Licensing Business Segment Continues to Drive Net Income SANTA ANA,
Calif., Nov. 10 /PRNewswire-FirstCall/ -- SRS Labs, Inc.
(NASDAQ:SRSL), one of the world's leading providers of audio
technology solutions, today reported operating results for the
third quarter and nine months ended September 30, 2005. For the
third quarter ended September 30, 2005, the company reported
consolidated revenue of $5.7 million, compared to $6.4 million for
the same quarter in 2004. The 11 percent decrease in consolidated
revenue for the third quarter 2005 from the same period last year
is attributable to a 47 percent decrease in semiconductor revenues,
which is partially offset by an increase of 36 percent in licensing
revenues. Net income for the quarter is $704 thousand, or $0.05
diluted earnings per share, compared to net income of $804
thousand, or $0.05 diluted earnings per share, for the same period
last year. The company reported record licensing revenue of $3.7
million in the third quarter of 2005, an increase of 36 percent
over revenue of $2.7 million in the third quarter of 2004. As we
continue to execute our market segment diversification strategy,
licensing sales growth remains solid, resulting in new customers
and the expanded use of our technologies by existing customers
across all market segments. The company's Hong Kong-based
subsidiary, Valence Technologies Limited, reports this quarter's
revenue at $1.9 million, down $1.7 million from last year's third
quarter revenue of $3.6 million. The decline is due to increased
competition, market pricing pressure, and the shift in market
trends from traditional CD combo units and boom boxes to the
increasingly popular MP3 players. The unfavorable variance in
semiconductor revenues for this quarter also reflect the spike in
last year's Q3 revenues that resulted from the build up of backlog
in the first half of the year due to foundry constraints and the
subsequent relief in Q3 2004. SRS Labs reported consolidated gross
margin of 85 percent or $4.8 million for the third quarter 2005,
compared to 78 percent or $5.0 million reported for the same period
last year. The improvement in gross margin percentage is due to the
current revenue mix. The licensing business, which traditionally
has gross margins over 95%, represents 66% of revenue for this
period, verses 43% for last year's comparable period. Operating
expenses increased $164 thousand over the same quarter last year
due to new sales and marketing personnel. The company reported
reduced income from operations of $610 thousand, a decline of $317
thousand from $927 thousand, as reported in the third quarter of
2004. For the nine months ended September 30, 2005, SRS Labs
reported consolidated revenue of $17.0 million with net income of
$1.4 million, or $0.10 per diluted share, compared to revenue in
the same period last year of $17.1 million and net income of $1.0
million or $0.06 per diluted share. Contributing to the
year-over-year increase in net income on relatively flat revenue is
licensing gross margin, income from the investment in CHS and a
decrease in tax expense resulting from international tax planning
and relief of withholding tax on royalties earned in Japan. The
company's balance sheet remained strong at quarter end with no
external debt. Cash, cash equivalents and long-term investments
were $24.9 million at September 30, 2005. The company generated net
cash from operations of approximately $2.3 million for the
year-to-date. Business Summary SRS Labs' chairman and CEO Thomas
C.K. Yuen said: "Our licensing business achieved another record
quarter, with revenue growing 36 percent over the third quarter of
last year. We had growth in all five of our market segments, as we
added new customers and expanded our technologies into new products
with existing customers. In Q3, our semiconductor business
experienced a decline, as we stated in last quarter's business
outlook. Conditions that have slowed the sales recovery include
lower sales from our customers due to price competition, growing
numbers of emerging competitors from China, and softer sales in our
customer's various markets." Business Outlook While in the near
term, the Valence semiconductor business is expected to remain
soft, SRS Labs' goal is to work toward a steady recovery from the
recent revenue decline. "As part of this recovery," Yuen said, "we
are realigning our strategic focus to concentrate on expanding
Valence's ASP standard chip business with its broader customer base
relative to the smaller base of the ASIC custom chip business. The
new ASP chip that we've introduced in September to address a key
market opportunity is the AP701 standard brand chip, to enable MP3
playback capabilities for the boom box market -- a product category
where Valence traditionally has had a market presence," he said.
According to Yuen, the recent appointment of a vice president of
sales is expected to be a key factor in the continued expansion of
the licensing business within SRS Labs' five key market segments,
including home entertainment, personal media players, personal
telecommunications, PC's and automotive. "Among our most important
goals with the new leadership provided by Michael Franzi is to
build on our existing relationships with licensees, many of which
are leading consumer electronics manufacturers. We want to maximize
our opportunity to further broaden the use of our technologies with
these current customers across their multiple product lines -- PCs,
laptops, MP3 players, flat panel TVs, and cell phones," Yuen said.
Driven primarily by SRS Labs' ability to offer the market a broad
range of both well-established and new audio technology solutions,
Yuen said the company expects its licensing business to remain
strong for the rest of 2005. "SRS' research and development team
continues to work on several new technologies, such as our
innovative SRS XSPACE 3D(TM) for the mobile phone games industry.
SRS XSPACE 3D has a resource efficient algorithm to generate
correct sound placement, velocity, and directionality, and a very
desirable feature that enables it to support an unlimited number of
sound objects, which differentiates SRS XSPACE 3D from similar
solutions in the mobile phone games marketplace," he said. Yuen
concluded, "Our licensing business has good momentum and we will
prioritize our focus to maximize our earnings potential." Investors
can listen to the company's conference call live today at 2:00 pm
Pacific (5:00 pm Eastern) through the investor section of SRS Labs'
website http://www.srslabs.com/IREvents.asp or
http://phx.corporate-/
ir.net/playerlink.zhtml?c=97327&s=wm&e=1101269. Please log
on at least 15 minutes early to register and follow the
instructions to download and install any necessary audio software.
If you are unable to listen to the live web cast, an online replay
will be available shortly after the call. To listen to the call
live via telephone, dial (866) 261-2650, ask for the "SRS Labs Q2
Results Conference Call," and provide the pass code 739973. To
access the taped telephone replay, dial (866) 837-8032 and enter
the same pass code. The telephone replay will be available until
August 12 at 12:00 a.m. Pacific time. About SRS Labs, Inc. SRS Labs
is a recognized leader in the advancement of audio and voice
technology. The company works with the world's top manufacturers to
provide a richer entertainment experience through patented sound
techniques. SRS Labs' technologies can be heard through products
ranging from televisions, LCD and plasma monitors, cell phones, MP3
players, car audio systems, and notebook and desktop computers. The
company also offers hardware and software tools to professionals
and consumers for the creation, production and broadcast of content
featuring SRS Labs' technologies. Valence Technologies Limited, a
Hong-Kong based subsidiary of SRS Labs, is a semiconductor company
that designs and sells custom ASICs and standard ICs to leading
manufacturers worldwide. Based in Santa Ana, Calif., the company
also has licensing representation in Hong Kong, Japan, Europe, and
Korea. For more information about SRS Labs, Inc. please visit
http://www.srslabs.com/. The information on the aforementioned
website is not incorporated by reference into this press release.
Except for historical information contained in this release,
statements in this release, including those of Mr. Yuen are
forward-looking statements and projections (which include
statements concerning plans and objectives of management for future
operations) that are based on management's belief, as well as
assumptions made by, and information currently available to,
management. While the company believes that its expectations are
based upon reasonable assumptions, there can be no assurances that
the company's goals and strategy will be realized. Numerous
factors, including risks and uncertainties, may affect the
company's actual results and may cause results to differ materially
from those expressed in forward-looking statements made by or on
behalf of the company. Some of these factors include the general
market conditions concerning the semiconductor business, the
acceptance of new SRS Labs' products and technologies, the impact
of competitive products and pricing, the timely development and
release of technologies by the company, general business and
economic conditions, especially in Asia, and other factors detailed
in the company's Form 10-K and other periodic reports filed with
the SEC. SRS Labs specifically disclaims any obligation to update
or revise any forward-looking statement whether as a result of new
information, future developments or otherwise. Investor Contact:
Janet Biski (949) 442-1070 x 3080 SRS LABS, INC. CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months
Ended Nine Months Ended September 30, September 30, 2005 2004 2005
2004 Revenues: Semiconductor $1,929,605 $3,644,298 $6,435,342
$8,992,511 Licensing 3,722,662 2,727,861 10,526,734 8,140,592 Total
revenues 5,652,267 6,372,159 16,962,076 17,133,103 Cost of sales:
Semiconductor 753,730 1,320,855 2,481,136 3,269,622 Licensing
100,241 100,342 251,424 146,886 Total cost of sales 853,971
1,421,197 2,732,560 3,416,508 Gross Margin 4,798,296 4,950,962
14,229,516 13,716,595 Operating expenses: Sales and marketing
1,521,788 1,305,349 4,892,666 4,260,784 Research and development
1,220,889 1,266,606 3,610,829 3,620,219 General and administrative
1,445,733 1,452,236 4,492,991 4,490,732 Total operating expenses
4,188,410 4,024,191 12,996,486 12,371,735 Income from operations
609,886 926,771 1,233,030 1,344,860 Equity in income of investee --
-- 91,096 -- Other income, net 174,195 118,908 488,421 455,132
Income before income tax expense 784,081 1,045,679 1,812,547
1,799,992 Income tax expense 79,887 241,721 373,159 790,863 Net
income $704,194 $803,958 $1,439,388 $1,009,129 Net income per
common share: Basic $0.05 $0.06 $0.10 $0.07 Diluted $0.05 $0.05
$0.10 $0.06 Weighted average shares used in the calculation of net
income per common share: Basic 14,094,690 14,278,589 14,076,833
14,045,162 Diluted 15,300,803 15,395,792 15,070,362 15,991,331 SRS
LABS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS September 30,
December 31, 2005 2004 (unaudited) ASSETS Current Assets Cash and
cash equivalents $7,820,333 $7,011,912 Accounts receivable, net
1,740,935 1,318,665 Inventories, net 624,440 571,280 Prepaid
expenses and other current assets 1,366,480 1,337,506 Deferred
income taxes 23,406 23,406 Total Current Assets 11,575,594
10,262,769 Investments available for sale 17,068,070 17,261,267
Investment in LLC -- 2,596,090 Furniture, fixtures and equipment,
net 1,592,861 1,995,579 Capitalized production costs, net 3,023,775
-- Intangible assets, net 2,546,886 2,660,955 Goodwill 533,031
533,031 Deferred income taxes 325,827 192,750 Total Assets
$36,666,044 $35,502,441 LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities Accounts payable $1,121,332 $984,805 Accrued
liabilities 1,813,976 1,640,714 Deferred revenue 350,072 436,910
Income taxes payable 27,043 8,628 Total Current Liabilities
3,312,423 3,071,057 Commitments and contingencies Stockholders'
Equity Preferred stock - $.001 par value; 2,000,000 shares
authorized; no shares issued or outstanding -- -- Common stock -
$.001 par value; 56,000,000 shares authorized; 14,880,317 and
14,671,416 shares issued; and 14,206,219 and 14,229,541 shares
outstanding at September 30, 2005 and December 31, 2004,
respectively 14,881 14,672 Additional paid-in capital 63,260,412
62,523,292 Accumulated other comprehensive loss (504,612) (309,722)
Accumulated deficit (26,413,615) (27,853,003) Treasury stock at
cost, 674,098 and 441,875 shares at September 30, 2005 and December
31, 2004, respectively (3,003,445) (1,943,855) Total Stockholders'
Equity 33,353,621 32,431,384 Total Liabilities and Stockholders'
Equity $36,666,044 $35,502,441 DATASOURCE: SRS Labs, Inc. CONTACT:
Investors, Janet Biski of SRS Labs, Inc., +1-949-442-1070 ext.
3080, Web site: http://www.srslabs.com/
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