Dolby Laboratories, Inc. (NYSE:DLB) reported third-quarter fiscal 2016 adjusted earnings of 65 cents per share, comfortably beating the Zacks Consensus Estimate of 51 cents by 27.4%.
Also, the company’s non-GAAP earnings came in at 76 cents, up 55.1% on a year-over-year basis. The bottom-line improvement is largely attributable to decent top-line growth during the quarter.
Inside the Headlines
Total revenue came in at $277.6 million, up 19.8% from the year-ago tally. The top line also surpassed the Zacks Consensus Estimate of $267 million by 3.8%. Revenues were driven by strong traction in the Licensing business. However, growth was offset by a significant decline in Products and Services revenues.
The company’s licensing revenues rose 23.5% to $253.0 million on a year-over-year basis. Improvement in licensing revenues came on the back of increased adoption in mobile and DMAs along with favorable payment timings. Broadcast business witnessed 5% year-over-year growth, primarily driven by higher TV volume and increased licensing revenues for professional products.
Also, PC licensing revenues were up 25% due to favorable timing of payments. Mobile revenues witnessed the highest growth, up 73% on a year-over-year basis, on account of increased penetration of Dolby Audio on mobile device platform. Consumer electronics licensing revenues were also up 46% on a year-over-year basis backed by favorable timing and higher recoveries and volumes across various devices such as DMAs and AVRs.
However, products revenues declined 8.8% to $20.6 million and services revenues fell 7.1% to $3.9 million. The decline came on the back of lackluster industry trends as almost the entire cinema equipment industry underwent the conversion cycle from film to digital, leaving limited scope for profitability.
As of Jul 1, 2016, Dolby had cash and cash equivalents of approximately $600.0 million, up from $470.9 million as of Jun 26, 2015.
Also, net cash provided by operating activities came in at $283.9 million, compared with $226.1 million as of Jun 26, 2015.
Concurrent with the market scenario, Dolby issued the guidance for fourth-quarter earnings and revenues. The company expects non-GAAP earnings in the range of 31 cents to 37 cents, while revenues for the fourth quarter are expected to lie within $220 million to $230 million.
Moreover, the company projects non-GAAP gross margin in the 89–90% band. Similarly, operating expenses are likely to be between $154 million and $157 million, on a non-GAAP basis.
Concurrent with the present market condition, Dolby trimmed its full-year revenue guidance to the range of $1.015 billion to $1.025 billion from the previous $1 billion to $1.03 billion range. Also, full-year non-GAAP operating expenses are predicted to be approximately $610 million.
Dolby delivered an impressive quarterly performance with decent top and bottom-line growth. The company’s massive scale of operations coupled with a strong base of premium electronics customers adds to its strength. Going forward, Dolby has three impressive projects, namely, Dolby Voice, Dolby Vision and Dolby Cinema, that will likely accelerate its growth momentum. Especially, momentous market traction of Dolby Cinema technology looks promising.
Dolby currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Carter's, Inc. (NYSE:CRI) , Callaway Golf Co. (NYSE:ELY) and Isle of Capri Casinos (NASDAQ:ISLE) . All three stocks sport a Zacks Rank #1 (Strong Buy).
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