Audience (the Company) Deserves a Standing Ovation

NEW YORK (TheStreet) -- The bears thought that the old saying, "An apple a day keeps the doctor away," would apply to Audience (ADNC).

Without Apple ( AAPL) as a customer, Audience's financial health would surely suffer, they thought.

But Audience has reported two solid quarters in a row, proving the bears wrong.

Many doubted Audience could produce an encore performance similar of its strong third quarter, when it grew both revenue and earnings per share by more than 50% year over year.

But Audience's fourth quarter report was impressive. Even better, the company issued an outlook that suggests the best is yet to come.

For the period ending in December, the company posted revenue of $38.7 million, up 115% year over year and beating Street estimates for $31.8 million. Audience posted net income of $3.1 million, or 14 cents per share, reversing a year-ago loss of $5.6 million, or $5.56 per share.

Profitability was also impressive as gross margins increased to 54% of revenue from 44.6% a year ago. This is exceptionally noteworthy because in the previous quarter management had expected margins to remain unchanged at best

In terms of outlook for the March quarter, Audience expects revenue of between $43 million and $46 million, ahead of analysts' average estimates of $31.8 million.

After Audience reported its fourth-quarter results, its shares immediately soared 24%. This means that shares have now surged more than 155% since bottoming at $5.51 in October.

Despite this strong performance, shares are still down over 56% from last year's highs of $23. Why? Investors panicked after Audience announced last summer that Apple opted not to use the company's noise suppression technology in the iPhone 5 -- sending the stock plummeting more than 80%.

Now Audience, which has been public for less than a year, seems like a new company. Although many investors jumped into the stock expecting the famed "halo effect" to take over, the management of Audience has proven that there is life outside of Apple, or at least financial health.

Audience still has some prominent customers including Google ( GOOG) and Samsung. So it's not as if Audience was left without a "program." The company still had a revenue plan.

Although Audience has recovered quicker and much better than expected, Apple was still responsible for 40% of the company's overall revenue, making the loss of Apple as a customer significant.

Apple still provides 33% of Audience's revenue, and Audience management expects that percentage to continue to decline as Apple rolls out new products that won't include Audience's technology.

However, this brings up an interesting question. With Apple's reputation for having a strong emphasis and focus on the user experience, what does it say about Audience's technology that Apple feels it can do without it?

Although Qualcomm ( QCOM), which has a great relationship with Apple, has its own noise-canceling technology, it's not nearly as advanced as what Audience offers. Plus, it's merely software-based.

For that matter, as component suppliers are concerned, Audience is beginning to gain ground on not only Qualcomm, but also popular chipmakers such as Texas Instruments ( TXN).

Bottom Line

Although I'm not ready to proclaim that Audience investors should settle into their seats and get comfortable, the company's management deserves a standing ovation for having steered this ship as well as it has.

Going forward, Audience will need to figure out how to secure more business and convince new and existing customers why its technology belongs in their hardware. To the extent that it can do this well, the stock should work in the long term. A couple of more quarters like this and shares could reach $20 in the second half of the year.

At the time of publication, the author was long AAPL.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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