
 
Stockholders' equity:
Common stock 58 58
Additional paid-in capital 596,132 576,341
Treasury stock (203,715 ) (106,231 )
Accumulated other comprehensive income (512 ) (333 )
Retained earnings   134,261     71,524  
Total stockholders' equity   526,224     541,359  
 
Total liabilities and stockholders' equity $ 550,923   $ 577,123  
 

TESSERA TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
 
 
  Three Months Ended   Nine Months Ended
September 30, September 30,
  2015       2014     2015       2014  
Revenues:
Royalty and license fees $ 67,426   $ 93,334   $ 211,464   $ 218,883  
Total revenues   67,426     93,334     211,464     218,883  
 
Operating expenses:
Cost of revenues 62 125 370 228
Research, development and other related costs 8,551 8,914 23,781 25,404
Selling, general and administrative 10,912 11,820 33,032 36,171
Amortization expense 5,186 4,599 14,573 13,772
Litigation expense 2,938 5,821 10,961 22,986
Restructuring, impairment of long-lived assets and other charges   --     66     --     1,593  
Total operating expenses   27,649     31,345     82,717     100,154  
 
Operating income from continuing operations 39,777 61,989 128,747 118,729
Other income and expense, net   755     338     2,173     1,101  
 
Income before income taxes from continuing operations 40,532 62,327 130,920 119,830
Provision for (benefit from) income taxes   7,596     (40,357 )   36,647     (18,795 )
Income from continuing operations 32,936 102,684 94,273 138,625
Income (loss) from discontinued operations, net of tax   (437 )   6,012     (68 )   (5,260 )
Net income $ 32,499   $ 108,696   $ 94,205   $ 133,365  
Income (loss) per share:
Income from continuing operations:
Basic $ 0.64   $ 1.96   $ 1.81   $ 2.62  
Diluted $ 0.63   $ 1.93   $ 1.78   $ 2.59  
Income (loss) from discontinued operations:
Basic $ (0.01 ) $ 0.11   $ --   $ (0.10 )
Diluted $ (0.01 ) $ 0.11   $ --   $ (0.10 )
Net income:
Basic $ 0.63   $ 2.07   $ 1.81   $ 2.52  
Diluted $ 0.62   $ 2.04   $ 1.78   $ 2.49  
       
Cash dividends declared per share $ 0.20   $ 0.10   $ 0.60   $ 0.82  
 
Weighted average number of shares used in per share calculations-basic   51,825     52,500     52,167     52,842  
 
Weighted average number of shares used in per share calculations-diluted   52,514     53,286     52,992     53,519  
 
TESSERA TECHNOLOGIES, INC.
RECONCILIATION TO NON-GAAP INCOME FROM CONTINUING OPERATIONS FROM GAAP NET INCOME FROM CONTINUING OPERATIONS
(in thousands, except per share amounts)
(unaudited)
 
 
  Three Months Ended     Nine Months Ended
September 30, September 30,
  2015       2014     2015       2014  
 
GAAP income from continuing operations $ 32,936 $ 102,684 $ 94,273 $ 138,625
Adjustments to GAAP net income:
Stock-based compensation - research, development and other related costs 1,109 601 2,805 1,890
Stock-based compensation - selling, general and administrative 1,777 2,545 6,164 6,399
Amortization of acquired intangibles 5,186 4,599 14,573 13,772
Restructuring, impairment of long-lived assets and other charges -- 66 -- 1,593
Non-GAAP tax adjustments (1)   (6,162 )   (63,426 )   (11,068 )   (68,343 )
Non-GAAP net income from continuing operations $ 34,846   $ 47,069   $ 106,745   $ 93,936  
Non-GAAP net income from continuing operations per common share - diluted $ 0.65   $ 0.87   $ 1.98   $ 1.72  
 

Non-GAAP weighted average number of shares used in per share calculations excluding the effects of stock-based compensation - diluted

53,543 54,351 53,981 54,512
           
(1) The Company has disclosed a GAAP to Non-GAAP tax adjustment in the periods when the valuation allowance against deferred tax assets is reversed.
 
EPISODIC AND RECURRING REVENUE
(in thousands)

(unaudited)

 
 
  Three Months Ended   Nine Months Ended
September 30, September 30,
2015   2014 2015   2014
Revenues:
Episodic $ 1,000 $ 46,000 $ 30,000 $ 112,371
Recurring   66,426   47,334   181,464   106,512
Total revenues $ 67,426 $ 93,334 $ 211,464 $ 218,883
TESSERA TECHNOLOGIES, INC.
RECONCILIATION FOR GUIDANCE ON
GAAP TO NON-GAAP EARNINGS PER SHARE
 
  Three Months Ended
December 31, 2015
 

Low

High

Diluted earnings per share - GAAP $ 0.39 $ 0.41
 
Amortization of intangible assets 0.12 0.12
Stock based compensation 0.06 0.06
Subtotal GAAP adjustments 0.18 0.18
 
Impact of income tax and share count (0.07 ) (0.07 )
 
Effect on net income 0.11 0.11
 
Diluted earnings per share - non-GAAP $ 0.50 $ 0.52


TSRA-E

Contacts

Tessera Technologies, Inc.
Robert Andersen, 408-321-6779
Executive Vice President and Chief Financial Officer
- or -
The Piacente Group | Investor Relations
Don Markley, 212-481-2050
tessera@tpg-ir.com

Contacts

Tessera Technologies, Inc.
Robert Andersen, 408-321-6779
Executive Vice President and Chief Financial Officer
- or -
The Piacente Group | Investor Relations
Don Markley, 212-481-2050
tessera@tpg-ir.com