) 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.
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
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
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.
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
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
Additionally, partnership with Samsung to provide sound
solutions for the TV and inclusion of DTSI's technologies in
) latest generation of processors are positives for the company.
The company has also garnered several partnerships with tablet
makers such as Pantech, Lenovo and
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
Further, the company faces significant competition from Dolby
) and privately-held THX Limited, which may hurt its
Currently, DTSI has a Zacks Rank #3 (Hold).
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