Audience Inc. (NASDAQ:ADNC)

Please note that the following Premium Alert and article was made available to our Premium members yesterday, 9/10/2012.

Investors who were long Audience (NASDAQ:ADNC) and ignored or were unaware of the "boiler plate" risk factors in ADNC filings just saw their investment get demolished in the September 7, 2012 trading session. The stock fell $11.96 or 63.4% to close at $6.90 when it announced that AAPL would no longer use its processor in its next generation phones.

Rating downgrades before the morning bell by some "respected" analysts only added fuel to the fire. But we believe this fire is far from being tamed and the stock will continue to trade lower.

Please see our full article.

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MOUNTAIN VIEW, Calif., Sept. 6, 2012 (GLOBE NEWSWIRE) -- Audience, Inc. (Nasdaq:ADNC), the leading provider of intelligent voice and audio solutions that improve voice quality and the user experience in mobile devices, provided an update on the prospects for use of its processor intellectual property (processor IP) in the next generation mobile phone release of a large OEM customer. Additionally, Audience provided an update to its business outlook for the third quarter of 2012.

Product Transition

Audience sells processors and licenses its processor IP to Apple Inc. and certain of its subsidiaries (collectively, OEM) for inclusion in the OEM's mobile phones pursuant to a Master Development and Supply Agreement (MDSA). Pursuant to a statement of work under the MDSA, amended in March 2012, Audience developed and licensed a new generation of processor IP for use in the OEM's devices. However, the OEM is not obligated to use Audience's processor IP.

Audience now believes that it is unlikely that the OEM will enable Audience's processor IP in its next generation mobile phone. Audience is not aware of any intended changes by this OEM to its use of Audience's processors or processor IP in prior generations of the OEM's mobile phones.

Audience recognizes royalty revenue from the license of its processor IP one quarter in arrears of the sale of the device, when it has received a royalty report from its OEM. As a result, Audience does not expect any impact on its business outlook for the third fiscal quarter from the situation described above. The revenue and net income impact of the OEM's next generation mobile phone would first affect Audience's financial results one quarter after the OEM commences end customer sales of its mobile phones.

Peter Santos, president and chief executive officer, commented, "While we are disappointed by this development, we are confident in the diversification of our business and see sustainable growth in 2012 and beyond. As such we are raising guidance for the third quarter of 2012. Looking ahead, we believe our expansion into adjacent markets such as Smart TVs, automotive, and notebooks, will continue to bring growth in 2013 and beyond."

Business Outlook

Separately, based on the strength of hardware shipments quarter to date and the forecast for the remainder of the quarter, the company is raising guidance for the third quarter of 2012. The company expects total revenue to be in the range of $35 to $38 million dollars, an increase from the prior range of $33 to $36 million dollars. Third quarter GAAP gross margin is expected to be in the range of 58% to 61%. Third quarter GAAP net income is expected to be in the range of $2.6 to $3.5 million dollars, including $0.7 million dollars of stock based compensation expense, or $0.11 to $0.15 per diluted share on approximately 23.4 million diluted weighted average shares outstanding.

Third quarter non-GAAP gross margin is expected to be in the range of 58% to 61% and non-GAAP net income is expected to be in the range of $3.3 to $4.2 million dollars, or $0.14 to $0.18 per share on a diluted basis.

A schedule showing a reconciliation of the business outlook from GAAP diluted net income per share to non-GAAP diluted net income per share is included with this release.

On May 1, 2012, Dmitry Edward Terez filed a patent infringement lawsuit in U.S. District Court for the District of Delaware against us. The complaint alleges that our products infringe U.S. Patent No. 7,124,075 held by Mr. Terez. The complaint seeks unspecified monetary damages, costs and expenses and injunctive relief against us. We have not yet been served with the complaint, and we have limited information about the specific infringement allegations, but they appear to focus primarily on pitch determination methods allegedly used in our products. Based upon our preliminary investigation, we do not believe that our products infringe any valid or enforceable claim of the patent identified in the complaint. Nevertheless, the costs associated with any actual, pending or threatened litigation could negatively impact our operating results regardless of the actual outcome. Due to the preliminary status of the lawsuit and uncertainties related to litigation, we are unable to evaluate the likelihood of either a favorable or unfavorable outcome. We cannot currently estimate a range of any possible losses we may experience in connection with this case. Accordingly, we are unable at this time to estimate the effects of this complaint on our financial condition, results of operations or cash flows. From time to time, we may be involved in other legal actions arising in the ordinary course of business.