Dolby announced fiscal fourth quarter and full year revenue for the twelve months ending September 30, 2016. 2016 fiscal year revenue was $1,025.7 million, a 5.68% increase versus the 2015 fiscal year.
Full year revenue was within the guidance provided at the end of fiscal 2015 for total revenue between $1 billion and $1.03 billion.
2016 FY GAAP net income was $185.9 million or $1.81 earnings per share (diluted). This represents a 2.5% increase over the net income for the 2015 fiscal year of $181.4 million ($1.75 earnings per share).
GAAP gross margins were 89.4% for the year, a slight decrease versus the gross margins of 90.2% from the year earlier period. Operating margins were 23%, an increase of 100 basis points over the operating margins from fiscal 2015.
2016 Fiscal Year Revenue by Type:
Dolby reports revenue across licensing, product, and service activities. Product revenues consists primarily of sales of Digital Cinema Servers and Dolby Cinema Audio Products.
- Licensing revenue for fiscal year 2016 was $917.0 million, an increase of 5.6% versus fiscal year 2015.
- Product revenue was $90.5 million for the year, an increase of 7.9% compared to the 2015 fiscal year.
- Services revenue were $18.2 million during fiscal year 2016, a decrease of 2.5% against 2015.
Product gross margins for 2016 were 28%, a substantial increase over the 16% gross margins from 2015.
2016 Fiscal Year Licensing Revenue by Customer Vertical:
Licensing revenue in the Broadcast vertical for televisions and set-top box sales was 46% of total licensing revenue or $421.8 million during fiscal 2016. On an aggregate basis, broadcast licensing grew 10.4% versus the 2015 fiscal year.
As part of management’s prepared comments on the Dolby’s earnings call, President and CEO Kevin Yeaman drew attention to the strong performance in the broadcast sector. “We had another strong year in broadcast. Dolby Audio is an established format in developed markets like North America and Western Europe, and we are well positioned in areas like Africa, India and China, when the transition to digital broadcast is underway. Future growth in broadcast will come from the continued migration of emerging markets to digital televisions and the rollout of high-definition and 4K set-top boxes with Dolby Audio in both developed and emerging markets” said Mr. Yeaman (Sourced from Seeking Alpha transcript).
Fiscal Q4 2016 Results:
Fiscal fourth quarter revenue was $233 million, flat against the year earlier period, and a decrease of 16.1% versus the preceding quarter, FQ3 2016. Management attributed the sequential drop in revenue to the higher timing of licensing payments in Q3 compared to Q4.
For the quarter, Dolby’s GAAP net income was $23.9 million or $0.23 earnings per share, a 48.6% decline when measured against the fiscal fourth quarter of 2015, and a 62.4% decline against the preceding quarter.
GAAP Gross Margins were 87% during the fourth quarter, a 210 basis point decline from the year earlier period and a 410 basis point decline versus FQ3 2016. Operating margins were 16%, an increase over the 12% from FQ4 2015 and a decrease versus the 29% operating margins during the preceding quarter.
Management guidance at the end of third fiscal quarter was for revenue in the range of $220 million to $230 million for the fourth quarter with gross margins between 88% and 89%, and GAAP earnings per share of $0.16 and $0.22. Dolby exceeded its guidance on both revenue and earnings per share, though underperformed on gross margins.
Update on Dolby Atmos, Doly Cinema, and Dolby Vision:
Among the revenue drivers cited by management were the growing adoption of Dolby Atmos (next-generation immersive audio technology), Dolby Vision (next-generation imaging technology), and Dolby Cinema (premium cinema experience combining multiple Dolby technologies).
- Dolby Atmos is now installed or committed in over 2,400 cinematic screens worldwide. 550 feature films using Dolby Atmos have been announced or released.
- The first televisions incorporating Dolby Vision become available in the past year. LG is including Dolby Vision in their OLED and Super UHD LCD TVs; VIZIO is including Dolby Vision in their R, P, and M Series; and TCL and Skyworth are also shipping TVs with Dolby Vision. Content incorporating Dolby Vision is now available from Warner Bros., Sony Pictures, MGM, Universal, Lionsgate, Netflix and Amazon Studios.
- Over 30 Dolby Cinema locations were added during 2016, bringing the total to over 40.
“We are well on our way to establishing that Dolby Vision is the best way to experience HDR content” stated Mr. Yeaman on Dolby’s earning call with analysts. “Our job this year is to accelerate the deployment of Dolby Vision” continued Mr. Yeaman.
Dolby’s guidance for the fiscal year 2017 is for revenue between $1.06 billion and $1.09 billion. Broadcast licensing revenue is expected to remain relatively flat in 2017.
Guidance for the first quarter of fiscal 2017 is revenue in the range of $250 million to $260 million, gross margins between 88% and 89%, and earnings per share between $0.34 and $0.40.
Press Release: Dolby Fiscal Fourth Quarter and Full Year 2016 Earnings Release
Earnings Transcript: Dolby Fiscal Fourth Quarter Results (SeekingAlpha)
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