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Dolby Laboratories Reports First Quarter Fiscal 2019 Financial Results
“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
First quarter GAAP net income was
As previously indicated,
Dividend
Today,
Financial Outlook
Q2 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
- 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
A replay of the call will be available from
Non-GAAP Financial Information
To supplement
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,
Forward-Looking Statements
Certain statements in this press release, including, but not limited to, statements relating to
About
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 | ||||
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 | ||
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.
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:
415-645-5583
investor@dolby.com
Media Contact:
404-316-0201
tony.carter@dolby.com
Source: Dolby Laboratories