DTS Grows 41% in Q2; Offers Commentary on Competitive Environment

Posted by Josh Stinehour
Aug 18 2016

DTS reported revenue of $48.7 million for the second quarter of 2016, a 41% year-over-year increase over Q2 2015, and a 7.7% increase over the preceding quarter. logo

Revenue growth was driven by DTS’s acquisition of iBiquity in the fourth quarter of 2015.  iBiquity was a developer and licensor of HD Radio technology.

GAAP gross margins were 87.2% during the quarter down from the 92% gross margins recorded during Q2 2015 and also a decline against the 86.5% gross margins in Q1 2016.

GAAP operating margins were 19% during the quarter.  This compares favorable versus the same period last year when GAAP operating margins were 11% and the preceding quarter when GAAP operating margins of 4.0% were recorded.

On a GAAP basis net income for Q2 2016 was $4.7 million or $0.26 per share compared to net income during the year earlier period of $2.3 million or $0.12 per share.  Net income for Q1 2016 was $0.5 million or $0.03 per share.

Cash and cash equivalents ended the quarter at $43.8 million, up from $37.2 million at the end of the first quarter of 2016.

Revenue by Market Segment:

  • DTS’s Home division had revenue of $23 million during the quarter, down 5% against the second quarter of 2015. Management attributed the decline to softness in standalone Blue-ray players and a strong Q2 2015 in DTS’s TV segment.  The Home division accounted for 49% of total revenue in the quarter.
  • The Company’s Automotive division had revenue of $17.5 million in the second quarter, a substantial increase over the comparable year-earlier period (pre-acquisition of iBiquity). As a percentage of total sales, Automotive contributed 37% of overall revenue.
  • Revenues from DTS’s Mobile category were $6.4 million, an increase of 37% over Q2 2015. Mobile accounted for 14% of DTS’s overall revenue in the quarter.

Operating Expenses by Category:

  • Sales, General and Administrative (“SG&A”) expenses were $20.8 million in Q2 2016, an increase of 4.9% versus the year prior. SG&A represented 42.6% of sales during the quarter, which compares to 52.8% during Q2 2015.
  • Research and development (“R&D”) expenses were $12.6 million during the second quarter, an increase of over 30% compared to the second quarter of 2015. The increase is primarily due to an increase in headcount associated with iBiquity.  For the quarter, R&D expense was 25.8% of sales.  In the year-earlier period R&D represented 27.9% of sales.

Update on Market Adoption of Next-Generation Technologies:

As part of the Q2 Earnings release, management highlighted the market adoption of DTS-enabled content in both the cinema and the home.

The Company’s immersive audio technology, DTS:X, was incorporated in several feature films in the quarter such as Warcraft, Now You See Me 2 and The Secret Life of Pets.  In total, 31 feature films have been released with DTS:X audio technology.  DTS’s technology is now used in over 130 screens globally, which represents a more than 60% increase over the preceding quarter.

During the quarter DTS announced an agreement with Paramount Home Media Distribution to release a collection of full-length movies using DTS:X beginning with Daddy’s Home, The Big Short, Zoolander 2, and Whiskey Tango Foxtrot.

The below slide is taken from DTS’s investor presentation for the quarter.

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During DTS’s conference call with analysts, Chairman and CEO Jon Kircher responded to a question about competition in the theater market and offered context on the competitive environment.

“I think, the marketplace wants choice. DTS:X in the cinema as well as from an immersive audio format perspective is designed to offer a range of performance and flexibility advantages. So, today, we are in 130 screens and growing that doesn’t include all those that potentially or under contract. There is ongoing discussions with other parties around expanding that number. Year-over-year with the product essentially being slightly more than 15 months ago, we are actually tracking I think pretty well to into an accelerating future for DTS:X in cinemas. So, the bottom-line is that, not unlike our prior experience over the past 20 years in the professional space, or in the consumer space is that DTS is going to have an important role to play as it relates to the high quality consumption and enjoyment of immersive entertainment. And this is just part of a broader strategy to support our business downstream (source: SeekingAlpha transcript)” said Mr. Kircher.

 

Business Outlook:

Based on the strong quarterly results, management increased its guidance for the full year 2016.  DTS now anticipates full year revenue in the range of $185 million to $190 million, with growth driven by the mobile and automotive markets.  Operating margins for the full year are expected between 10% and 15%.

 

Related Content:

Press Release: DTS Q2 2016 Earnings Release

Presentation:  DTS Q2 2016 Investor Presentation

Transcript: DTS Q2 2016 Earnings Call (Seeking Alpha)

 

 

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