DLB - Dolby Laboratories Reports Second Quarter Fiscal 2019 Financial Results

May, 01 2019 04:15 PM Dolby Laboratories

SAN FRANCISCO, May 01, 2019 (GLOBE NEWSWIRE) -- Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for the second quarter (Q2) of fiscal 2019. For the second quarter, Dolby reported total revenue of $338.3 million, compared to $299.7 million for the second quarter of fiscal 2018.

“It was another solid quarter, as we continued to expand the amount of content and devices in Dolby Vision and Dolby Atmos and grow our footprint of Dolby Cinema,” said Kevin Yeaman, President and CEO, Dolby Laboratories. “Going forward, this means more people around the world will be able to enjoy experiences in Dolby.”

Second quarter GAAP net income was $73.4 million, or $0.70 per diluted share, compared to GAAP net income of $65.2 million, or $0.61 per diluted share, for the second quarter of fiscal 2018. On a non-GAAP basis, second quarter net income was $109.0 million, or $1.04 per diluted share, compared to non-GAAP net income of $78.1 million, or $0.73 per diluted share, for the second 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 6?06") 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 May 22, 2019, to stockholders of record as of the close of business on May 14, 2019.

Financial Outlook

Q3 Fiscal 2019

Dolby is providing the following estimates for its third quarter (Q3) of fiscal 2019:

Total revenue will range from $295 million to $315 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 $201 million and $205 million on a GAAP basis and between $181 million and $185 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 19 percent and 21 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 $1.24 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 11 percent and 13 percent on a GAAP basis and between 19 and 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 Q2 fiscal 2019 financial results for Dolby Laboratories at 2:00 p.m. PT (5:00 p.m. ET) on Wednesday, May 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 Wednesday, May 1, 2019, until 9:00 p.m. PT on Wednesday, May 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 3557791. 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 Q3 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 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 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

Fiscal Year-To-Date Ended

March 29, 2019
March 30, 2018 (as adjusted)

March 29, 2019
March 30, 2018 (as adjusted)
Revenue:





Licensing
$
310,308

$
272,135


$
570,587

$
542,307

Products and services
27,950

27,587


70,047

56,942

Total revenue
338,258

299,722


640,634

599,249







Cost of revenue:





Cost of licensing
16,074

10,610


27,471

19,869

Cost of products and services
20,501

20,417


47,733

42,051

Total cost of revenue
36,575

31,027


75,204

61,920







Gross margin
301,683

268,695


565,430

537,329







Operating expenses:





Research and development
58,625

59,493


117,272

115,937

Sales and marketing
92,690

74,019


178,292

144,168

General and administrative
47,420

50,747


98,233

99,032

Restructuring charges/(credits)
18

(167
)

32

(364
)
Total operating expenses
198,753

184,092


393,829

358,773







Operating income
102,930

84,603


171,601

178,556







Other income/expense:





Interest income
7,494

3,892


12,679

7,673

Interest expense
(32
)
(29
)

(77
)
(64
)
Other income/(expense), net
(390
)
(684
)

53

(1,836
)
Total other income
7,072

3,179


12,655

5,773







Income before income taxes
110,002

87,782


184,256

184,329

Provision for income taxes
(36,427
)
(22,432
)

(12,323
)
(172,137
)
Net income including controlling interest
73,575

65,350


171,933

12,192

Less: net (income) attributable to controlling interest
(135
)
(134
)

(274
)
(278
)
Net income attributable to Dolby Laboratories, Inc.
$
73,440

$
65,216


$
171,659

$
11,914







Net income per share:





Basic
$
0.72

$
0.63


$
1.68

$
0.12

Diluted
$
0.70

$
0.61


$
1.63

$
0.11

Weighted-average shares outstanding:





Basic
102,141

103,771


102,409

103,162

Diluted
104,587

107,001


105,529

106,805

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


March 29, 2019
September 28, 2018 (as adjusted)
ASSETS


Current assets:


Cash and cash equivalents
$
726,596

$
918,063

Restricted cash
8,270

7,187

Short-term investments
158,679

178,138

Accounts receivable, net
211,714

200,933

Contract assets
244,917

165,959

Inventories
34,632

26,206

Prepaid expenses and other current assets
44,050

34,890

Total current assets
1,428,858

1,531,376

Long-term investments
199,302

187,782

Property, plant, and equipment, net
537,641

514,182

Goodwill and Intangible assets, net
513,750

512,001

Deferred taxes
113,409

74,766

Other non-current assets
50,991

42,280

Total assets
$
2,843,951

$
2,862,387




LIABILITIES AND STOCKHOLDERS’ EQUITY


Current liabilities:


Accounts payable
$
14,626

$
21,922

Accrued liabilities
257,247

272,967

Income taxes payable
102

2,680

Contract liabilities
22,451

20,502

Total current liabilities
294,426

318,071

Non-current contract liabilities
22,008

22,853

Other non-current liabilities
174,660

150,960

Total liabilities
491,094

491,884




Stockholders’ equity:


Class A common stock
59

61

Class B common stock
41

41

Additional paid-in capital
—

66,127

Retained earnings
2,361,607

2,313,539

Accumulated other comprehensive (loss)
(14,683
)
(15,832
)
Total stockholders’ equity – Dolby Laboratories, Inc.
2,347,024

2,363,936

Controlling interest
5,833

6,567

Total stockholders’ equity
2,352,857

2,370,503

Total liabilities and stockholders’ equity
$
2,843,951

$
2,862,387

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


Fiscal Year-To-Date Ended

March 29, 2019
March 30, 2018 (as adjusted)
Operating activities:


Net income including controlling interest
$
171,933

$
12,192

Adjustments to reconcile net income to net cash provided by operating activities:


Depreciation and amortization
40,799

40,684

Stock-based compensation
40,717

36,375

Amortization of premium on investments
338

1,472

Provision for doubtful accounts
1,963

1,607

Deferred income taxes
(38,548
)
36,475

Other non-cash items affecting net income
1,355

977

Changes in operating assets and liabilities:


Accounts receivable
(12,518
)
(39,296
)
Contract assets
(78,949
)
(44,172
)
Inventories
(7,983
)
(352
)
Prepaid expenses and other assets
(16,976
)
(12,647
)
Accounts payable and other liabilities
(17,490
)
(35,530
)
Income taxes, net
18,414

99,861

Contract liabilities
1,061

1,047

Other non-current liabilities
1,728

(652
)
Net cash provided by operating activities
105,844

98,041




Investing activities:


Purchases of investment securities
(152,499
)
(129,456
)
Proceeds from sales of investment securities
83,478

64,698

Proceeds from maturities of investment securities
78,714

118,874

Purchases of PP&E
(56,082
)
(39,734
)
Purchase of intangible assets
(17,065
)
(11,893
)
Net cash used in investing activities
(63,454
)
(4,074
)



Financing activities:


Proceeds from issuance of common stock
27,158

71,061

Repurchase of common stock
(197,880
)
(34,993
)
Payment of cash dividend
(39,035
)
(32,956
)
Distribution to controlling interest
(1,014
)
(1,022
)
Shares repurchased for tax withholdings on vesting of restricted stock
(20,680
)
(19,946
)
Net cash used in financing activities
(231,451
)
(17,856
)



Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash
(1,323
)
3,122

Net increase/(decrease) in cash, cash equivalents, and restricted cash
(190,384
)
79,233

Cash, cash equivalents, and restricted cash at beginning of period
925,250

634,368

Cash, cash equivalents, and restricted cash at end of period
$
734,866

$
713,601

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 second quarter of fiscal 2019 and 2018:



Net income:
Fiscal Quarter Ended

March 29, 2019
March 30, 2018 (as adjusted)
GAAP net income
$
73.4

$
65.2

Stock-based compensation
19.2

17.7

Amortization of acquisition-related intangibles
2.4

1.9

Restructuring charges/(credits), net
—

(0.2
)
Impact of Tax Reform
18.9

—

Income tax adjustments
(4.9
)
(6.5
)
Non-GAAP net income
$
109.0

$
78.1




Diluted earnings per share:
Fiscal Quarter Ended

March 29, 2019
March 30, 2018 (as adjusted)
GAAP diluted earnings per share
$
0.70

$
0.61

Stock-based compensation
0.18

0.16

Amortization of acquisition-related intangibles
0.02

0.02

Impact of Tax Reform
0.18

—

Income tax adjustments
(0.04
)
(0.06
)
Non-GAAP diluted earnings per share
$
1.04

$
0.73




Shares used in computing diluted earnings per share
105

107




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



Gross margin:
Q3 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:
Q3 2019
Fiscal 2019
GAAP operating expenses (low - high end of range)
$201 - $205
$786 - $796
Stock-based compensation
(19)
(77)
Amortization of acquisition-related intangibles
(1)
(4)
Non-GAAP operating expenses (low - high end of range)
$181 - $185
$705 - $715



Effective tax rate:

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

11% - 13%
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)

19% - 20%



Diluted earnings per share:
Q3 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
105

105

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
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 taxes
(149,705
)
(22,432
)
9,067

9,001

(154,069
)
(48,039
)
Net income (loss) including controlling interest
(53,158
)
65,350

3,260

26,852

42,304

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

$
3,117

$
26,714

$
41,745

$
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
%
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
415-357-7002
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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