Tessera Technologies Announces Third Quarter 2007 Financial Results

Tessera Technologies, Inc. (Nasdaq:TSRA), a leading provider of miniaturization technologies for the electronics industry, announced its results for the third quarter and nine-month period ended September 30, 2007. Revenue Highlights: Third Quarter 2007 Total revenue was $49.2 million. Royalty and license fees were $41.4 million. Product and service revenue was $7.4 million. Generally accepted accounting principles (GAAP) net income for the third quarter of 2007 was $11.2 million, or $0.23 per diluted share, and included non-cash charges of $4.4 million for stock-based compensation and $1.9 million for deal amortization. Non-GAAP net income for the third quarter of 2007 was $25.1 million, or $0.51 per diluted share. Non-GAAP net income and operating expenses are defined as income and operating expenses adjusted for non-cash tax expense, deal amortization charges, and stock-based compensation. Non-GAAP net income per share equals non-GAAP net income divided by the weighted diluted share count as of that period end. "We are pleased to report continued strong revenue growth from our core business in the third quarter. For the full year 2007, royalties and licenses are expected to be up roughly 58 percent as compared to 2006,” said Bruce McWilliams, chairman, president and CEO for Tessera. "Our advanced packaging and interconnect product efforts are progressing well and our longer-term outlook is very favorable as memory demand, both in computing and consumer electronics, continues to climb. Combined with the strong interest in our full range of consumer optics technologies, we remain confident in the long-term scalability of our business.” Revenue Highlights: Nine-month Period Ended September 30, 2007 Total revenue was $142.6 million. Royalty and license fees were $113.4 million. Payments for past production were $2.2 million. Product and service revenue was $27.1 million. GAAP net income for the nine-month period was $32.1 million, or $0.66 per diluted share. Non-GAAP net income for the nine-month period was $71.4 million, or $1.45 per diluted share. "Third quarter total revenue of $49.2 million exceeded guidance due to strong royalties and license fees growth, which offset lower than expected product and services revenue,” stated Charlie Webster, Tessera’s chief financial officer. "The main driver of royalty growth continues to be strong DRAM unit growth, which we now expect to range between 45 percent to 50 percent for the year. In wireless, although June quarter CSP shipments were still moderate, we are beginning to experience some signs of improvement. As such, we are reiterating our guidance for the full year 2007 revenue of approximately $193 million to $198 million, with approximately $153 million to $158 million in royalties and license fees, as compared with full year 2006 royalties and license fees of $99.6 million.” Fourth Quarter 2007 Financial Guidance Total revenue for the fourth quarter is expected to be within the range of $52.0 million to $53.0 million. Fourth quarter 2007 royalty and license fees are projected to be between $44.0 million and $45.0 million. As per company policy, quarterly revenue guidance does not include the impact of new agreements that are not already signed. Non-GAAP operating expenses for the fourth quarter are projected to be approximately $27.5 million to $28.0 million, including $7.0 million to $7.5 million for litigation expenses. The company’s book tax rate is projected to be 35 percent of pre-tax profit. Cash taxes are projected to approximate $2.0 million in the fourth quarter. The fully diluted share count is expected to be 49.5 million shares. Conference Call Information Tessera Technologies will host its third quarter 2007 conference call on November 1, 2007 at 1:30 p.m. Pacific Time. To access the call in the U.S., please dial 877-866-5534, and for international callers, dial 706-679-0753 approximately 10 minutes prior to the start of the conference call. The conference call will also be broadcast live over the Internet 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 800-642-1687 and for international callers, dial 706-645-9291. Enter access code 19774947. About Tessera Technologies, Inc. Tessera is a leading provider of miniaturization technologies for the electronics industry. Tessera provides a broad range of advanced packaging, interconnect, and consumer optics solutions which are widely adopted in high-growth markets including consumer, computing, communications, medical and defense electronics. Tessera's customers include the world's top semiconductor companies such as Intel, Samsung, Texas Instruments, Toshiba, Micron and Infineon. The company's stock is traded on the Nasdaq National Market under the symbol TSRA. Tessera is headquartered in San Jose, California. www.tessera.com. 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 that are adjusted for non-cash tax expense, and stock compensation and the requirements of SFAS No. 123(R), "Share-based Payment” ("123R”). The non-GAAP financial measures used by management and disclosed by the company exclude the income statement effects of non-cash tax expense, either one-time or ongoing non-cash deal amortization charges and all forms of stock-based compensation and the effects of 123R upon the number of diluted shares used in calculating non-GAAP earnings per share. Management believes that the non-GAAP measures used in this report 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. Set forth below are reconciliations of the non-GAAP net income to our reported GAAP net income. Safe Harbor Statement This press release 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. Material factors that may cause results to differ from the statements made include delays, setbacks or losses relating to our intellectual property or intellectual property litigations, or any invalidation or limitation of our key patents; fluctuations in our operating results due to the timing of new license agreements and royalties, or due to legal costs; changes in patent laws, regulation or enforcement, or other factors that might affect our ability to protect our intellectual property; the risk of a decline in demand for semiconductor products; failure by the industry to adopt our technologies; competing technologies; the future expiration of our patents; the future expiration of our license agreements and the cessation of related royalty income; the failure or refusal of licensees to pay royalties; failure to achieve the growth prospects and synergies expected from acquisition transactions; and delays and challenges associated with integrating acquired companies with our existing businesses. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this release. Tessera's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2006 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 include more information about factors that could affect the company's financial results. TESSERA TECHNOLOGIES, INC.   CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)         Three Months Ended   Nine Months Ended September 30, September 30,   2007     2006   2007     2006 Revenues: Royalty and license fees $ 41,383 $ 25,916 $ 113,377 $ 64,817 Past production payments 415 76,000 2,167 77,633 Product and service revenues   7,356   8,625   27,104   16,014 Total revenues   49,154   110,541   142,648   158,464 Operating expenses: Cost of revenues 3,603 6,201 13,917 13,623 Research, development and other related costs 9,920 5,317 27,106 12,589 Selling, general and administrative costs   17,655   20,116   51,598   54,091 Total operating expenses   31,178   31,634   92,621   80,303 Operating income 17,976 78,907 50,027 78,161 Other income, net   3,080   1,677   8,686   4,401 Income before taxes 21,056 80,584 58,713 82,562 Income tax provision   9,874   33,229   26,577   35,048 Net income attributable to common stockholders $ 11,182 $ 47,355 $ 32,136 $ 47,514 Basic and diluted net income per share attributable to common stockholders: Net income per common share - basic $ 0.23 $ 1.02 $ 0.68 $ 1.04 Net income per common share - diluted $ 0.23 $ 0.98 $ 0.66 $ 0.99 Weighted average number of shares used in per share calculations - basic   47,688   46,252   47,423   45,892 Weighted average number of shares used in per share calculations - diluted   48,586   48,422   48,554   48,131 TESSERA TECHNOLOGIES, INC.   SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA (in thousands) (unaudited)         Three Months Ended Nine Months Ended September 30, September 30,   2007   2006   2007   2006   Non-cash income tax expense $ 7,609 $ 32,292 $ 21,016 $ 32,279 Stock compensation - cost of revenues $ 425 $ 709 $ 1,722 $ 2,319 Stock compensation - research, development and other related costs $ 712 $ 334 $ 1,831 $ 443 Stock compensation - selling, general and administrative $ 3,247 $ 2,798 $ 9,659 $ 8,188 Amortization of acquired intangibles - cost of revenues $ 423 $ 282 $ 1,267 $ 282 Amortization of acquired intangibles - research, development and other related costs $ 1,264 $ 268 $ 3,206 $ 806 Amortization of acquired intangibles - selling, general and administration $ 201 $ 137 $ 605 $ 147 Adjustment for acquired inventory $ - $ 905 $ - $ 905   Weighted average number of shares used in per share calculations excluding the effects of 123R - diluted 49,016 48,737 49,127 48,580 TESSERA TECHNOLOGIES, INC.   CONSOLIDATED SUMMARY BALANCE SHEET INFORMATION (in thousands)         September 30,   December 31,   2007     2006 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 230,596 $ 194,076 Short-term investments 35,223 - Accounts receivable, net 9,008 6,783 Inventories 2,056 1,548 Short-term deferred tax assets 4,814 4,814 Other current assets   3,310     13,434 Total current assets 285,007 220,655   Property and equipment, net 27,493 24,705 Intangible assets, net 53,225 27,529 Goodwill 35,425 35,425 Long-term deferred tax assets 1,162 12,530 Other assets   1,238     444 Total assets $ 403,550   $ 321,288   LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,775 $ 3,895 Accrued legal fees 4,877 3,166 Accrued liabilities 7,282 7,350 Deferred revenue 1,028 646 Income tax payable   21,888     376 Total current liabilities   37,850     15,433   Stockholders' equity: Common Stock 48 47 Additional paid-in capital 273,569 245,019 Treasury Stock (544 ) - Accumulated other comprehensive loss (298 ) - Retained earnings   92,925     60,789 Total stockholders' equity   365,700     305,855   Total liabilities and stockholders' equity $ 403,550   $ 321,288 RECONCILIATION TO NON-GAAP INCOME FROM GAAP NET INCOME (in thousands, except per share amounts) (unaudited)         Three Months Ended   Nine Months Ended September 30, September 30,   2007     2006   2007     2006   GAAP Net Income $ 11,182 $ 47,355 $ 32,136 $ 47,514     Adjustments to GAAP net income: Stock compensation - cost of revenues 425 709 1,722 2,319 Stock compensation - research, development and other related costs 712 334 1,831   443 Stock compensation - selling, general and administrative 3,247 2,798 9,659   8,188 Amortization of acquired intangibles - cost of revenues 423 282 1,267 282 Amortization of acquired intangibles - research, development and other related costs 1,264 268 3,206 806 Amortization of acquired intangibles - selling, general and administrative 201 137 605 147 Non-cash income tax expense 7,609 32,292 21,016 32,279 Adjustment for acquired inventory - 905 - 905         Non-GAAP net income $ 25,063 $ 85,080 $ 71,442 $ 92,883   Non-GAAP net income per common share - diluted $ 0.51 $ 1.75 $ 1.45 $ 1.91 Weighted average number of shares used in per share calculations excluding the effects of 123R - diluted   49,016   48,737   49,127   48,580