Dolby Goes to 11

It's a wrap, folks. While most of Wall Street is still busy reporting Q3 earnings, audiomeister Dolby Labs (NYSE: DLB) has put Q4 and, indeed, all of fiscal 2007 to bed. Here's what Thursday evening's news looked like:

• Revenue grew 23% for the year, accelerating to 26% growth in Q4.
• Profits did even better, up 59% for the year, and 75% for the quarter.
• Operating margin increased a stunning 570 basis points in comparison to fiscal 2006, to 38.8%, of which 400 basis points derived from gross margin improvement.

When it comes to GAAP metrics, Dolby's in a class by itself. The single-digit operating margins put out by rivals like Philips (NYSE: PHG), Sony (NYSE: SNE), and Kodak (NYSE: EK) don't hold a candle to Dolby's fat, double-digit margins. And don't even get me started about DTS (Nasdaq: DTSI) or Real Networks (Nasdaq: RNWK), both of which sport operating margins deeply in the red.

Cash profits
So much for the GAAP rundown. What about Dolby's cash profits? Dolby did not include a cash flow statement with its earnings releases, so we're forced to guess about this until such time as Dolby files its 10-K. We do know that in the nine months leading up to the fourth quarter, Dolby had generated free cash flow almost indistinguishable from its net profits -- $98.6 million. That, combined with what we see on the balance sheet that Dolby did include in the earnings release (accounts receivable up 19% year over year, and inventories up a greater-than-sales 34%), I suspect that free cash flow continued to track net profits pretty closely as Dolby closed out the year.

Looking forward, Dolby predicted that the new fiscal year, which it has already begun, will bring $560 million to $600 million in revenues (that's 20% growth at the midpoint, 16% of which will be organic), and $1.27 to $1.37 per share in profit (a miserly 5% growth at the midpoint. Hmm.)

Next stop, Stockholm
In other news, Dolby announced it will lay out a cool quarter-billion to acquire Sweden's Coding Technologies, a "provider of audio compression technologies for the mobile, digital broadcast, and Internet markets." We know little about privately owned Coding Technologies (its revenues and profits, or lack thereof, for instance) and, so, cannot say what the valuation looks like at this time. With any luck, Dolby will fill us in on those points when it confirms that the deal has closed. (Dolby says closing will take place "very soon".)

Foolish takeaway
Dolby had a good, strong quarter. If a shareholder advocate could have one wish, though, it's that management would provide a bit more detail in its earnings releases, and not reserve all the best info for professional analysts who have the time to, and get paid for, listening in on its post-earnings conference calls. It's the shareholder-friendly thing to do, guys.