Tessera (TSRA) Q3 Earnings Beat Estimates, Revenues Meet

Following the earnings release on Nov 1, Tessera Technologies Inc.’s (NASDAQ:TSRA) shares slipped 0.9% to $37.25 at the close of trade on Nov 3. The leading chip packaging and interconnect solutions provider reported third-quarter adjusted earnings of 53 cents per share, beating the Zacks Consensus Estimate by 7 cents or 15.22%. However, revenues of $62 million were in line with the consensus mark.

Revenues

Tessera’s revenues of $62.4 million came within its own guidance range of $61–$63 million. Revenues were down 6.8% sequentially and 7.4% year over year. The year-over-year decline was primarily due to the timing of payments pursuant to certain long-term customer contracts.

Margins

Owing to the high percentage of licensing revenues, Tessera usually generates strong gross margins. Accordingly, Tessera’s third-quarter gross margin was 99.84%, down 8 basis points from 99.92% reported in the previous quarter.

Tessera’s operating expenses were $19.9 million, down 25.5% sequentially and 11.0% year over year. Operating expenses comprise a year-over-year decrease of $2.3 million in litigation expense, while all other expenses increased on a year-over-year basis.

Net Income

Net income was $26.1 million or earnings of 53 cents a share compared with $27.5 million or 48 cents in the prior quarter and $32 million or 61 cents in the year-ago quarter.

On a GAAP basis, net income was $23.8 million or earnings of 48 cents per share compared with $32.5 million or of 62 cents in third-quarter 2015.

Balance Sheet and Cash Flow

At quarter end, current assets were worth $423.4 million, up $11.8 million sequentially. Cash, cash equivalents and short-term investments as of Sep 30, 2016 were $396.3 million, up $14.5 million from the Jul 30, 2016 level. The company had no debt.

Share Repurchase & Dividend

Tessera spent $9.7 million on cash dividends and $6.0 million to repurchase 0.2 million shares in the reported quarter. Further, management declared a cash dividend of 20 cents per share for the third quarter, payable on Nov 23, 2016 to stockholders on record as on Nov 9.

Guidance

For the fourth quarter, Tessera expects revenues in the range of $70 million–$74 million. GAAP earnings per share are expected between 44 cents and 49 cents, and non-GAAP earnings per share are projected within 60–65 cents. Currently, the Zacks Consensus Estimate is pegged at 59 cents.

Our Take

Tessera posted decent third-quarter results with the bottom line outperforming the Zacks Consensus Estimate and the top line matching the same.

Tessera has intensified its Invensas, FotoNation and IP licensing efforts and is currently working with a number of semiconductor manufacturers and OSATs to enhance its portfolio of advanced packaging and interconnect technologies that encompass ZiBond, Direct Bond Interface (DBI) bonding technologies and BVA.

The company has also made good progress with its Greenfield licensing efforts and is in an advanced stage of negotiation with two of its potential Greenfield customers. The company stayed aggressive on the capital allocation front with a combination of dividends and share buybacks.

Tessera’s premium imaging technology continues to see interest thereby indicating that the business will grow significantly in the mobile and adjacent markets.

The company is making good progress on the SOC front and its IPU architecture is creating interest among several Asia-based SOC providers, thereby opening up opportunities in China.

Tessera is also making good progress on the automotive front and continues to create advanced and intelligent automotive application solutions.

Overall, the company’s internal R&D efforts, Invensas, FotoNation and IP licensing initiatives and prospects in the automotive market remain as bright spots and are expected to drive growth.

Currently, Tessera has a Zacks Rank #1 (Strong Buy). Some other stocks to consider in the industry include Ambarella (NYSE:GIG) with a Zacks Rank #1, and Silicon Motion Technology Corp. (NASDAQ:SIMO) and Groupon, Inc. (NASDAQ:GRPN) with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GigPeak, Inc. delivered a positive earnings surprise of 37.50%, on average, in the trailing four quarters.

Silicon Motion Technology Corp. delivered a positive earnings surprise of 12.85% in the trailing four quarters.

Groupon, Inc. delivered a positive earnings surprise of 31.07% in the trailing four quarters.

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