SRSL Srs Labs, Inc. (MM)

SRS Labs, Inc. (NASDAQ:SRSL), the industry leader in surround sound, audio and voice technologies, reported financial results for the third quarter ended September 30, 2010.

Revenues in the third quarter 2010 increased 19% to $8.6 million from $7.2 million in the same period a year-ago. The increase was primarily attributable to increased revenues in the home entertainment and personal computer markets segments.

Operating expenses in the third quarter increased 26% to $7.2 million from $5.7 million in the same quarter a year-ago. The increase was primarily attributable to the continued investment in additional engineering, sales, and marketing infrastructure.

Net income in the third quarter totaled $1.3 million or $0.09 per diluted share, compared to net income of $1.5 million or $0.10 per diluted share in the third quarter of 2009.

Quarter-end cash and cash equivalents, and short-term and long-term investments totaled $42.8 million or $2.72 per diluted share as of September 30, 2010, compared to $42.3 million at the end of the prior quarter.

Management Commentary

“This was the strongest revenue of any third quarter in our company history as we continued to successfully execute our sales and marketing strategies within our core market segments” said Thomas C.K. Yuen, SRS Lab’s Chairman and CEO. “Revenues contributing to this record quarter were derived principally from our TV, PC and mobile phone segments, all three of which reflect consumers’ increasing preference and expectation to effortlessly access and consume high-quality audio and video content across the three screens. This developing consumer preference aligns well with our business strategy and growth expectations and we expect this will continue to take shape and fuel design, manufacture and sales of CE products worldwide.”

Yuen added, “Our expectations for 2011 remain strong as we continue to move forward strengthening our pipeline with new opportunities, design wins in progress, and signed contracts. We also believe that our new initiative to capitalize upon the strong growth of content streaming will benefit all our segments and specifically should favorably impact our activities in the Smartphone, PC and connected TV markets. In fact, in the third quarter, we succeeded in strategically aligning SRS with Microsoft Silverlight to bring surround sound to content aggregators and content creators across the globe and we expect that to stimulate the development of new opportunities in both our traditional and new business and licensing models.”

Conference Call

SRS Labs will hold a conference call later today (November 4, 2010) to discuss these third quarter 2010 financial results. Chairman and CEO Thomas C.K. Yuen and CFO Ulrich Gottschling will host the call starting at 5:00 p.m. Eastern time. A question and answer session will follow management's presentation.

Dial-In Number: 1-877-353-2262

Conference ID#: 17686841

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization and instruct you to wait until the call begins. If you have any difficulty connecting with the conference call, please contact Liolios Group at 949-574-3860. Investors may also listen to the conference call live online via a link available on the SRS Labs investor relations home page at www.srslabs.com. The website will host a replay of the call available after 8:00 p.m. Eastern time. Investors may also listen to the replay by dialing 800-642-1687 and entering conference ID#: 17686841, available until November 18, 2010.

About SRS Labs, Inc.

Founded in 1993, SRS Labs is the industry leader in audio signal processing for consumer electronics across the four screens: TV; PC; Mobile Phones; and Automotive Entertainment Systems. Beginning with the audio technologies originally developed at Hughes Aircraft, SRS Labs holds over 150 worldwide patents and is recognized by the industry as the foremost authority in research and application of audio post processing technologies based on the human auditory principles. Through partnerships with leading global CE companies, semiconductor manufacturers, software developers, and content aggregators, SRS is recognized as the de facto standard in audio enhancement, surround sound, volume leveling, audio streaming, and voice processing technologies. SRS solutions have been included in over two billion electronic products sold worldwide including flat panel HDTVs, AV products, STBs, PCs, mobile phones, and automotive entertainment and telematics systems. For more information, visit www.srslabs.com.

Safe Harbor Statement

This press release includes forward-looking statements that are based on our current expectations, estimates and projections about SRS Labs, Inc., management’s beliefs and certain assumptions made by us, and events beyond our control, all of which are subject to change. Such forward-looking statements include, but are not limited to, statements relating to our customers’ and end users’ preferences and expectations, the market demand for our solutions, and our future growth opportunities, competitive position, expansion and investment plans, and operating results and profitability. Forward-looking statements can often be identified by words such as “expects,” “anticipates,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “likely,” “potential,” “continue,” similar expressions, and variations or negatives of these words. These forward-looking statements are not guarantees of future results or the commitments made by us herein, and they are subject to risks, uncertainties and assumptions that could cause actual results to differ materially and adversely from those expressed in any forward-looking statement. The risks and uncertainties referred to above include, but are not limited to, the loss of any significant customer; the acceptance of new SRS Labs products and technologies; our ability to increase our brand awareness and enter into new or expanded license arrangements; the impact of competitive products and pricing; general economic and business conditions that may adversely impact sales of consumer products incorporating our technologies or that otherwise may impact our operating results and future performance; the timely development and release of technologies by the Company; and such other factors described in our filings with the Securities and Exchange Commission. The forward-looking statements in this press release speak only as of the date they are made. We do not undertake any obligation to revise or update publicly any forward-looking statement for any reason.

 

SRS LABS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS

    September 30,2010 December 31,2009 ASSETS (Unaudited) Current Assets Cash and cash equivalents $ 16,385,081 $ 27,988,164 Accounts receivable, net 2,091,474 179,114 Prepaid expenses and other current assets 1,122,492 1,147,151 Short-term investments 12,191,000 12,963,000 Total Current Assets 31,790,047 42,277,429   Long-term investments 14,261,000 538,000 Property and equipment, net 724,769 599,794 Intangible assets, net 2,877,244 2,702,160 Deferred income taxes, net 7,826,153 5,631,442 Total Assets $ 57,479,213 $ 51,748,825  

LIABILITIES AND STOCKHOLDERS’ EQUITY

  Current Liabilities Accounts payable $ 655,374 $ 583,157 Accrued liabilities 1,634,032 1,577,891 Deferred revenue 798,305 1,193,454 Total Current Liabilities $ 3,087,711 $ 3,354,502   Commitments and Contingencies   Stockholders’ Equity Preferred stock—$0.001 par value; 2,000,000 shares authorized; no shares issued and outstanding — — Common stock—$0.001 par value; 56,000,000 shares authorized; 14,744,441 and 14,563,715 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively 14,745 14,565 Additional paid-in capital 67,687,825 65,128,337 Accumulated deficit   (13,311,068 ) (16,748,579 ) Total Stockholders’ Equity   54,391,502 48,394,323 Total Liabilities and Stockholders’ Equity $ 57,479,213 $ 51,748,825     SRS LABS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)         Three Months Ended Nine Months Ended September 30, September 30, 2010 2009 2010 2009   Revenues $ 8,609,140 $ 7,230,118 $ 24,155,562 $ 17,989,657 Cost of sales 63,965 67,858 228,320 202,032   Gross profit 8,545,175 7,162,260 23,927,242 17,787,625   Operating expenses (i): Sales and marketing 3,387,781 2,852,165 10,029,468 8,089,263 Research and development 2,031,511 1,481,555 5,747,623 4,059,132 General and administrative 1,800,624 1,411,162 4,797,755 4,217,046 Total operating expenses 7,219,916 5,744,882 20,574,846 16,365,441   Operating income 1,325,259 1,417,378 3,352,396 1,422,184 Other income, net 78,042 82,724 179,544 279,543 Income before income taxes 1,403,301 1,500,102 3,531,940 1,701,727 Income taxes 62,966 25,088 94,429 39,163 Net income $ 1,340,335 1,475,014 $ 3,437,511 $ 1,662,564   Net income per common share: Basic $ 0.09 $ 0.10 $ 0.23 $ 0.12 Diluted $ 0.09 $ 0.10 $ 0.22 $ 0.11   Weighted average common shares used in the per share calculations: Basic 14,705,275 14,627,089 14,638,748 14,439,228 Diluted 15,745,667 15,184,824

15,579,175

14,762,281    

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(i)  Includes share-based compensation expense as follows:

  Three Months Ended Nine Months Ended September 30, September 30, 2010 2009 2010 2009   Sales and marketing 167,069 134,804 512,858 381,721 Research and development 132,165 114,949 416,911 333,768 General and administrative 248,003 233,224 744,389 714,851 Total share-based compensation expense 547,237 482,977 1,674,158 1,430,340