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DTS Inc. Financial Analysis and Market Outlook

Explore a comprehensive overview, financial analysis, and market outlook of DTS Inc., specializing in digital entertainment technology, stock performance, and future acquisitions.

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DTS Inc. Financial Analysis and Market Outlook

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  1. FIN 419: Real Client Managed Portfolio, Spring 2012 DTS, IncNasdaq: DTSIThursday 26th April 2012 Tyler Haida Mike Ollman Amin Rizwan

  2. Introduction • Founded 1990 • IPO 2003 at $17 per share • Market Capitalization $490.34mn • Employees 258 (Full-Time) • (25th April) Stock Price $30.13 • 52 Week Range $20.93-$47.19 • Trailing P/E 28.96 • Forward P/E 15.94 • PEG 0.86 • Dividend n/a • Beta 1.07 • 1 Year Growth Rate 82% • 7-10 Year Growth Rate 60.235% • Greenblatt Measure 0.47 • GICS: Application Software (45103010)

  3. Stock Market Analysis Source: http://finance.yahoo.com/q/bc?s=DTSI&t=5y&l=on&z=l&q=l&c=DLB%2CSRSL%2C%5EIXIC

  4. Technical Analysis Source: http://finance.yahoo.com/q/ta?s=DTSI&t=2y&l=on&z=l&q=l&p=m20%2Cm200&a=&c=

  5. Company Overview DTS Inc. is a digital entertainment technology company that focuses on high-definition audio technology for various forms of devices and applications. These devices include home theaters, car audio, PCs, videogames, DVD players, TVs, smart phones, and every device capable of playing Blu-Ray. License the software & technology to semiconductor manufacturers and consumer product manufacturers, upon which they receive a royalty for each product produced that uses their software & technology Total revenue for 2011 was $96.9mn with a gross margin of 99.11% and a profit margin of 18.85%. International company with offices in the US, China, France, Hong Kong, Japan, South Korea, Taiwan, and the UK. Source: investor.dts.com

  6. Products • Key Markets: • Home AV, Automotive, PC, Broadcast, Mobile Electronics, Production Tools Source: DTS 2011 Investor Presentation

  7. Licensees/Customers Source: DTS 2011 Investor Presentation

  8. Blu-Ray • Blu-Ray Licenses • Product in every Blu-Ray playing device • DTS is the mandatory audio format for Blu-Ray • Outlook • Blu-Ray household penetration at 34% in 2011, up from 24% in 2010 Source: DTS 2011 Investor Presentation & 2011 10-K

  9. Future Acquisition • Plan to acquire SRS Labs for $9.50/share in a combination of cash and stock purchases • Total value of $148 million • Expected to close in Q3 2012 • SRS Business: • Develops audio and voice tech solutions • Audio rendering, voice processing, and surround sound technology • Process and enhance audio quality • Expands brand footprint, customer base, and ability of DTS to provide audio solutions to consumers Source: DTS Investor Relations Page

  10. Ownership Source: Yahoo Finance

  11. Industry Trends/Factors • Analog TV cutoff in 2009 • Falling HDTV prices • Falling Blu-Ray prices • 60% of consumers cited higher costs as the main reason for not using Blu-Ray discs • Increasing focus on Picture & Sound quality • Growth in HD programming • DVD’s still very popular due to lower price • Blu-Rays taking away market share

  12. Digital Media • UltraViolet – high definition, Blu-Ray quality, digital copy of a movie purchased from the web (also comes with some Blu-Ray purchases) • DTS already has technology licensed to this • Possibly the next generation past Blu-Ray discs

  13. Financial Analysis

  14. Public Comparable Analysis • Dolby Laboratories, Inc (NYSE: DLB) • Founded 1965 • Market Cap $4.19bn • Employees 1369 (Full-Time) • (25th April) Stock Price $38.56 • 52 Week Range $25.70-$51.28 Provides products, services, and technologies for the entertainment industry. It designs and manufactures video and audio products for film production, cinema, and television broadcast industries. SRS Labs Inc. (Nasdaq: SRSL) • Founded 1993 • Market Cap $133.63mn • Employees 85 (Full-Time) • (25th April) Stock Price $9.33 • 52 Week Range $5.43-$10.14 • Engages in the development and provision of audio and voice technology. The company principally develops and markets audio rendering, voice, and surround sound technologies and solutions to original equipment manufacturers, original design manufacturers, semiconductor manufacturers, and software providers.

  15. SRS Labs Acquisition • 50/50 Cash & Stock Acquisition • $67.925 million cash • 2,225,581 new shares • Equivalent of $67.945 cash • 18.725 million total shares outstanding • 13.49% dilution of current shares

  16. DCF Valuation • See Excel

  17. Recommendation • Current Stock Price (04/25/2012) $30.13 • Public Comps Value $24.84-$30.13 • DCF Value $35.05 Final Recommendation Purchase 200 shares at market price

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