FIN 419: Real Client Managed Portfolio, Spring 2012
DTS, Inc
Nasdaq: DTSI
Thursday 26th April 2012
Tyler Haida
Mike Ollman
Amin Rizwan
Introduction
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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)
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
Technical Analysis
Source: http://finance.yahoo.com/q/ta?s=DTSI&t=2y&l=on&z=l&q=l&p=m20%2Cm200&a=&c=
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
Products
• Key Markets:
• Home AV, Automotive, PC, Broadcast, Mobile Electronics,
Production Tools
Source: DTS 2011 Investor Presentation
Licensees/Customers
Source: DTS 2011 Investor Presentation
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
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:
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◦ Develops audio and voice tech solutions
◦ Audio rendering, voice processing, and surround sound
technology
 Process and enhance audio quality
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Expands brand footprint, customer base, and ability of
DTS to provide audio solutions to consumers
Source: DTS Investor Relations Page
Ownership
Holder
WELLS FARGO & COMPANY
THORNBURG INVESTMENT MANAGEMENT INC.
KORNITZER CAPITAL MANAGEMENT, INC.
COLUMBIA WANGER ASSET MANAGEMENT, L.P.
WASATCH ADVISORS INC
KALMAR INVESTMENTS INC.
VANGUARD GROUP, INC. (THE)
EARNEST PARTNERS LLC
BlackRock Fund Advisors
STATE STREET CORPORATION
Shares % Out
3,772,769 8.83
3,583,930 8.39
2,947,630 6.90
2,875,600 6.73
2,535,687 5.93
2,025,338 4.74
1,902,138 4.45
1,875,656 4.39
1,431,082 3.35
1,399,002 3.27
Value
176,376,950
167,548,727
137,801,702
134,434,300
118,543,367
94,684,551
88,924,951
87,686,918
66,903,083
65,403,343
Reported
Dec 31, 2011
Dec 31, 2011
Dec 31, 2011
Dec 31, 2011
Dec 31, 2011
Dec 31, 2011
Dec 31, 2011
Dec 31, 2011
Dec 31, 2011
Dec 31, 2011
Source: Yahoo Finance
Industry Trends/Factors
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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
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Increasing focus on Picture & Sound quality
◦ Growth in HD programming
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DVD’s still very popular due to lower price
◦ Blu-Rays taking away market share
Digital Media
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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
Financial Analysis
Region
2011
2010
2009
U.S.
$10,838mn
$9,805mn
$17,421mn
Japan
$43,814mn
$41,392mn
$34,241mn
S. Korea
$22,549mn
$21,148mn
$14,414mn
Other
$19,721mn
$14,751mn
$11,646mn
Total
$96,922mn
$87,096mn
$77,722mn
2007
2008
2009
2010
2011
Gross Profit Margin
97.60%
98.04%
97.73%
98.18%
99.11%
Operating Profit Margin
23.00%
25.47%
23.36%
28.02%
30.56%
Profit Margin
-38.51%
20.68%
13.64%
18.42%
18.85%
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.
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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.
SRS Labs Acquisition
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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
DCF Valuation
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See Excel
Recommendation
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Current Stock Price (04/25/2012)
$30.13
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Public Comps Value
$24.84-$30.13
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DCF Value
$35.05
Final Recommendation
Purchase 200 shares at market price