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Dolby Laboratories Reports Third Quarter Fiscal 2018 Financial Results

1231 Days ago

SAN FRANCISCO, July 25, 2018 (GLOBE NEWSWIRE) -- Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for the third quarter (Q3) of fiscal 2018. For the third quarter, Dolby reported total revenue of $317.4 million, compared to $305.7 million for the third quarter of fiscal 2017.

“We continue to see progress on several fronts,” said Kevin Yeaman, President and CEO, Dolby Laboratories.  “Apple adopted Dolby Atmos into Apple TV 4K while Microsoft announced Dolby Vision support for Xbox One.  We also now have partners that will be launching Dolby Cinema sites for the first time in England, Germany and Kuwait.”

Third quarter GAAP net income was $83.1 million, or $0.78 per diluted share, compared to net income of $76.0 million, or $0.73 per diluted share, for the third quarter of fiscal 2017. On a non-GAAP basis, third quarter net income was $98.9 million, or $0.92 per diluted share, compared to $89.2 million, or $0.86 per diluted share, for the third quarter of fiscal 2017. Dolby's non-GAAP measures are described and reconciled to the corresponding GAAP measures at the end of this release.


Today, Dolby announced a cash dividend of $0.16 per share of Class A and Class B common stock, payable on August 14, 2018, to stockholders of record as of the close of business on August 6, 2018.

Stock Repurchase Program

Today, Dolby also announced that its Board of Directors has approved increasing the size of its stock repurchase program by $350 million, bringing the amount available for future repurchases of the Company's Class A Common Stock to approximately $412 million. Stock repurchases under this program may be made through open market transactions, negotiated purchases, or otherwise, at times and in such amounts as the Company considers appropriate.

Financial Outlook

Q4 Fiscal 2018

Dolby is providing the following estimates for its fourth quarter (Q4) of fiscal 2018:

  • Total revenue will range from $265 million to $275 million

  • Gross margin percentages will be approximately 86 percent on a GAAP basis and approximately 87 percent on a non-GAAP basis

  • Operating expenses will be between $195 million and $199 million on a GAAP basis and between $176 million and $180 million on a non-GAAP basis

  • Diluted earnings per share will be between $0.25 and $0.31 on a GAAP basis and between $0.40 and $0.46 on a non-GAAP basis

  • Effective tax rate will be between 20 percent and 23 percent on both a GAAP and non-GAAP basis

Fiscal Year 2018

Dolby is providing the following estimates for its fiscal 2018:

  • Total revenue will range from $1.17 billion to $1.18 billion

  • Gross margin percentages will be approximately 88 percent on a GAAP basis and approximately 89 percent on a non-GAAP basis

  • Operating expenses will range from $744 million to $748 million on a GAAP basis and from $670 million to $674 million on a non-GAAP basis

  • The full year tax rate on a GAAP basis will be approximately 67 percent and approximately 20 percent on a non-GAAP basis

Conference Call Information

Members of Dolby management will lead a conference call open to all interested parties to discuss Q3 fiscal 2018 financial results for Dolby Laboratories at 2:00 p.m. PT (5:00 p.m. ET) on Wednesday, July 25, 2018. Access to the teleconference will be available over the Internet from http://investor.dolby.com/events.cfm or by dialing 1-866-548-4713. International callers can access the conference call at 1-323-794-2093.

A replay of the call will be available from 5:00 p.m. PT on Wednesday, July 25, 2018, until 9:00 p.m. PT on Wednesday, August 1, 2018, by dialing 1-844-512-2921 (international callers can access the replay by dialing 1-412-317-6671) and entering the confirmation code 1349902. An archived version of the teleconference will also be available on the Dolby Laboratories website, http://investor.dolby.com/events.cfm.

Non-GAAP Financial Information

To supplement Dolby's financial statements presented on a GAAP basis, Dolby provides certain non-GAAP financial measures to provide investors with an additional tool to evaluate Dolby's operating results in a manner that focuses on what Dolby's management believes to be its ongoing business operations. Specifically, we exclude the following as adjustments from one or more of our non-GAAP financial measures:

Stock-based compensation expense:  Stock-based compensation, unlike cash-based compensation, utilizes subjective and complex assumptions in the methodologies used to value the various stock-based award types that we grant. These assumptions may differ from those used by other companies. To facilitate more meaningful comparisons between our underlying operating results and those of other companies, we exclude stock-based compensation expense.

Amortization of acquisition-related intangibles:  We amortize intangible assets acquired in connection with acquisitions. These intangible assets consist of patents and technology, customer relationships, and other intangibles. We record amortization charges relating to these intangible assets in our GAAP financial statements, and we view these charges as items arising from pre-acquisition activities that are determined by the timing and valuation of our acquisitions. As these amortization charges do not directly correlate to our operations during any particular period, and often remain unchanged between reporting periods, we exclude these charges to facilitate an evaluation of our current operating results and comparisons to our past operating performance.

Restructuring charges:  Restructuring charges are costs associated with a formal restructuring plan and primarily relate to employee severance benefits and asset impairments. We exclude restructuring costs, including any adjustments to charges recorded in prior periods, as we believe that these costs are not representative of our normal operating activities and therefore, excluding these amounts enables a more effective comparison to our past operating performance.

Income tax adjustments:  We believe that excluding the income tax effect of the aforementioned non-GAAP adjustments provides a more accurate view of our underlying operating results to management and investors.

Impact from U.S Tax Cuts and Jobs Act (Tax Reform):  The enactment of Tax Reform requires estimates based on Dolby's current understanding of the new tax laws. These charges are the result of a discrete and infrequent event that are not representative of current operating results and therefore, excluding these amounts enables a more effective comparison to our past operating performance.

Using the aforementioned adjustments, Dolby provides various non-GAAP financial measures including, but not limited to: non-GAAP net income, non-GAAP diluted earnings per share, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating margin, and non-GAAP effective tax rate. Dolby's management believes it is useful for itself and investors to review both GAAP and non-GAAP measures to assess the performance of Dolby's business. Dolby's management does not itself, nor does it suggest that investors should, consider non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Whenever Dolby uses non-GAAP financial measures, it provides a reconciliation of the non-GAAP financial measures to the most closely applicable GAAP financial measures. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures as detailed above. Investors are also encouraged to review Dolby's GAAP financial statements as reported in its US Securities and Exchange Commission (SEC) filings. A reconciliation between GAAP and non-GAAP financial measures is provided at the end of this press release and on the Dolby Laboratories investor relations website, http://investor.dolby.com.

Forward-Looking Statements

Certain statements in this press release, including, but not limited to, statements relating to Dolby's expected financial results for Q4 fiscal 2018 and fiscal 2018, our ability to advance our long-term objectives and future dividend payments are "forward-looking statements" that are subject to risks and uncertainties. These forward-looking statements are based on management's current expectations, and as a result of certain risks and uncertainties, actual results may differ materially from those projected. The following important factors, without limitation, could cause actual results to differ materially from those in the forward-looking statements: risks associated with trends in the markets in which Dolby operates, including the Broadcast, PC, Consumer Electronics, Mobile, Cinema, and Other Markets; the loss of, or reduction in sales by, a key customer or licensee; pricing pressures; risks associated with the rate at which OEMs include optical disc playback in Windows® devices and the rate of consumer adoption of Windows operating systems; risks that a shift from disc-based media to online media content could result in fewer devices with Dolby® technologies; risks associated with the effects of macroeconomic conditions, including trends in consumer spending; risks relating to the expiration of patents; the timing of Dolby's receipt of royalty reports and payments from its licensees, including back payments; the impact of Tax Reform; the impact of changes in revenue recognition standards; timing of revenue recognition under licensing agreements and other contractual arrangements; Dolby's ability to develop, maintain, and strengthen relationships with industry participants; Dolby's ability to develop and deliver innovative technologies in response to new and growing markets; competitive risks; risks associated with conducting business in China and other countries that have historically limited recognition and enforcement of intellectual property and contractual rights; risks associated with the health of the motion picture industry generally; Dolby's ability to increase its revenue streams and to expand its business generally, and to expand its business beyond audio technologies to other technologies; risks associated with acquiring and successfully integrating businesses or technologies; and other risks detailed in Dolby's SEC filings and reports, including the risks identified under the section captioned "Risk Factors" in its most recent annual report on Form 10-K. Dolby disclaims any obligation to update information contained in these forward-looking statements whether as a result of new information, future events, or otherwise.

About Dolby Laboratories

Dolby Laboratories (NYSE:DLB) is based in San Francisco with offices in over 20 countries around the globe. Dolby transforms the science of sight and sound into spectacular experiences. Through innovative research and engineering, we create breakthrough experiences for billions of people worldwide through a collaborative ecosystem spanning artists, businesses, and consumers. The experiences people have - in Dolby Vision, Dolby Atmos, Dolby Cinema, Dolby Voice, and Dolby Audio - revolutionize entertainment and communications at the cinema, on the go, in the home, and at work.

Dolby, Dolby Atmos, Dolby Audio, Dolby Cinema, Dolby Vision, Dolby Voice, and the double-D symbol are among the registered and unregistered trademarks of Dolby Laboratories, Inc. in the Unites States and/or other countries. Other trademarks remain the property of their respective owners. DLB-F

(in thousands, except per share amounts; unaudited)

  Fiscal Quarter Ended   Fiscal Year-To-Date Ended
  June 29,
June 30,
  June 29,
June 30,
Licensing $ 286,325   $ 278,106     $ 817,484   $ 752,422  
Products 26,265   22,569     73,863   71,493  
Services 4,857   4,990     15,252   15,491  
Total revenue 317,447   305,665     906,599   839,406  
Cost of revenue:          
Cost of licensing 12,111   12,711     31,980   29,628  
Cost of products 17,213   14,910     49,851   46,618  
Cost of services 5,141   4,504     14,469   12,823  
Total cost of revenue 34,465   32,125     96,300   89,069  
Gross margin 282,982   273,540     810,299   750,337  
Operating expenses:          
Research and development 60,357   59,631     176,294   175,490  
Sales and marketing 79,834   73,480     224,002   220,275  
General and administrative 48,081   44,497     147,113   129,290  
Restructuring credits (82 )     (446 )  
Total operating expenses 188,190   177,608     546,963   525,055  
Operating income 94,792   95,932     263,336   225,282  
Other income/expense:          
Interest income 5,488   2,511     13,161   6,511  
Interest expense (87 ) (31 )   (151 ) (94 )
Other income/(expense), net (3,603 ) (2,109 )   (5,439 ) (1,546 )
Total other income 1,798   371     7,571   4,871  
Income before income taxes 96,590   96,303     270,907   230,153  
Provision for income taxes (13,302 ) (20,117 )   (198,332 ) (49,666 )
Net income including controlling interest 83,288   76,186     72,575   180,487  
Less: net (income) attributable to controlling interest (143 ) (143 )   (421 ) (480 )
Net income attributable to Dolby Laboratories, Inc. $ 83,145   $ 76,043     $ 72,154   $ 180,007  
Net income per share:          
Basic $ 0.80   $ 0.75     $ 0.70   $ 1.77  
Diluted $ 0.78   $ 0.73     $ 0.67   $ 1.73  
Weighted-average shares outstanding:          
Basic 103,836   101,905     103,386   101,725  
Diluted 106,950   104,222     106,943   103,986  

(in thousands; unaudited)

  June 29,
September 29,
Current assets:    
Cash and cash equivalents $ 829,621   $ 627,017  
Restricted cash 7,842   7,351  
Short-term investments 195,284   247,757  
Accounts receivable, net 149,582   73,750  
Inventories 23,932   25,051  
Prepaid expenses and other current assets 32,672   30,508  
Total current assets 1,238,933   1,011,434  
Long-term investments 243,179   314,364  
Property, plant and equipment, net 502,041   485,275  
Intangible assets, net 185,140   189,648  
Goodwill 314,317   311,087  
Deferred taxes 143,949   190,915  
Other non-current assets 42,260   30,831  
Total assets $ 2,669,819   $ 2,533,554  
Current liabilities:    
Accounts payable $ 16,970   $ 14,373  
Accrued liabilities 197,076   207,034  
Income taxes payable 4,830   1,216  
Deferred revenue 21,436   23,150  
Total current liabilities 240,312   245,773  
Long-term deferred revenue 37,775   36,425  
Other non-current liabilities 203,813   107,514  
Total liabilities 481,900   389,712  
Stockholders’ equity:    
Class A common stock 60   58  
Class B common stock 43   43  
Additional paid-in capital 89,077   61,331  
Retained earnings 2,105,621   2,083,063  
Accumulated other comprehensive (loss) (13,301 ) (7,753 )
Total stockholders’ equity – Dolby Laboratories, Inc. 2,181,500   2,136,742  
Controlling interest 6,419   7,100  
Total stockholders’ equity 2,187,919   2,143,842  
Total liabilities and stockholders’ equity $ 2,669,819   $ 2,533,554  

(in thousands; unaudited)

  Fiscal Year-To-Date Ended
  June 29,
June 30,
Operating activities:    
Net income including controlling interest $ 72,575   $ 180,487  
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 61,398   64,543  
Stock-based compensation 53,476   48,940  
Amortization of premium on investments 2,046   2,077  
Provision for doubtful accounts 2,653   1,167  
Deferred income taxes 47,145   (11,446 )
Other non-cash items affecting net income 5,147   2,547  
Changes in operating assets and liabilities:    
Accounts receivable (78,480 ) (7,576 )
Inventories (508 ) (6,840 )
Prepaid expenses and other assets (13,719 ) (10,657 )
Accounts payable and other liabilities (12,781 ) 14,877  
Income taxes, net 102,422   19,033  
Deferred revenue (366 ) (560 )
Other non-current liabilities (537 ) 773  
Net cash provided by operating activities 240,471   297,365  
Investing activities:    
Purchases of investment securities (151,585 ) (204,447 )
Proceeds from sales of investment securities 72,090   36,579  
Proceeds from maturities of investment securities 194,038   126,199  
Purchases of PP&E (54,869 ) (81,668 )
Payments for business acquisitions, net of cash acquired (6,563 )  
Purchase of intangible assets (12,543 ) (5,250 )
Change in restricted cash (491 ) (2,542 )
Net cash provided by (used in) investing activities 40,077   (131,129 )
Financing activities:    
Proceeds from issuance of common stock 85,941   47,765  
Repurchase of common stock (90,480 ) (74,994 )
Payment of cash dividend (49,596 ) (42,768 )
Distribution to controlling interest (1,022 ) (2,094 )
Shares repurchased for tax withholdings on vesting of restricted stock (21,189 ) (16,875 )
Net cash used in financing activities (76,346 ) (88,966 )
Effect of foreign exchange rate changes on cash and cash equivalents (1,598 ) (766 )
Net increase in cash and cash equivalents 202,604   76,504  
Cash and cash equivalents at beginning of period 627,017   516,112  
Cash and cash equivalents at end of period $ 829,621   $ 592,616  

GAAP to Non-GAAP Reconciliations
(in millions, except per share data); unaudited
The following tables present Dolby's GAAP financial measures reconciled to the non-GAAP financial measures included in this release for the third quarter of fiscal 2018 and 2017:
Net income: Fiscal Quarter Ended
  June 29,
June 30,
GAAP net income $ 83.1   $ 76.0  
Stock-based compensation 17.1   15.7  
Amortization of acquisition-related intangibles 2.0   2.6  
Restructuring credits, net (0.1 )  
Income tax adjustments (3.2 ) (5.1 )
Non-GAAP net income $ 98.9   $ 89.2  
Diluted earnings per share: Fiscal Quarter Ended
  June 29,
June 30,
GAAP diluted earnings per share $ 0.78   $ 0.73  
Stock-based compensation 0.15   0.16  
Amortization of acquisition-related intangibles 0.02   0.02  
Restructuring charges, net    
Income tax adjustments (0.03 ) (0.05 )
Non-GAAP diluted earnings per share $ 0.92   $ 0.86  
Shares used in computing diluted earnings per share 107   104  
The following tables present a reconciliation between GAAP and non-GAAP versions of the estimated financial amounts for the fourth quarter of fiscal 2018 and fiscal year 2018 included in this release:
Gross margin: Q4 2018 Fiscal 2018
GAAP gross margin (low - high end of range)    86%       88%    
Stock-based compensation 0.2%   0.2%  
Amortization of acquisition-related intangibles 0.8%   0.8%  
Non-GAAP gross margin (low - high end of range)   87%       89%    
Operating expenses: Q4 2018 Fiscal 2018
GAAP operating expenses (low - high end of range)   $195 - $199       $744 - $748    
Stock-based compensation (18.0 ) (71.0 )
Amortization of acquisition-related intangibles (1.0 ) (3.0 )
Non-GAAP operating expenses (low - high end of range)   $176 - $180       $670 - $674    
Diluted earnings per share: Q4 2018
  Low High
GAAP diluted earnings per share $ 0.25   $ 0.31  
Stock-based compensation 0.17   0.17  
Amortization of acquisition-related intangibles 0.02   0.02  
Income tax adjustments (0.04 ) (0.04 )
Non-GAAP diluted earnings per share $ 0.40   $ 0.46  
Shares used in computing diluted earnings per share 107   107  

Investor Contact:
Elena Carr
Dolby Laboratories

Media Contact:
Tony Carter
Dolby Laboratories

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