Earlier today, I wrote that investors in DTS Inc (DTSI). would likely be happy to learn about a note in Zoran Corporation's 10-Q filing stating that they incurred an 11 million expense "in connection with settlement of various intellectual property disputes." I also noted that that in looking through many Zoran reports, I could not find any other instance of intellectual property disputes or settlements for Zoran Corporation, suggesting the full 11 million probably went to DTS.
But get this. DTS today on their earnings call refused to give the actual settlement amount, noting the terms of their settlement agreement with Zoran. What's worse is they seemed to have missed previous non-GAAP expectations and are masking it by only offering GAAP numbers.
On the call last quarter, Jon Kirchner, DTS' CEO stated, "We essentially have for the purposes of keeping everybody on an apples-to-apples kind of comparison basis, [the Zoran lawsuit has] been excluded - both the expenses as well as any potential financial recovery that might stem from it."
On today's call, there was no "apples-to-apples kind of comparison," as promised. Instead management offered a few pieces of information from their 10-Q and press release. On their press release, DTS states, "Excluding the settlement of litigation matters, adjusted revenues were in excess of $14 million for the second quarter of 2009."
That suggests the Zoran corporation settlement was around 10 million, according to DTS, not 11 million as suggested by Zoran.
In their May call, executives offered non-GAAP eps guidance of .55-.60 and revenue of 65-69 million. Their non-GAAP guidance only excluded the Zoran expenses and the potential settlement. The expenses for the settlement were 8.725 million in the past two quarters, according to today's 10-Q. If we assume a 10 million dollar settlement, that's a gain of 1.275 million or .07 a share. Management "adjusted" their GAAP guidance (which they never gave previously) to .57-.62 on 76-79 million, translating into 10.5 million more revenue and .02 more in eps.
So assuming that the settlement was for 10 million, that means they are actually raising the year's revenue guidance by .5 million and reducing full year guidance by .05
Management sounded very positive in their conference call about this. Shares seemed to fall in the after hours. Nice try guys.
(I'm actually still wondering what happened to the other 1 million from the Zoran filing. If the 11 million figure was correct, that would actually make it an .11 guidance miss for the year. But no worries. No reason not to trust these guys after they just went from GAAP guidance to non-GAAP back to GAAP in the last three quarters.)
Disclosure: Now shorting DTSI
