DLB - Dolby Laboratories Reports Third Quarter Fiscal 2019 Financial Results

August, 01 2019 04:15 PM Dolby Laboratories

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

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

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