DTSI Earnings Beats, Revenues Lag - Analyst Blog
March 12 2013 - 4:40AM
Zacks
DTS Inc. (DTSI) reported fourth-quarter 2012
non-GAAP earnings per share of 33 cents compared with 52 cents per
share earned in the year-ago quarter. Including stock-based
compensation of 16 cents, earnings per share came in at 17 cents,
outpacing the Zacks Consensus Estimate of 5 cents per share.
Quarter Details
Revenues for the quarter increased a modest 2.6% on a
year-over-year basis to $29.8 million (including royalty recoveries
of 1.6 million in the fourth quarter of 2011). Sequentially,
revenues increased 34.2%.
However, reported revenues lagged the Zacks Consensus Estimate
of $31.0 million. The year-over-year increase in revenues was
primarily boosted by DTSI’s network-connected business. However,
DTSI recorded year-over-year declines from Home A/V and Blu-ray
business.
Gross profit (excluding amortization & acquisition costs but
including stock-based compensation) for the quarter increased 2.4%
year over year to $29.7 million. Gross margin contracted 20 basis
points (bps) on a year-over-year basis to 99.7%, primarily due to
business model transition and amortization of purchased intangibles
connected to the SRS and Phorus acquisitions.
Operating expenses (excluding amortization & acquisition
cost but including stock-based compensation) jumped 47.7% year over
year to $24.9 million, primarily due to a 101.3% surge in research
& development expense (R&D) and a 32.5% rise in selling,
general & administrative expense (SG&A) related to
continuing investments in network connected business in the
quarter.
DTSI reported operating profit (excluding amortization &
acquisition cost but including stock-based compensation) of $4.7
million, which was down from $12.1 million in the previous-year
quarter, due to higher operating expenses.
Net income (excluding amortization & acquisition costs but
including stock-based compensation) was $3.2 million or 17 cents
compared to a net profit of $7.3 million or 43 cents reported in
the previous-year quarter.
Exiting the fourth quarter, DTSI had cash and short-term
investments of $72.0 million compared with $80.6 million at the end
of third quarter of 2012. Cash used in operations was $2.5 million
compared with $6.7 million cash flow from operations in the
previous quarter.
Outlook
DTSI provided an outlook for fiscal 2013. Revenues for 2013 are
expected in the range of $140 million to $146 million. The company
expects revenues from the Blu-ray segment to be approximately 25%
of the total revenue, due to the impact of new game console cycle.
However, DTSI expects flat to marginal growth in standalone players
and a decline in Blu-ray-enabled PCs.
DTSI expects non-GAAP operating margin in the low to mid-20s and
non-GAAP earnings per share in the range of $1.05 to $1.20.
Moreover, DTSI also hinted that the primary growth drivers in 2013
will be network connected business (TV’s and mobile devices).
Recommendation
We believe that DTSI will continue to gain market share riding
on its strong product portfolio, increasing online availability and
accelerated expansion of the DTS technology into new markets, such
as smartphones, portable devices, digital media players and
network-connected TV space.
Moreover, DTSI continues to invest in the network connected
business, which will help it to gain significant market share going
forward. This, coupled with higher penetration in the Chinese
smartphone market and incremental revenue from the acquisition of
SRS labs, will drive top-line growth in the long term.
Additionally, partnership with Samsung to provide sound
solutions for the TV and inclusion of DTSI’s technologies in
Qualcomm (QCOM) latest generation of processors
are positives for the company. The company has also garnered
several partnerships with tablet makers such as Pantech, Lenovo and
Panasonic (PC).
However, the ongoing volatile macroeconomic environment,
weakness in the consumer electronics market and sluggish consumer
spending are the near-term headwinds for the company. Moreover,
higher costs are likely to hurt profitability in the near term.
Further, the company faces significant competition from Dolby
Laboratories Inc., Sony Corp. (SNE) and
privately-held THX Limited, which may hurt its profitability.
Currently, DTSI has a Zacks Rank #3 (Hold).
DTS INC (DTSI): Free Stock Analysis Report
PANASONIC CORP (PC): Free Stock Analysis Report
QUALCOMM INC (QCOM): Free Stock Analysis Report
SONY CORP ADR (SNE): Free Stock Analysis Report
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