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CST: 07/12/2019 15:52:13   

Dolby Laboratories Reports Third Quarter Fiscal 2019 Financial Results

127 Days ago

SAN FRANCISCO, Aug. 01, 2019 (GLOBE NEWSWIRE) -- Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for the third quarter (Q3) of fiscal 2019. For the third quarter, Dolby reported total revenue of $302.2 million, compared to $214.8 million for the third quarter of fiscal 2018.

“We continue to see Dolby experiences become increasingly available to more people around the world,” said Kevin Yeaman, President and CEO, Dolby Laboratories. “This quarter, Apple announced broader support for Dolby Vision and Dolby Atmos, and a number of our other partners expanded their adoption across TVs, sound bars, and PCs.”

Third quarter GAAP net income was $39.6 million, or $0.38 per diluted share, compared to GAAP net income of $3.1 million, or $0.03 per diluted share, for the third quarter of fiscal 2018. On a non-GAAP basis, third quarter net income was $79.3 million, or $0.76 per diluted share, compared to non-GAAP net income of $18.8 million, or $0.18 per diluted share, for the third quarter of fiscal 2018. A complete listing of Dolby's non-GAAP measures are described and reconciled to the corresponding GAAP measures at the end of this release.

As previously indicated, Dolby adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606) in the first quarter of fiscal 2019, and today’s announced results and the financial outlook are presented in accordance with that new revenue standard. Dolby adopted ASC 606 using the full retrospective transition method, therefore all prior periods are also presented in accordance with the new revenue standard. Included at the end of this press release are financial results for fiscal 2017, fiscal 2018, and the four quarters of fiscal 2018, as adjusted in accordance with ASC 606.

Dividend

Today, Dolby announced a cash dividend of $0.19 per share of Class A and Class B common stock, payable on August 20, 2019, to stockholders of record as of the close of business on August 12, 2019.

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 $415 million. Stock repurchases under this program may be made through open market transactions, negotiated purchases, or otherwise, at time and in such amounts as the Company considers appropriate.

Financial Outlook

Q4 Fiscal 2019

Dolby is providing the following estimates for its fourth quarter (Q4) of fiscal 2019:

  • Total revenue will range from $288 million to $308 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 $199 million and $203 million on a GAAP basis and between $178 million and $182 million on a non-GAAP basis
  • Diluted earnings per share will be between $0.45 and $0.51 on a GAAP basis and between $0.62 and $0.68 on a non-GAAP basis
  • Effective tax rate will be between 18 percent and 20 percent on both a GAAP and non-GAAP basis

Fiscal Year 2019

Dolby is providing the following estimates for its fiscal year 2019:

  • Total revenue will range from $1.23 billion to $1.25 billion
  • Gross margin percentages will be approximately 87 percent on a GAAP basis and approximately 88 percent on a non-GAAP basis
  • Operating expenses will range from $821 million to $825 million on a GAAP basis and from $708 million to $712 million on a non-GAAP basis
  • Effective tax rate for the year will be between 9 percent and 10 percent on a GAAP basis and between 17 and 18 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 2019 financial results for Dolby Laboratories at 2:00 p.m. PT (5:00 p.m. ET) on Thursday, August 1, 2019. Access to the teleconference will be available over the Internet from http://investor.dolby.com/event-calendar or by dialing 1-800-263-0877. International callers can access the conference call at 1-646-828-8143.

A replay of the call will be available from 5:00 p.m. PT on Thursday, August 1, 2019, until 9:00 p.m. PT on Thursday, August 8, 2019, by dialing 1-844-512-2921 (international callers can access the replay by dialing 1-412-317-6671) and entering the confirmation code 3638302. An archived version of the teleconference will also be available on the Dolby website, http://investor.dolby.com/event-calendar.

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 restructuring plans and primarily relate to costs associated with exit or disposal activities, 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 Tax Reform:  The enactment of the U.S. Tax Cuts and Jobs Act (Tax Reform), and any related amendments or revisions, requires certain discrete and infrequent charges 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 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 2019 and fiscal 2019, 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, Mobile, Consumer Electronics, PC, 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 conducting business internationally, including trade restrictions and changes in diplomatic or trade relationships; 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; 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 quarterly report on Form 10-Q. 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 - with Dolby Cinema, Dolby Vision, Dolby Atmos, Dolby Audio, Dolby Dimension, and Dolby Voice - revolutionize entertainment and communications at the cinema, on the go, in the home, and at work.

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

DOLBY LABORATORIES, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts; unaudited)

  Fiscal Quarter Ended   Fiscal Year-To-Date Ended
  June 28,
2019
June 29, 2018
(as adjusted)
  June 28,
2019
June 29, 2018
(as adjusted)
Revenue:          
Licensing $ 271,897   $ 183,771     $ 842,484   $ 726,078  
Products and services 30,262   31,009     100,309   87,951  
Total revenue 302,159   214,780     942,793   814,029  
           
Cost of revenue:          
Cost of licensing 13,290   12,111     40,761   31,980  
Cost of products and services 26,400   22,272     74,133   64,323  
Total cost of revenue 39,690   34,383     114,894   96,303  
           
Gross margin 262,469   180,397     827,899   717,726  
           
Operating expenses:          
Research and development 60,408   60,357     177,680   176,294  
Sales and marketing 83,390   79,834     261,686   224,002  
General and administrative 54,183   47,893     152,412   146,925  
Restructuring charges/(credits) 30,232   (82 )   30,264   (446 )
Total operating expenses 228,213   188,002     622,042   546,775  
           
Operating income/(loss) 34,256   (7,605 )   205,857   170,951  
           
Other income/expense:          
Interest income 6,551   5,487     19,230   13,160  
Interest expense (29 ) (87 )   (106 ) (151 )
Other income/(expense), net 1,022   (3,603 )   1,075   (5,439 )
Total other income 7,544   1,797     20,199   7,570  
           
Income/(loss) before income taxes 41,800   (5,808 )   226,056   178,521  
Provision for income taxes (2,163 ) 9,067     (14,486 ) (163,070 )
Net income including controlling interest 39,637   3,259     211,570   15,451  
Less: net (income) attributable to controlling interest (63 ) (143 )   (337 ) (421 )
Net income attributable to Dolby Laboratories, Inc. $ 39,574   $ 3,116     $ 211,233   $ 15,030  
           
Net income per share:          
Basic $ 0.39   $ 0.03     $ 2.07   $ 0.15  
Diluted $ 0.38   $ 0.03     $ 2.01   $ 0.14  
Weighted-average shares outstanding:          
Basic 101,218   103,836     102,012   103,386  
Diluted 103,717   106,950     105,025   106,943  

DOLBY LABORATORIES, INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands; unaudited)

  June 28,
2019
September 28, 2018
(as adjusted)
ASSETS    
Current assets:    
Cash and cash equivalents $ 716,560   $ 918,063  
Restricted cash 7,485   7,187  
Short-term investments 120,737   178,138  
Accounts receivable, net 231,185   166,133  
Contract assets 182,912   165,959  
Inventories, net 38,908   26,206  
Prepaid expenses and other current assets 41,030   34,890  
Total current assets 1,338,817   1,496,576  
Long-term investments 211,352   187,782  
Property, plant, and equipment, net 524,641   514,182  
Goodwill and intangible assets, net 525,240   512,001  
Deferred taxes 109,208   74,766  
Other non-current assets 100,550   80,080  
Total assets $ 2,809,808   $ 2,865,387  
     
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Current liabilities:    
Accounts payable $ 14,304   $ 21,922  
Accrued liabilities 243,738   243,128  
Income taxes payable 862   2,680  
Contract liabilities 19,435   17,468  
Total current liabilities 278,339   285,198  
Non-current contract liabilities 24,428   25,887  
Other non-current liabilities 186,765   183,799  
Total liabilities 489,532   494,884  
     
Stockholders’ equity:    
Class A common stock 58   61  
Class B common stock 41   41  
Additional paid-in capital   66,127  
Retained earnings 2,328,918   2,313,539  
Accumulated other comprehensive (loss) (14,496 ) (15,832 )
Total stockholders’ equity – Dolby Laboratories, Inc. 2,314,521   2,363,936  
Controlling interest 5,755   6,567  
Total stockholders’ equity 2,320,276   2,370,503  
Total liabilities and stockholders’ equity $ 2,809,808   $ 2,865,387  

DOLBY LABORATORIES, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)

  Fiscal Year-To-Date Ended
  June 28,
2019
June 29, 2018
(as adjusted)
Operating activities:    
Net income including controlling interest $ 211,570   $ 15,451  
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 62,814   61,398  
Stock-based compensation 59,580   53,476  
Amortization of premium on investments 319   2,046  
Provision for doubtful accounts 5,201   2,465  
Deferred income taxes (34,872 ) 15,163  
Restructuring charge for exit of leased building 27,463    
Other non-cash items affecting net income 2,100   5,147  
Changes in operating assets and liabilities:    
Accounts receivable, net (70,022 ) 1,975  
Contract assets (16,942 ) 12,897  
Inventories (15,976 ) (508 )
Prepaid expenses and other assets (13,719 ) (13,718 )
Accounts payable and accrued liabilities (10,733 ) (16,368 )
Income taxes, net (5,226 ) 102,422  
Contract liabilities 491   (838 )
Other non-current liabilities (4,854 ) (537 )
Net cash provided by operating activities 197,194   240,471  
     
Investing activities:    
Purchases of investment securities (220,321 ) (151,585 )
Proceeds from sales of investment securities 149,023   72,090  
Proceeds from maturities of investment securities 109,821   194,038  
Purchases of property, plant, and equipment (79,670 ) (54,869 )
Payments for business acquisitions, net of cash acquired (14,919 ) (6,563 )
Purchase of intangible assets (17,255 ) (12,543 )
Net cash (used in)/provided by investing activities (73,321 ) 40,568  
     
Financing activities:    
Proceeds from issuance of common stock 45,027   85,941  
Repurchase of common stock (286,512 ) (90,480 )
Payment of cash dividend (58,318 ) (49,596 )
Distribution to controlling interest (1,015 ) (1,022 )
Shares repurchased for tax withholdings on vesting of restricted stock (21,761 ) (21,189 )
Net cash used in financing activities (322,579 ) (76,346 )
     
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash (2,499 ) (1,598 )
Net increase/(decrease) in cash, cash equivalents, and restricted cash (201,205 ) 203,095  
Cash, cash equivalents, and restricted cash at beginning of period 925,250   634,368  
Cash, cash equivalents, and restricted cash at end of period $ 724,045   $ 837,463  


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 2019 and 2018:
     
Net income: Fiscal Quarter Ended
  June 28,
2019
June 29, 2018
(as adjusted)
GAAP net income $ 39.6   $ 3.1  
Stock-based compensation 18.8   17.1  
Amortization of acquisition-related intangibles 2.6   2.0  
Restructuring charges/(credits), net 30.2   (0.1 )
Impact of Tax Reform (1.1 )  
Income tax adjustments (10.8 ) (3.3 )
Non-GAAP net income $ 79.3   $ 18.8  
     
Diluted earnings per share: Fiscal Quarter Ended
  June 28,
2019
June 29, 2018
(as adjusted)
GAAP diluted earnings per share $ 0.38   $ 0.03  
Stock-based compensation 0.18   0.16  
Amortization of acquisition-related intangibles 0.02   0.02  
Restructuring charges/(credits), net 0.29    
Impact of Tax Reform (0.01 )  
Income tax adjustments (0.10 ) (0.03 )
Non-GAAP diluted earnings per share $ 0.76   $ 0.18  
     
Shares used in computing diluted earnings per share 104   107  
     
The following tables present a reconciliation between GAAP and non-GAAP versions of the estimated financial amounts for the fourth quarter of fiscal 2019 and fiscal year 2019 included in this release:
     
Gross margin: Q4 2019 Fiscal 2019
GAAP gross margin 86 % 87 %
Stock-based compensation 0.2 % 0.2 %
Amortization of acquisition-related intangibles 0.8 % 0.8 %
Non-GAAP gross margin 87 % 88 %
     
Operating expenses: Q4 2019 Fiscal 2019
GAAP operating expenses (low - high end of range) $199 - $203   $821 - $825  
Stock-based compensation (20 ) (78 )
Amortization of acquisition-related intangibles (1 ) (5 )
Restructuring charges, net $   $ (30 )
Non-GAAP operating expenses (low - high end of range) $178 - $182   $708 - $712  
     
Effective tax rate:   Fiscal 2019
GAAP effective tax rate (low - high end of range)   9% - 10%  
Stock-based compensation (low - high end of range)   2% - 3%  
Amortization of acquisition-related intangibles (low - high end of range)   (1%) - 0%  
Income tax adjustments (low - high end of range)   4% - 6%  
Non-GAAP effective tax rate (low - high end of range)   17% - 18%  
     
Diluted earnings per share: Q4 2019
  Low High
GAAP diluted earnings per share $ 0.45   $ 0.51  
Stock-based compensation 0.19   0.19  
Amortization of acquisition-related intangibles 0.02   0.02  
Income tax adjustments (0.04 ) (0.04 )
Non-GAAP diluted earnings per share $ 0.62   $ 0.68  
     
Shares used in computing diluted earnings per share 104   104  

Revenue Standard Adoption

In the first quarter of fiscal 2019 we adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606), the new revenue recognition standard. ASC 606 replaces existing revenue recognition rules with a comprehensive revenue measurement and recognition standard. The Company adopted the new revenue standard utilizing the full retrospective method. Under this method, the new revenue standard is applied retrospectively to each prior period reported.

The following tables contain restated summarized financial information resulting from the adoption of ASC 606.

DOLBY LABORATORIES, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts; unaudited)

  As adjusted to reflect ASC 606
  Fiscal Quarter Ended Fiscal Year Ended
  December 29, 2017 March 30, 2018 June 29, 2018 September 28, 2018 September 28, 2018 September 29, 2017
Revenue:            
Licensing $ 270,172   $ 272,135   $ 183,771   $ 214,699   $ 940,777   $ 965,864  
Products and services 29,355   27,587   31,009   25,871   113,822   114,311  
Total revenue 299,527   299,722   214,780   240,570   1,054,599   1,080,175  
             
Cost of revenue:            
Cost of licensing 9,259   10,610   12,111   10,604   42,584   39,329  
Cost of products and services 21,634   20,417   22,272   20,656   84,979   79,200  
Total cost of revenue 30,893   31,027   34,383   31,260   127,563   118,529  
             
Gross margin 268,634   268,695   180,397   209,310   927,036   961,646  
             
Operating expenses:            
Research and development 56,444   59,493   60,357   60,500   236,794   233,312  
Sales and marketing 70,149   74,019   79,834   85,760   309,762   296,661  
General and administrative 48,285   50,747   47,893   50,497   197,422   171,686  
Restructuring charges/(credits) (197 ) (167 ) (82 )   (446 ) 12,856  
Total operating expenses 174,681   184,092   188,002   196,757   743,532   714,515  
             
Operating income/(loss) 93,953   84,603   (7,605 ) 12,553   183,504   247,131  
             
Other income/expense:            
Interest income 3,781   3,892   5,487   5,809   18,969   9,577  
Interest expense (35 ) (29 ) (87 ) (47 ) (198 ) (127 )
Other income/(expense), net (1,152 ) (684 ) (3,603 ) (464 ) (5,903 ) (1,438 )
Total other income/expense 2,594   3,179   1,797   5,298   12,868   8,012  
             
Income (loss) before income taxes 96,547   87,782   (5,808 ) 17,851   196,372   255,143  
Provision for income taxes (149,705 ) (22,432 ) 9,067   9,001   (154,069 ) (48,039 )
Net income (loss) including controlling interest (53,158 ) 65,350   3,259   26,852   42,303   207,104  
Less: net (income) attributable to controlling interest (144 ) (134 ) (143 ) (138 ) (559 ) (625 )
Net income/(loss) attributable to Dolby Laboratories, Inc. $ (53,302 ) $ 65,216   $ 3,116   $ 26,714   $ 41,744   $ 206,479  
             
Net/(loss) income per share:            
Basic (0.52 ) 0.63   0.03   0.26   0.40   2.03  
Diluted (0.52 ) 0.61   0.03   0.25   0.39   2.00  
Weighted-average shares outstanding:            
Basic 102,552   103,771   103,836   103,349   103,377   101,784  
Diluted 102,552   107,001   106,950   106,794   106,978   103,286  

The following table presents the composition of our licensing revenue:

  As adjusted to reflect ASC 606
  Fiscal Quarter Ended Fiscal Year Ended
  December 29, 2017 March 30, 2018 June 29, 2018 September 28, 2018 September 28, 2018 September 29, 2017
Market:            
Broadcast 41 % 33 % 46 % 48 % 41 % 44 %
Mobile 22 % 25 % 11 % 1 % 16 % 15 %
CE 14 % 14 % 15 % 19 % 15 % 13 %
PC 8 % 16 % 9 % 12 % 11 % 13 %
Other 15 % 12 % 19 % 20 % 17 % 15 %
Total revenue 100 % 100 % 100 % 100 % 100 % 100 %

Investor Contact:
Jason Dea
Dolby Laboratories, Inc.
415-357-7002
investor@dolby.com

Media Contact:
Karen Hartquist
Dolby Laboratories, Inc.
415-505-8357
karen.hartquist@dolby.com

 

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