DTS Reports Third Quarter 2011 Results

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Expects Strong Fourth Quarter and Maintains Annual Outlook

Calabasas, Calif. ” November 7, 2011”DTS, Inc. (Nasdaq: DTSI) today announced financial results for the third quarter and nine months ended September 30, 2011.

For the third quarter of 2011, revenue was $20.5 million, which included no royalty recoveries, compared to $21.0 million, including $1.1 million in royalty recoveries in the same period last year. Excluding royalty recoveries, third quarter revenue increased 3% over 2010.  For the nine-month period ended September 30, 2011, revenue increased 13% to $67.9 million, including $300,000 in royalty recoveries. This compares to $60.2 million, including $1.9 million in royalty recoveries in the same period of 2010. Excluding royalty recoveries, revenue increased 16% year over year.

Income from continuing operations was $2.9 million, or $0.17 per diluted share, for the third quarter of 2011, compared to $3.4 million, or $0.19 per diluted share, reported in the same period of 2010.  Included in third quarter of 2011 results is $2.4 million, or $0.08 per diluted share net of tax, in stock-based compensation expense and $345,000, or $0.01 per diluted share net of tax, in amortization of intangible assets.  For the nine-month period, income from continuing operations increased 26% to $11.2 million, or $0.63 per diluted share, compared to $8.9 million, or $0.50 per diluted share, reported in the same period of 2010

The Company achieved non-GAAP operating margins of 34% and non-GAAP income from continuing operations of $4.5 million, or $0.26 per diluted share net of tax, in the third quarter of 2011, excluding the above-mentioned charges.  This compares to non-GAAP operating margins of 36% and non-GAAP income from continuing operations of $4.6 million, or $0.26 per diluted share, reported in the third quarter of 2010. For the nine months ended September 30, 2011 the Company achieved non-GAAP operating margins of 38% and non-GAAP income from continuing operations of $15.8 million, or $0.89 per diluted share net of tax. This compares to non-GAAP operating margins of 35% and non-GAAP income from continuing operations of $12.8 million, or $0.72 per diluted share, reported in the same period of 2010, a per share increase of 24% year over year.
 

The Company generated $14.5 million in cash flow from operations in the nine months ended September 30, 2011, and closed the third quarter with $88.4 million in cash, cash equivalents and investments. During the quarter, DTS repurchased 500,000 shares, bringing the total to 800,000 in 2011 under the current 1.0 million share repurchase program. In total, the Company has used approximately $102 million to repurchase 3.8 million shares of stock since inception.
 

The GAAP to non-GAAP reconciliation for the three and nine month periods ended September 30, 2011 and 2010 can be found in the "Non-GAAP Financial Metrics" schedule attached to this press release.
 

We made good progress in the third quarter on a number of key initiatives, and are well positioned to achieve our full year revenue expectations,” commented Jon Kirchner, chairman and CEO of DTS, Inc. “We posted strong growth in the network connected markets as we continue to diversify our business and saw continued expansion of the Blu-ray PC and stand-alone player markets. As expected, our third quarter auto and AV revenue reflected slight production issues related to the Japan earthquake, which we believe are now behind us.
 

In the quarter, we continued to see strong Hollywood support of DTS-HD Master Audio™  on Blu-ray disc. We also made key announcements with Adobe, Rovi, and Digital Rapids and more recently we saw the soft launch of the new UltraViolet format. These announcements further demonstrate our expansion into network-connected devices and the tools necessary to support emerging cloud-based content ecosystems. More announcements in this area are expected over the coming months and prior to our next call.
 

“We expect strong sequential growth in the fourth quarter driven by continuing strength in our Blu-ray and network-connected markets and a rebound in the game console and automotive markets. We also expect closure on several royalty recovery matters that will positively impact revenues in the fourth quarter.
 

As a result, we are maintaining our 2011 revenue outlook of $95 to $100 million.  We expect non-GAAP operating margins to be approximately 40%, and non-GAAP EPS in the range of $1.30 to $1.42 per diluted share, excluding the impact of both stock based compensation and amortization of intangibles, and the estimated tax impact of those items. Stock-based compensation expense will be in the range of $0.32 to $0.34 per share net of tax in 2011. On a GAAP basis, operating margins will be approximately 30%, and EPS in the range of $0.94 to $1.05 cents per diluted share,” concluded Kirchner.

Use of Non-GAAP Financial Information

Included within this press release are non-GAAP financial measures that supplement the Company’s Consolidated Statements of Operations prepared under generally accepted accounting principles (GAAP). These non-GAAP financial metrics adjust the Company’s actual results prepared under GAAP to exclude charges and the related income tax effect for share-based compensation and the amortization of intangible assets. Reconciliations of GAAP to non-GAAP amounts for the periods presented herein are provided in schedules accompanying this release and should be considered together with the Consolidated Statements of Operations. These non-GAAP metrics are not meant as a substitute for GAAP, but are included solely for informational and comparative purposes. The Company’s management believes that this information can assist investors in evaluating the Company’s operational trends, financial performance, and cash generating capacity. Management believes these non-GAAP metrics allow investors to evaluate DTS’s financial performance using some of the same measures as management. However, the non-GAAP financial metrics should not be regarded as a replacement for (or superior to) corresponding, similarly captioned, GAAP metrics.
 

Conference Call Information for Monday, November 7, 2011
 

DTS will broadcast a conference call today, Monday, November 7, 2011, starting at 1:30 p.m. Pacific Time. To access the conference call, dial 1-877-941-4774 or 1-480-629-9760 (outside the U.S. and Canada). The live webcast of the call will be available from the Investor Relations section of the Company’s corporate website atwww.dts.com. A replay of the webcast will begin two hours after the completion of the call. An audio replay of the call will also be available to investors beginning at 3:30 p.m. Pacific Time on November 7, 2011 through November 14, 2011, by dialing 1-800-406-7325 or 1-303-590-3030 (outside the U.S. and Canada) and entering the pass code 4484011#.
 

About DTS, Inc.

DTS, Inc. (Nasdaq:DTSI) is dedicated to making digital entertainment exciting, engaging and effortless by providing state-of-the-art audio technology to hundreds of millions of DTS-licensed consumer electronics products worldwide. From a renowned legacy as a pioneer in multi-channel audio, DTS became a mandatory audio format in the Blu-ray Disc™ standard and is now increasingly deployed in enabling digital delivery of movies and other forms of digital entertainment on a growing array of network-connected consumer devices. DTS technology is in home theaters, car audio systems, PCs, game consoles, DVD players, televisions, digital media players, set-top boxes, smart phones, surround music software and every device capable of playing Blu-ray™ discs. Founded in 1993, DTS' corporate headquarters are located in Calabasas, California with its licensing operations headquartered in Limerick, Ireland. DTS also has offices in Northern California, Washington, China, France, Hong Kong, Japan, South Korea, Taiwan, Singapore, and the United Kingdom. For further information, please visitwww.dts.com. DTS, the Symbol, and DTS and the Symbol together, are registered trademarks of DTS, Inc. All other trademarks are the properties of their respective owners. © 2011 DTS, Inc. All rights reserved.

Investor Contacts:Press Contact:

Erica Abrams or Matthew Hunt  Alan L. Cohen

The Blueshirt Group for DTS, Inc.  DTS, Inc.

415-217-7722

erica@blueshirtgroup.com alan.cohen@dts.com

matt@blueshirtgroup.com

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks, uncertainties, assumptions and other factors which, if they do not materialize or prove correct, could cause DTS’ results to differ materially from historical results or those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements containing the words “planned,” “expects,” “believes,” “strategy,” “opportunity,” “anticipates” and similar words. These statements may include, among others, plans, strategies and objectives of management for future operations; any statements regarding proposed new products, services or developments; any statements regarding future economic conditions or financial or operating performance; statements of belief and any statements of assumptions underlying any of the foregoing. The potential risks and uncertainties that could cause actual growth and results to differ materially include, but are not limited to, the transition to the next generation optical drives and consumer adoption of such technology, the rapidly changing and competitive nature of the digital audio, consumer electronics and entertainment markets, the Company’s inclusion in or exclusion from governmental and industry standards,continuedcustomer acceptance of the Company’s technology, products, services and pricing, risks related to ownership and enforcement of intellectual property, the continued release and availability of entertainment content containing DTS audio soundtracks,success of the Companya' s research and development efforts, risks related to integrating acquisitions, greater than expected costs, the departure of key employees, the current financial crisis and global economic downturn, a loss of one or more of our key customers or licensees,changes in domestic and international market and political conditions, and other risks and uncertainties more fully described in DTS’ public filings with the Securities and Exchange Commission, available at www.sec.gov. DTS does not intend to update any forward-looking statementcontained in this press releaseto reflect events or circumstances arising after the datehereof.
 

DTS-I
 

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