Pat McKeough recently replied to a member of his Inner Circle looking for his opinion on D-BOX Technologies Inc. The company—a maker of technology that enhances the movie-going and amusement park experience—recorded double-digit revenue gains across all of its business lines. But, says Pat, it has also increased its research spending.
Q: I would like to get your opinion on D-BOX technologies. I have it on my watch list, and the stock seems to be a good one. Thanks.
A: D-BOX TECHNOLOGIES INC. (symbol DBO on Toronto; www.d-box.com) has developed technology for enhancing the experience of movies, amusement park rides and training simulators.
The company mainly sells its products to movie theatre operators. Once that technology is placed inside theatre seats, it causes them to sway and vibrate during the film. D-BOX is also able to synchronize the movement of the chairs to match the action on the movie screen. It uses digital codes with visual and sound cues embedded in them.
The Caisse de dépôt et placement du Québec is D-BOX’s largest shareholder, with an 11.67% stake.
D-BOX has installed (or is contracted to install) its system at 528 movie screens in 30 countries. Its customers include large chains like Cineplex in Canada and Cinemark in the U.S. The company has also adapted its technology to home entertainment and video game systems.
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D-BOX’s revenue jumped from $6.7 million in 2011 to $20.6 million in 2015 (fiscal years ended March 31). It lost $6.2 million in 2011 and $6.6 million in 2012. However, its losses fell steadily after that—to $2.6 million in 2013, $1.6 million in 2014, and just $478,000 in fiscal 2015.
In its fiscal 2016 third quarter, which ended December 31, 2015, D-BOX’s revenue jumped 64.6%, to $8.2 million from $5.0 million a year earlier. Revenue from theatre operators (63% of the total) rose 66.0%. Home systems revenue (6%) gained 52.8%. Revenue from industrial clients, such as amusement parks and simulator operators (31%), rose 64.2%.
The company earned $397,000 for the third quarter, or $0.0023 a share. A year earlier, it lost $315,000, or $0.0019 a share.
D-BOX’s research spending jumped 46.2%, to $633,000 (or 7.7% of revenue) from $433,000 (or 8.7%). The company ended the quarter with cash of $16.0 million, or $0.09 a share. Its long-term debt of $4.4 million is a low 5% of its market cap.
The outlook for motion technology is positive, as movie studios and theatre owners look for new ways to compete with home entertainment systems and video games. Moreover, the Caisse’s involvement gives D-BOX some financial stability. However, the company operates in a competitive niche market that includes China-based Guangzhou Shuqee Digital Technology.
D-BOX Technologies is okay to hold, but only for highly aggressive investors.
Inner Circle recommendation: HOLD for aggressive investors
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