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Entropic Communications Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 5, 2011 01:44PM

Entropic Communications Inc. (ENTR) filed Quarterly Report for the period ended 2011-06-30. Entropic Communications Inc. has a market cap of $354.5 million; its shares were traded at around $4.14 with a P/E ratio of 7.1 and P/S ratio of 1.7.



Highlight of Business Operations:

In December 2004, we introduced and commenced commercial shipments of our home networking products. In the first quarter of 2006, we began commercially shipping our broadband access solutions. In May 2007, we acquired Arabella Software Ltd., or Arabella, a developer of embedded software. In June 2007, we acquired RF Magic, Inc., or RF Magic, a provider of digital broadcast satellite outdoor unit, or DBS ODU, and silicon tuner solutions. In 2008, we acquired certain specified assets of Vativ Technologies, Inc., or Vativ, a provider of high-bandwidth, advanced digital processing solutions for digital television and 10 gigabit Ethernet markets. Since inception, we have invested heavily in product development and have only recently achieved profitability on an annual basis, with net income of $64.7 million for the year ended December 31, 2010 and net income of $19.6 million for the six months ended June 30, 2011 and $7.8 million for the three months ended June 30, 2011. In 2010, our net revenues increased to $210.2 million from $116.3 million in 2009. Our net revenues increased from $78.1 million for the six months ended June 30, 2010 to $133.0 million for the six months ended June 30, 2011. These revenue increases were primarily due to the increased demand for our home networking products and our DBS ODU products, which is directly related to the increased deployment of our products into consumer homes by satellite and cable operators. As of June 30, 2011, we had an accumulated deficit of $157.6 million.

Research and development expenses increased by $4.0 million, or 17%, to $27.3 million during the six months ended June 30, 2011 from $23.3 million during the same period in 2010. This $4.0 million increase was primarily due to increased personnel costs of $2.7 million (of which $0.7 million was due to stock-based compensation) which was primarily attributable to the 26% increase in the number of employees engaged in research and development activities during the six months ended June 30, 2011 compared to the same period in 2010. The remaining increase in research and development expenses was primarily related to an increase in overhead allocations of approximately $1.3 million which resulted from a general increase in research and development activities during the six months ended June 30, 2011 as compared to the same period in 2010.

Sales and marketing expenses increased by approximately $1.4 million, or 17%, to $9.1 million during the six months ended June 30, 2011 from $7.8 million during the same period in 2010. This $1.4 million increase was primarily due to increased personnel costs of $1.0 million (of which $0.2 million was due to stock-based compensation), attributable to a 16% increase in the number of employees engaged in sales and marketing activities to support our growth. General customer support and marketing and trade show related activities contributed to the remaining increase of $0.4 million.

General and administrative expenses increased by approximately $1.5 million, or 26%, to $7.2 million during the six months ended June 30, 2011 from $5.7 million during the same period in 2010. This increase was primarily due to increased personnel costs of $0.7 million (of which $0.4 million was due to stock-based compensation), attributable to a 23% increase in the number of employees engaged in general and administrative activities to support our growth. An increase in outside services and consulting expenses accounted for $0.7 million of the remaining increase of $0.8 million.

Income tax expense for the three and six months ended June 30, 2011 was $4.3 million and $10.6 million, or approximately 36% and 35% of pre-tax income, respectively, compared to $28,000 and $29,000 of income tax expense for the three and six months ended June 30, 2010, respectively. The effective tax rate for the three months ended June 30, 2011 is comprised of federal expense at statutory rates less research and development credits which resulted in a benefit of approximately 3%, offset by an increase in our tax rate of due to the impact of certain permanent items of approximately 2% and reserves for uncertain tax provisions of approximately 2%. The effective tax rate for the six months ended June 30, 2011 is comprised of federal expense at statutory rates less research and development credits which resulted in a benefit of approximately 3%, offset by an increase in our tax rate of due to the impact of certain permanent items of approximately 1% and reserves for uncertain tax provisions of approximately 2%. Our net state income tax rate was less than 0.1% for the three and six months ended June 30, 2011, due to the impact of the California single sales factor election to calculate our tax liability. Due to the expected utilization of net operating loss carryforwards and research and development credits that offset our taxes payable, our current income tax expense in 2011 is significantly higher than our actual cash tax liability. Income tax expense during the three and six months ended June 30, 2011 represented minimum state tax payments.

As of June 30, 2011 and December 31, 2010, we had cash, cash equivalents and marketable securities of $188.0 million and $168.8 million, respectively. At June 30, 2011 and December 31, 2010, we had approximately $0.8 million and $1.0 million, respectively, of cash which was held outside of the United States. The cash held outside the United States was needed to meet local working capital requirements for our foreign subsidiaries and is considered permanently reinvested in the applicable foreign subsidiary.

Read the The complete Report



Stocks Discussed: ENTR,
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