) reported dismal third quarter results. The company reported a
loss of 70 cents per share (excluding amortization &
acquisition cost but including stock-based compensation), which
was significantly down from the Zacks Consensus Estimate of 3
cents. The reported loss per share plummeted from earnings of 18
cents in the year-ago quarter due to higher operating costs.
Revenue was up 8.2% year over year to $22.2 million, but
missed the Zacks Consensus Estimate of $25 million.
Year-over-year growth was driven by a 41% increase in
network-connected business, which fully offset flat revenue
growth from the Blu-ray segment. The company also witnessed a
decline in demand for broadcast products, DVD and stand-alone
Gross profit (excluding amortization & acquisition costs
but including stock-based compensation) for the quarter increased
8.1% year over year to $22.2 million. Gross margin contracted 10
basis points (bps) on a year-over-year basis to 99.7%.
Operating expenses (excluding amortization & acquisition
cost but including stock-based compensation) jumped 53.7% year
over year to $24.6 million, primarily due to a 103.1% surge in
research & development expense (R&D) and a 40.7% rise in
selling, general & administrative expense (SG&A) related
to continuing investments in network connected business in the
DTS reported operating loss (excluding amortization &
acquisition cost but including stock-based compensation) of $2.4
million, which plunged from an operating profit of $4.5 million
in the previous-year quarter due to higher operating
Net loss (excluding amortization & acquisition costs but
including stock-based compensation) was $12.8 million or 70 cents
compared to a net profit of $3.1 million or 18 cents reported in
the previous-year quarter.
Exiting the third quarter, DTS had cash and short-term
investments of $80.6 million compared with $100.7 million at the
end of second quarter of 2012. Cash flow from operations was $6.7
million compared with $3.8 million in the previous quarter.
DTS expects full year 2012 revenue to be in the range of $100
million to $105 million (down from a prior outlook of $110
million to $115 million). Operating margin is expected to be
approximately 20% and non-GAAP earnings in the range of 5 cents
to 20 cents per share (down from prior outlook of 90 cents to $1
For fiscal 2013, DTS expects revenue to be in the range of
$140 million-$150 million (down from $160 million to $175
DTS's tepid outlook, in addition to an 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.
) and privately-held THX Limited, which may hurt its
However, we believe that DTS 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 and digital
media players. Moreover, DTS 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 in
the long term.
Thus, we remain Neutral over the long term (6-12 months).
Currently, DTS Inc. has a Zacks #3 Rank, which implies a Hold
rating in the near term.
DOLBY LAB INC-A (DLB): Free Stock Analysis
DTS INC (DTSI): Free Stock Analysis Report
SONY CORP ADR (SNE): Free Stock Analysis
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