DLB - Dolby Laboratories Reports First Quarter Fiscal 2019 Financial Results

January, 30 2019 04:15 PM Dolby Laboratories

SAN FRANCISCO, Jan. 30, 2019 (GLOBE NEWSWIRE) -- Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for the first quarter (Q1) of fiscal 2019. For the first quarter, Dolby reported total revenue of $302.4 million, compared to $299.5 million for the first quarter of fiscal 2018.

“We’re off to a solid start to 2019, and we are excited that a growing number of consumers around the world are able to enjoy Dolby experiences,” said Kevin Yeaman, President and CEO, Dolby Laboratories. “Our momentum for Dolby Vision and Dolby Atmos was on strong display at CES, and we opened our first Dolby Cinema in the UK at the iconic Odeon Leicester Square.”

First quarter GAAP net income was $98.2 million, or $0.93 per diluted share, compared to GAAP net loss of $53.3 million, or $0.52 per diluted share, for the first quarter of fiscal 2018. On a non-GAAP basis, first quarter net income was $78.7 million, or $0.74 per diluted share, compared to non-GAAP net income of $95.4 million, or $0.90 per diluted share, for the first 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 February 21, 2019, to stockholders of record as of the close of business on February 12, 2019.

Financial Outlook

Q2 Fiscal 2019

Dolby is providing the following estimates for its second quarter (Q2) of fiscal 2019:

Total revenue will range from $325 million to $345 million

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

Operating expenses will be between $206 million and $210 million on a GAAP basis and between $186 million and $190 million on a non-GAAP basis

Diluted earnings per share will be between $0.48 and $0.54 on a GAAP basis and between $0.81 and $0.87 on a non-GAAP basis

Effective tax rate will be between 38 percent and 42 percent on a GAAP basis and between 19 percent and 21 percent on a non-GAAP basis

Fiscal Year 2019

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

Total revenue will range from $1.24 billion to $1.28 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 $786 million to $796 million on a GAAP basis and from $705 million to $715 million on a non-GAAP basis

Effective tax rate for the year will be between 13 percent and 15 percent on a GAAP basis and between 19 and 21 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 Q1 fiscal 2019 financial results for Dolby Laboratories at 2:00 p.m. PT (5:00 p.m. ET) on Wednesday, January 30, 2019. Access to the teleconference will be available over the Internet from http://investor.dolby.com/event-calendar 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, January 30, 2019, until 9:00 p.m. PT on Wednesday, February 6, 2019, by dialing 1-844-512-2921 (international callers can access the replay by dialing 1-412-317-6671) and entering the confirmation code 8636587. An archived version of the teleconference will also be available on the Dolby Laboratories 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 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 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 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 Q2 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 including the Broadcast, Consumer Electronics, Mobile, PC, Cinema, and Other Markets; the loss of, or reduction in sales by, a key customer or licenseeÍ¾ pricing pressuresÍ¾ risks associated with the rate at which OEMs include optical disc playback in Windows^Â® devices and the rate of consumer adoption of Windows operating systemsÍ¾ risks that a shift from disc-based media to online media content could result in fewer devices with Dolby^Â® technologiesÍ¾ risks associated with the effects of macroeconomic conditions, including trends in consumer spendingÍ¾ risks relating to the expiration of patentsÍ¾ the timing of Dolby's receipt of royalty reports and payments from its licensees, including back paymentsÍ¾ the impact of Tax Reform; timing of revenue recognition under licensing agreements and other contractual arrangementsÍ¾ Dolby's ability to develop, maintain, and strengthen relationships with industry participantsÍ¾ Dolby's ability to develop and deliver innovative technologies in response to new and growing marketsÍ¾ competitive risksÍ¾ risks associated with conducting business in China and other countries that have historically limited recognition and enforcement of intellectual property and contractual rightsÍ¾ risks associated with the health of the motion picture industry generallyÍ¾ Dolby's ability to increase its revenue streams and to expand its business generally, and to expand its business beyond audio technologies to other technologiesÍ¾ risks associated with acquiring and successfully integrating businesses or technologiesÍ¾ 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, Dolby Dimension 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 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

December 28, 2018
December 29, 2017 (as adjusted)
Revenue:


Licensing
$
260,279

$
270,172

Products and services
42,097

29,355

Total revenue
302,376

299,527




Cost of revenue:


Cost of licensing
11,397

9,259

Cost of products and services
27,232

21,634

Total cost of revenue
38,629

30,893




Gross margin
263,747

268,634




Operating expenses:


Research and development
58,647

56,444

Sales and marketing
85,602

70,149

General and administrative
50,813

48,285

Restructuring charges/(credits)
14

(197
)
Total operating expenses
195,076

174,681




Operating income
68,671

93,953




Other income/expense:


Interest income
5,185

3,781

Interest expense
(45
)
(35
)
Other income/(expense), net
443

(1,152
)
Total other income
5,583

2,594




Income before income taxes
74,254

96,547

Provision for income tax (expense)/benefit
24,104

(149,705
)
Net income/(loss) including controlling interest
98,358

(53,158
)
Less: net (income) attributable to controlling interest
(139
)
(144
)
Net income/(loss) attributable to Dolby Laboratories, Inc.
$
98,219

$
(53,302
)



Net income/(loss) per share:


Basic
$
0.96

$
(0.52
)
Diluted
$
0.93

$
(0.52
)
Weighted-average shares outstanding:


Basic
102,677

102,552

Diluted
106,130

102,552

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


December 28, 2018
September 28, 2018 (as adjusted)
ASSETS


Current assets:


Cash and cash equivalents
$
790,787

$
918,063

Restricted cash
8,999

7,187

Short-term investments
175,557

178,138

Accounts receivable, net
181,614

200,933

Contract assets
199,480

165,959

Inventories
27,765

26,206

Prepaid expenses and other current assets
39,601

34,890

Total current assets
1,423,803

1,531,376

Long-term investments
201,428

187,782

Property, plant, and equipment, net
523,193

514,182

Goodwill and Intangible assets, net
516,332

512,001

Deferred taxes
107,313

74,766

Other non-current assets
50,991

42,280

Total assets
$
2,823,060

$
2,862,387




LIABILITIES AND STOCKHOLDERS’ EQUITY


Current liabilities:


Accounts payable
$
9,811

$
21,922

Accrued liabilities
265,091

272,967

Income taxes payable
121

2,680

Contract liabilities
19,562

20,502

Total current liabilities
294,585

318,071

Non-current contract liabilities
23,115

22,853

Other non-current liabilities
156,406

150,960

Total liabilities
474,106

491,884




Stockholders’ equity:


Class A common stock
60

61

Class B common stock
41

41

Additional paid-in capital
–

66,127

Retained earnings
2,361,843

2,313,539

Accumulated other comprehensive (loss)
(18,639
)
(15,832
)
Total stockholders’ equity — Dolby Laboratories, Inc.
2,343,305

2,363,936

Controlling interest
5,649

6,567

Total stockholders’ equity
2,348,954

2,370,503

Total liabilities and stockholders’ equity
$
2,823,060

$
2,862,387

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


Fiscal Quarter Ended

December 28, 2018
December 29, 2017 (as adjusted)
Operating activities:


Net income/(loss) including controlling interest
$
98,358

$
(53,158
)
Adjustments to reconcile net income to net cash provided by operating activities:


Depreciation and amortization
20,029

19,882

Stock-based compensation
21,482

18,684

Amortization of premium on investments
309

742

Provision for doubtful accounts
1,605

1,119

Deferred income taxes
(32,571
)
32,725

Other non-cash items affecting net income
3,393

587

Changes in operating assets and liabilities:


Accounts receivable
17,736

(41,526
)
Contract assets
(33,519
)
(22,449
)
Inventories
(2,709
)
(1,491
)
Prepaid expenses and other assets
(13,157
)
(6,591
)
Accounts payable and other liabilities
(26,332
)
(33,006
)
Income taxes, net
1,546

99,551

Contract liabilities
(678
)
1,984

Other non-current liabilities
1,460

96

Net cash provided by operating activities
56,952

17,149




Investing activities:


Purchases of investment securities
(63,329
)
(74,479
)
Proceeds from sales of investment securities
32,582

28,383

Proceeds from maturities of investment securities
19,785

49,476

Purchases of PP&E
(18,539
)
(19,275
)
Purchase of intangible assets
(12,065
)
(11,198
)
Net cash used in investing activities
(41,566
)
(27,093
)



Financing activities:


Proceeds from issuance of common stock
14,272

41,463

Repurchase of common stock
(112,545
)
(29,993
)
Payment of cash dividend
(19,573
)
(16,377
)
Distribution to controlling interest
(906
)
(1,021
)
Shares repurchased for tax withholdings on vesting of restricted stock
(19,679
)
(15,346
)
Net cash used in financing activities
(138,431
)
(21,274
)



Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash
(2,419
)
870

Net decrease in cash, cash equivalents, and restricted cash
(125,464
)
(30,348
)
Cash, cash equivalents, and restricted cash at beginning of period
925,250

634,368

Cash, cash equivalents, and restricted cash at end of period
$
799,786

$
604,020


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 first quarter of fiscal 2019 and 2018:



Net income:
Fiscal Quarter Ended

December 28, 2018
December 29, 2017 (as adjusted)
GAAP net income/(loss)
$
98.2

$
(53.3)

Stock-based compensation
21.5

18.7

Amortization of acquisition-related intangibles
1.8

1.9

Restructuring credits, net
–

(0.2)

Impact of Tax Reform
(36.0)

137.6

Income tax adjustments
(6.8)

(9.3)

Non-GAAP net income
$
78.7

$
95.4




GAAP diluted earnings per share
$
0.93

$
(0.52)

Non-GAAP diluted earnings per share
$
0.74

$
0.90




GAAP diluted shares
106

103

Dilutive equity awards
–

3

Shares used in computing Non-GAAP diluted earnings per share
106

106




The following tables present a reconciliation between GAAP and non-GAAP versions of the estimated financial amounts for the second quarter of fiscal 2019 and fiscal year 2019 included in this release:



Gross margin:
Q2 2019
Fiscal 2019
GAAP gross margin

88%

87%

Stock-based compensation
0.2%

0.2%

Amortization of acquisition-related intangibles
0.8%

0.8%

Non-GAAP gross margin

89%

88%




Operating expenses:
Q2 2019
Fiscal 2019
GAAP operating expenses (low - high end of range)

$206 - $210


$786 - $796

Stock-based compensation
(19.0)

(77.0)

Amortization of acquisition-related intangibles
(1.0)

(4.0)

Non-GAAP operating expenses (low - high end of range)

$186 - $190


$705 - $715




Effective tax rate:
Q2 2019
Fiscal 2019
GAAP effective tax rate (low - high end of range)

38% - 42%


13% - 15%

Stock-based compensation (low - high end of range)

1% - 2%


1% - 2%

Amortization of acquisition-related intangibles (low - high end of range)

(1%) - 0%


(1%) - 0%

Income tax adjustments (low - high end of range)

(19%) - (23%)


4% - 6%

Non-GAAP effective tax rate (low - high end of range)

19% - 21%


19% - 21%




Diluted earnings per share:
Q2 2019

Low
High
GAAP diluted earnings per share
$
0.48

$
0.54

Stock-based compensation
0.19

0.19

Amortization of acquisition-related intangibles
0.02

0.02

Income tax adjustments
0.12

0.12

Non-GAAP diluted earnings per share
$
0.81

$
0.87




Shares used in computing diluted earnings per share
106

106

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 summarized financial information adjusted to reflect 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

93,953


84,603


(7,605
)

12,553


183,504


247,131








Other income/expense:






Interest income

3,781


3,892


5,488


5,809


18,970


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


1,798


5,298


12,869


8,012








Income/(loss) before income taxes

96,547


87,782


(5,807
)

17,851


196,373


255,143

Provision for income tax (expense)/benefit

(149,705
)

(22,433
)

9,067


9,001


(154,070
)

(48,039
)
Net income/(loss) including controlling interest

(53,158
)

65,349


3,260


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
)
$
65,215

$
3,117

$
26,714

$
41,744

$
206,479








Net income/(loss) 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
%
PC
8
%
16
%
9
%
12
%
11
%
13
%
Mobile
22
%
25
%
11
%
1
%
16
%
15
%
CE
14
%
14
%
15
%
19
%
15
%
13
%
Other
15
%
12
%
19
%
20
%
17
%
15
%
Total revenue
100
%
100
%
100
%
100
%
100
%
100
%

Investor Contact:
Elena Carr
Dolby Laboratories
415-645-5583
investor@dolby.com

Media Contact:
Tony Carter
Dolby Laboratories
404-316-0201
tony.carter@dolby.com

Company Name:	Dolby Laboratories
Stock Symbol:	DLB
Market:	NYSE
Website:	dolby.com

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