Tessera Technologies Announces Second Quarter 2007 Financial Results

Tessera Technologies, Inc. (Nasdaq:TSRA), a leading provider of miniaturization technologies for the electronics industry, announced its results for the second quarter and six-month period ended June 30, 2007. "Our royalties and license fees for the second quarter were up 86 percent compared to the prior year, driven by strong unit volume growth in the memory market and moderate growth in the wireless industry,” stated Bruce McWilliams, Tessera’s chairman, president and chief executive officer. "Also in the second quarter, we launched our new consumer optics technology - OptiML™ WLC (wafer level camera). And in July, we signed ALPS Electric Co as the first licensee of this exciting technology. We view the ALPS agreement as a key step in our efforts to establish the necessary supply chain for broad industry adoption of our integrated camera module technology. We continue to gain traction in consumer optics and are excited about the long term growth potential of this new business.” Revenue Highlights: Second Quarter 2007 Total revenue was $46.7 million. Royalty and license fees were $36.3 million. Product and service revenue was $10.4 million. Generally accepted accounting principles (GAAP) net income for the second quarter of 2007 was $9.9 million, or $0.20 per diluted share, and included $5.1 million of stock based compensation, which increased over the prior quarter principally due to a change to variable accounting for certain stock option grants, and $1.9 million of non-cash deal amortization charges. Non-GAAP net income for the second quarter of 2007 was $21.8 million, or $0.45 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. Revenue Highlights: Six-month Period Ended June 30, 2007 Total revenue was $93.5 million. Royalty and license fees were $72.0 million. Payments for past production were $1.8 million. Product and service revenue was $19.7 million. GAAP net income for the six-month period was $21.0 million or $0.43 per diluted share. Non-GAAP net income for the six-month period was $46.4 million, or $0.95 per diluted share. Charlie Webster, Tessera’s chief financial officer, stated, "Our total revenue and Royalty and Licenses fees met our expectations in the second quarter, despite continued softer conditions in the wireless industry. Product and Service revenue was also strong driven principally by sales of our micro-optics products to the lithography industry.” "Looking forward, in wireless we see signs of modest improvement through year-end; while in the memory market, we expect DRAM unit growth to remain strong for the near future. We expect lithography sales to slow somewhat into the third quarter, but we are optimistic about the broader market outlook.” Third Quarter 2007 Financial Guidance Third Quarter 2007 Royalty and license fees are projected to be up seven to ten percent sequentially to between $39 million and $40 million. Product and service revenue is projected to be approximately $8 million, down approximately $2 million from the second quarter. Total revenue for the third quarter, therefore, is expected to be within the range of $47 million to $48 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 third quarter are projected to be within the range of $27.0 million to $27.5 million, including $6.0 million to $6.5 million for litigation expenses. Other income is projected to be $2.7 million. The company’s book tax rate is projected to be 43 percent of pre-tax profit. Cash taxes are projected to approximate $900,000 in the third quarter. The fully diluted share count is expected to be 49.5 million shares. Conference Call Information Tessera Technologies will host its second quarter 2007 conference call on August 2, 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 6142082. 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. 123R, "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 March 31, 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 Six Months Ended June 30, June 30,     2007   2006     2007   2006   Revenues: Royalty and license fees $ 36,286 $ 19,529 $ 71,994 $ 38,901 Past production payments 4 1,410 1,752 1,633 Product and service revenues   10,385   3,320     19,748   7,389   Total revenues   46,675   24,259     93,494   47,923   Operating expenses: Cost of revenues 5,612 3,990 10,314 7,422 Research, development and other related costs 8,833 3,396 17,186 7,272 Selling, general and administrative costs   17,789   20,105     33,943   33,975   Total operating expenses   32,234   27,491     61,443   48,669   Operating income 14,441 (3,232 ) 32,051 (746 ) Other income, net   2,848   1,519     5,606   2,724   Income before taxes 17,289 (1,713 ) 37,657 1,978 Income tax provision (benefit)   7,429   (501 )   16,703   1,819   Net income (loss) attributable to common stockholders $ 9,860 $ (1,212 ) $ 20,954 $ 159   Basic and diluted net income per share attributable to common stockholders: Net income per common share - basic $ 0.21 $ (0.03 ) $ 0.44 $ -   Net income per common share - diluted $ 0.20 $ (0.03 ) $ 0.43 $ -   Weighted average number of shares used in per share calculations - basic   47,424   45,905     47,178   45,684   Weighted average number of shares used in per share calculations - diluted   48,977   45,905     48,770   47,918   TESSERA TECHNOLOGIES, INC.   SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA (in thousands) (unaudited)     Three Months Ended Six Months Ended June 30, June 30,   2007   2006     2007   2006     Non-cash income tax expense $ 4,937 $ (1,408 ) $ 13,407 $ (13 ) Stock compensation - cost of revenues $ 747 $ 675 $ 1,297 $ 1,611 Stock compensation - research, development and other related costs $ 611 $ 59 $ 1,119 $ 108 Stock compensation - selling, general and administrative $ 3,789 $ 2,597 $ 6,412 $ 5,390 Amortization of acquired intangibles $ 1,889 $ - $ 3,190 $ -   Weighted average number of shares used in per share calculations excluding the effects of 123R - diluted 49,003 48,301 48,855 48,310 TESSERA TECHNOLOGIES, INC.   CONSOLIDATED SUMMARY BALANCE SHEET INFORMATION (in thousands)     June 30, December 31,   2007   2006(a)   (unaudited) ASSETS Current assets: Cash and cash equivalents $ 198,911 $ 194,076 Short-term investments 37,371 - Accounts receivable, net 9,303 6,783 Inventories 1,565 1,548 Short-term deferred tax assets 4,814 4,814 Other current assets   2,416   13,434   Total current assets 254,380 220,655   Property and equipment, net 26,334 24,705 Intangible assets, net 55,113 27,529 Goodwill 35,425 35,425 Long-term deferred tax assets 1,162 12,530 Other assets   537   444   Total assets $ 372,951 $ 321,288     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,675 $ 3,895 Accrued legal fees 2,010 3,166 Accrued liabilities 6,759 7,350 Deferred revenue 466 646 Income tax payable   13,779   376   Total current liabilities   25,689   15,433     Stockholders' equity: Common Stock 48 47 Additional paid-in capital 265,470 245,019 Accumulated other comprehensive income 1 - Retained earnings   81,743   60,789   Total stockholders' equity   347,262   305,855     Total liabilities and stockholders' equity $ 372,951 $ 321,288     (a) Derived from audited financial statements RECONCILIATION TO NON-GAAP INCOME FROM GAAP NET INCOME (in thousands, except per share amounts) (unaudited)   Three Months Ended Six Months Ended June 30, June 30,   2007   2006     2007   2006     GAAP Net Income $ 9,860 $ (1,212 ) $ 20,954 $ 159     Adjustments to GAAP net income: Stock compensation - cost of revenues 747 675 1,297 1,611 Stock compensation - research, development and other related costs 611 59 1,119   108 Stock compensation - selling, general and administrative 3,789 2,597 6,412   5,390 Amortization of acquired intangibles 1,889 - 3,190   - Non-cash income tax expense 4,937 (1,408 ) 13,407 (13 )         Non-GAAP net income $ 21,833 $ 711   $ 46,379 $ 7,255     Non-GAAP net income per common share - diluted $ 0.45 $ 0.01   $ 0.95 $ 0.15   Weighted average number of shares used in per share calculations excluding the effects of 123R - diluted   49,003   48,301     48,855   48,310