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DTS Inc. Reports Operating Results (10-Q)

August 06, 2012 | About:

10qk

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DTS Inc. (DTSI) filed Quarterly Report for the period ended 2012-06-30.

Dts Inc. has a market cap of $307.2 million; its shares were traded at around $19.12 with a P/E ratio of 17.8 and P/S ratio of 3.2. Dts Inc. had an annual average earning growth of 13% over the past 10 years.

Highlight of Business Operations:

Revenues for the three months ended June 30, 2012, compared to the same prior year period, included a decrease of $0.2 million in royalties recovered through intellectual property compliance and enforcement activities, which we characterize as "royalty recoveries." Revenues for the six months ended June 30, 2012, compared to the same prior year period, included an increase of $2.0 million in royalty recoveries. Royalty recoveries may cause revenues to be higher than expected during a particular period and may not occur in subsequent periods. Therefore, unless otherwise noted, the impact of royalty recoveries has been excluded from our revenue discussions in order to provide a more meaningful and comparable analysis.

Excluding royalty recoveries, the increase in revenues for the three months ended June 30, 2012, compared to the same prior year period, was largely attributable to continued growth in royalties from network connected markets. In dollar terms, these royalties were up 81% for the three months ended June 30, 2012, compared to the same prior year period. Also, these royalties comprised over 30% and 15% of revenue for the three months ended June 30, 2012 and 2011, respectively. The growth in network connected markets was primarily driven by increased royalties from connected TVs. Partially offsetting the increase in network connected markets were declines in the broadcast and Blu-ray markets. The decline in royalties from the broadcast market primarily relates to the termination of an arrangement with a certain customer. The decline in royalties from the Blu-ray market was largely the result of supply chain disruptions caused by the flooding in Thailand last year and other macroeconomic factors impacting certain segments of the consumer electronics industry. Blu-ray related royalties comprised over 25% and 30% of revenue for the three months ended June 30, 2012 and 2011, respectively. In dollar terms, these royalties were down 11% for the three months ended June 30, 2012, compared to the same prior year period. We remain cautious regarding the outlook for the consumer electronics industry as a whole, and the revenues we derive from that industry, in light of ongoing global economic challenges. However, we expect technology licensing revenues to grow as wider availability of Blu-ray enabled players, PCs and game consoles, coupled with expected aggressive pricing

Excluding royalty recoveries, the decrease in revenues for the six months ended June 30, 2012, compared to the same prior year period, was largely attributable to declines in royalties from the broadcast, Blu-ray and DVD markets. Due to the aforementioned arrangement termination, royalties from the broadcast market fell to below 5% of revenue for the six months ended June 30, 2012, compared to over 5% of revenue for the same prior year period. For the reasons mentioned above, royalties from the Blu-ray market fell below 35% of revenue for the six months ended June 30, 2012, compared to over 35% of revenue for the same prior year period. In dollar terms, these royalties were down 8% for the six months ended June 30, 2012, compared to the same prior year period. DVD related royalties continued to decline as Blu-ray and network connected devices become more mainstream. In dollar terms, DVD related royalties declined 9% for the six months ended June 30, 2012, compared to the same prior year period. Partially offsetting these declines was an increase in royalties from network connected markets. In dollar terms, these royalties increased 46% for the six months ended June 30, 2012, compared to the same prior year period. Also, these royalties comprised over 20% and 15% of revenue for the six months ended June 30, 2012 and 2011, respectively. The growth in network connected markets was primarily driven by increased royalties from connected TVs and mobile devices.

Net cash provided by operating activities was $10.6 million and $10.5 million for the six months ended June 30, 2012 and 2011, respectively. Cash flows from operating activities consisted of net income adjusted for certain non-cash items, including stock-based compensation, depreciation and amortization and the effect of changes in working capital and other operating activities. The operating cash flows during the six months ended June 30, 2012 and 2011, were largely impacted by income from operations, partially offset by certain non-cash items. These cash flows were also impacted by the cash flows from accounts receivable due to the timing of collections and the timing of payment for certain liabilities. The operating cash flows during the six months ended June 30, 2011, were also impacted by the recognition of deferred revenue.

We believe that our cash, cash equivalents, short-term investments and cash flows from operations will be sufficient to satisfy our working capital and capital expenditure requirements for at least the next twelve months. In anticipation of our planned acquisition of SRS, we entered into a new credit facility during the third quarter of 2012 as noted above. Changes in our operating plans, including lower than anticipated revenues, increased expenses, acquisitions of businesses, products or technologies or other events, including those described in "Risk Factors" included elsewhere herein and in other filings, may cause us to seek additional debt or equity financing on an accelerated basis. Additional financing may not be available on acceptable terms, or at all, particularly given current economic conditions, including lack of confidence in the financial markets and limited availability of capital and demand for debt and equity securities. Our failure to raise capital when needed could negatively impact our growth plans and our financial condition and results of operations. Additional equity financing may be dilutive to the holders of our common stock and debt financing, if available, and may involve significant cash payment obligations and financial or operational covenants that restrict our ability to operate our business.

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