Tessera Beats on Q1 Earnings - Analyst Blog

Tessera Technologies Inc. TSRA reported first-quarter 2014 earnings from continuing operations of 71 cents per share, surpassing the Zacks Consensus Estimate by 21 cents.

Revenues

Tessera reported revenues of $88.3 million, up 56.7% sequentially and 208.6% year over year. The increase in recurring revenues was driven by completion of several patent licensing deals including agreements with Samsung, Renaissance and licensing settlements with PTI and ASD. Moreover, the settlement with Qualcomm QCOM is also a reason behind the increased recurring revenues.

In addition, the company's FotoNation technology contributed to revenues in the quarter largely on the strength of amplified royalties from smartphone consumers.

Margins

Owing to the high percentage of licensing revenues, Tessera usually generates very strong gross margins. The settlements in the last quarter further raised the gross margin. Accordingly, in the reported quarter, Tessera's pro forma gross margin was 100.0%, 30 basis points higher than 99.7% reported in the year-ago quarter.

Its pro forma operating profit was $61.4 million, or 69.5% of revenue, compared with a loss of $14.2 million or 49.8% of revenue in the year-ago quarter.

Net Income

Tessera's pro forma net income was $39.1 million compared to net loss of $7.9 million in the year-ago quarter. Our pro forma calculations are adjusted for restructuring, impairment and amortization related charges. Our calculations may not match management presentation because of the addition/deletion of some items that were not considered by management.

Net income on a GAAP basis was $33.4 million compared with net loss of $11.3 million in the year-ago quarter.

Balance Sheet

Tessera exited the first quarter with current assets worth $414.1 million, up $20.8 million from the previous quarter. Cash, cash equivalents and short-term investments totaled $379.0 million, up from $359.6 in the prior quarter. Tessera has no debt.

Guidance

For the second quarter of 2014, Tessera expects revenues in the range of $31 million–$33 million. GAAP operating expenses are expected to be between $36 and $38 million. Management expects roughly $0.2 million of restructuring charges, amortization of intangibles of approximately $4.6 million, stock-based compensation expense of around $2.4 million and expenditure associated with discontinued operations of $1 million.

Our Recommendation

Tessera posted encouraging results with the bottom line exceeding the Zacks Consensus Estimate.

We believe the company is on the right track following its exit from DOC industrial operations. It has lowered its operating expenditure level, achieved internal reformation to implement resources in areas with growth potential and completed several patent licensing agreements, licensing settlement agreements and litigation settlements. Moreover, new licensing deals on the anvil will also augment the company's profitability.

Tessera shares currently carry a Zacks Rank #3 (Hold).

Kulicke and Soffa Industries, Inc. KLIC with a Zacks Rank #1 (Strong Buy) and Ultratech, Inc. UTEK with a Zacks Rank #2 (Buy) are better-ranked semiconductor stocks and thus worth considering.