A Dazzling Dolby Display: Fool by Numbers

On Jan. 31, media technologist Dolby Labs (NYSE: DLB  ) released first-quarter 2008 earnings for the period ended Dec. 28.

  • Most of the revenue growth came from a positively exploding licensing division, which grew sales by 49% over last year. Meanwhile, the cost to produce and maintain those licensing assets shrank by 57%. Neat trick, that -- not to mention profitable.
  • Dolby is enjoying the rise of the notebook computer, because consumers don't much mind paying a little more for a laptop that can double as a high-end, portable media center with Dolby technologies inside.
  • The company also collects royalties on every Blu-ray and HD-DVD player sold. Sony (NYSE: SNE  ) seems to have won, and Toshiba has apparently lost -- but Dolby is just happy to see the rivalry wrapped up either way.

(Figures in millions, except per-share data)

Income Statement Highlights

Q1 2008

Q1 2007

Change

Sales

$150.2

$104.4

44.0%

Net Profit

$47.7

$29.9

59.5%

Earnings Per Share

$0.42

$0.27

55.6%

Diluted Shares

114.7

112.8

1.7%

Get back to basics with the income statement.

Margin Checkup

Q1 2008

Q1 2007

Change*

Gross Margin

88.0%

81.8%

6.2

Operating Margin

44.8%

37.6%

7.2

Net Margin

31.7%

28.6%

3.1

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q1 2008

Q1 2007

Change

Cash + Short-Term Investments

$481.0

$528.4

(9.0%)

Accounts Receivable

$38.0

$12.4

205.7%

Inventory

$14.6

$11.6

25.9%

Liabilities

Q1 2008

Q1 2007

Change

Long-Term Debt

$9.2

$10.7

(13.9%)

The balance sheet reflects the company's health.

Cash Flow Highlights

Q1 2008

Q1 2007

Change

Cash From Operations

$76.0

$47.2

61.1%

Capital Expenditures

$4.0

$1.8

122.5%

Free Cash Flow

$72.0

$45.4

58.7%

Owner Earnings

$47.7

$31.3

52.2%

Operating cash flow culled from the earnings call. Capital expenditures and depreciation/amortization were estimated at $4 million each, approximating the worst-case points of recent historical trends. Next time, just give us a cash-flow statement, OK?

Free cash flow is a Fool's best friend.

Competitive Context

Market Cap

Trailing P/E Ratio

CAPS Rating

Dolby Laboratories

$4,739

38.8

*****

RealNetworks (NASDAQ:RNWK)

$865

12.1

**

DivX (NASDAQ:DIVX)

$493

39.0

**

DTS (NASDAQ:DTSI)

$400

N/A

*

Sonic Solutions (NASDAQ:SNIC)

$233

13.6

**

Using the latest reported numbers from Capital IQ, a division of Standard & Poor's.

Keep your partners close and the competition in your vest pocket.

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