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Entropic Communications Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 4, 2012 04:32PM
Entropic Communications Inc. (ENTR) filed Quarterly Report for the period ended 2012-03-31. Entropic Commun has a market cap of $368 million; its shares were traded at around $3.765 with a P/E ratio of 14.1 and P/S ratio of 1.5.
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 achieved profitability on an annual basis for the first time in 2010, with net income of $26.6 million for the year ended December 31, 2011 and net income of $3.9 million for the three months ended March 31, 2012. In 2011, our net revenues increased to $240.6 million from $210.2 million in 2010. Our net revenues were $59.1 million for the three months ended March 31, 2012 compared to $71.5 million for the three months ended March 31, 2011. The annual revenue increase in 2011 was primarily due to the increased demand for our home networking products and our DBS ODU products, which was directly related to the increased deployment of our products into consumer homes by satellite and cable operators. During the first quarter of 2011, we experienced a greater than normal increase in the demand for our products impacted by the timing of the purchases of our products by the service providers purchasing our customers products. During the first quarter of 2012, the overall demand had returned to more normalized levels. As of March 31, 2012, we had an accumulated deficit of $146.7 million.
Gross profit for the three months ended March 31, 2012 was $33.2 million, a decrease of $6.4 million, or , 16% from gross profit of $39.6 million during the same period in 2011. The decrease in gross profits was primarily due to lower net revenues from the sale of our home networking and DBS ODU products during the first quarter of 2012. Gross margins increased by 1% and were favorably impacted by lower unit costs of both our home networking products and our DBS ODU products, principally as a result of more favorable manufacturing costs.
Sales and marketing expenses increased by approximately $0.2 million, or 5%, to $5.0 million during the three months ended March 31, 2012 from $4.8 million during the same period in 2011. This increase was primarily attributable to increased personnel costs of $0.2 million which was primarily attributable to the 5% increase in the number of employees engaged in sales and marketing activities during the three months ended March 31, 2012 as compared to the same period in 2011.
Income tax expense for the three months ended March 31, 2012 and March 31, 2011 was $3.0 million and $6.3 million, or approximately 43% and 35% of pre-tax income, respectively. The effective tax rate for the three months ended March 31, 2012 was comprised of federal expense at statutory rates plus an increase in our tax rate of 7% due to the impact of certain permanent items and an increase in our tax rate of approximately 1% due to the reserves for uncertain tax positions. The effective tax rate for the three months ended March 31, 2011 was comprised of federal and state expense at statutory rates less research and development credits which resulted in a 1.5% benefit, offset by an increase in our tax rate of 1.5% due to the impact of certain permanent items. Our net state income tax rate was less than 0.1% for the three months ended March 31, 2012 and March 31, 2011, respectively, due to the impact of the California single sales factor election to calculate our tax liability. Due to the expected utilization of the remainder of our net operating loss carryforwards and research and development credits that offset our taxes payable, our current income tax expense in 2012 is significantly higher than our actual cash tax liability.
Net cash provided by operating activities was $11.7 million for the three months ended March 31, 2011. Sources of cash provided by operating activities included cash generated from net income of $11.9 million, which included non-cash charges of $5.2 million related to deferred income taxes, $3.0 million in stock compensation expenses, depreciation and amortization expense of $1.0 million and amortization of premiums on marketable securities of $0.7 million. Offsetting the non-cash charges were uses of cash of $10.2 million related to working capital changes. Cash used for working capital purposes included a decrease in our accounts payable balance of $8.4 million due to the timing of payments for inventory purchases, an increase in our accounts receivable balance of $5.5 million due to higher revenues and a more linear quarter and a reduction in accrued payroll and benefit expenses of approximately $1.7 million due to payments of fiscal year end incentive bonuses in the first quarter of 2011. These working capital uses of cash were partially offset by working capital sources of cash including a decrease in our inventory balances of $4.6 million as we reduced our inventory levels on our MoCA products during the quarter and an increase in accrued expenses and other liabilities of approximately $1.0 million primarily due to an increase in income taxes payable.
Stocks Discussed: ENTR,