Dolby Investor Relations

Dolby Laboratories Reports Fourth Quarter and Fiscal 2018 Financial Results

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Oct 24, 2018

Dolby Laboratories Reports Fourth Quarter and Fiscal 2018 Financial Results

SAN FRANCISCO, Oct. 24, 2018 (GLOBE NEWSWIRE) -- Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for the fourth quarter (Q4) and fiscal year that ended September 28, 2018. For the fourth quarter, Dolby reported total revenue of $265.3 million, compared to $242.0 million for the fourth quarter of fiscal 2017. For fiscal 2018, Dolby reported total revenue of $1.17 billion, compared to $1.08 billion for fiscal 2017.

“2018 was a strong year for Dolby, especially the momentum we built for the combined Dolby Vision and Dolby Atmos experience,” said Kevin Yeaman, President and CEO, Dolby Laboratories. “We started the year with OLED TVs from LG that had both Dolby Vision and Dolby Atmos, and then we added devices and content throughout the year from many key partners including Apple, Amazon, Microsoft, Netflix, and Tencent, just to name a few.”

In 2018, Dolby recorded a discrete tax expense of $121.4 million related to the enactment of the U.S. Tax Cuts and Jobs Act (Tax Reform). Dolby's 2018 provision for income taxes on a GAAP basis of $190.1 million includes this charge which is comprised of the deemed repatriation tax on unremitted earnings of foreign subsidiaries and the re-measurement of deferred tax assets and liabilities.  In the fourth quarter of fiscal 2018 Dolby recorded a $33.2 million true-up to the tax expense originally recorded in Q1, resulting in a tax benefit for the quarter of $8.3 million.

Fourth quarter GAAP net income was $50.1 million, or $0.47 per diluted share, compared to net income of $21.8 million, or $0.21 per diluted share, for the fourth quarter of fiscal 2017. On a non-GAAP basis, fourth quarter net income was $46.8 million, or $0.44 per diluted share, compared to $46.6 million, or $0.45 per diluted share, for the fourth quarter of fiscal 2017. Dolby's non-GAAP measures are described and reconciled to the corresponding GAAP measures at the end of this release.

Fiscal 2018 GAAP net income was $122.2 million, or $1.14 per diluted share, compared to $201.8 million, or $1.95 per diluted share for fiscal 2017. On a non-GAAP basis, fiscal 2018 net income was $313.2 million, or $2.93 per diluted share, compared to $269.7 million, or $2.61 per diluted share, for fiscal 2017.

Dividend

Today, Dolby announced a cash dividend of $0.19 per share of Class A and Class B common stock, payable on November 14, 2018, to stockholders of record as of the close of business on November 5, 2018.

Financial Outlook and Additional Information

In light of the company's transition to ASC 606 beginning Q1 2019, Dolby will provide FY19 guidance during the call as well as additional information related to the new accounting standard.  Additionally, following the conference call, Dolby will post supplemental information describing Dolby's transition to accounting standard ASC 606 and the fiscal 2019 outlook on Dolby's investor relations website, http://investor.dolby.com/.

Conference Call Information

Members of Dolby management will lead a conference call open to all interested parties to discuss Q4 and fiscal 2018 financial results for Dolby Laboratories at 2:00 p.m. PT (5:00 p.m. ET) on Wednesday, October 24, 2018. Access to the teleconference will be available over the Internet from http://investor.dolby.com/events.cfm 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, October 24, 2018, until 9:00 p.m. PT on Wednesday, October 31, 2018, 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/events.cfm.

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 U.S Tax Cuts and Jobs Act (Tax Reform):  The enactment of Tax Reform requires estimates based on Dolby's current understanding of the new tax laws. These charges are the result of a discrete and infrequent event 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/.

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, 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 Vision, Dolby Voice, and the double-D symbol are among the registered and unregistered trademarks of Dolby Laboratories, Inc. in the Unites 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 Ended
  September 28,
2018
September 29,
2017
  September 28,
2018
September 29,
2017
Revenue:          
Licensing $ 240,122   $ 213,370     $ 1,057,606   $ 965,792  
Products 20,689   23,797     94,552   95,290  
Services 4,514   4,881     19,766   20,372  
Total revenue 265,325   242,048     1,171,924   1,081,454  
           
Cost of revenue:          
Cost of licensing 11,512   9,588     43,492   39,216  
Cost of products 15,441   14,638     65,292   61,256  
Cost of services 5,007   5,012     19,476   17,835  
Total cost of revenue 31,960   29,238     128,260   118,307  
           
Gross margin 233,365   212,810     1,043,664   963,147  
           
Operating expenses:          
Research and development 60,500   57,822     236,794   233,312  
Sales and marketing 85,800   76,386     309,802   296,661  
General and administrative 50,403   42,396     197,516   171,686  
Restructuring charges/(credits)   12,856     (446 ) 12,856  
Total operating expenses 196,703   189,460     743,666   714,515  
           
Operating income 36,662   23,350     299,998   248,632  
           
Other income/expense:          
Interest income 5,809   3,066     18,970   9,577  
Interest expense (47 ) (33 )   (198 ) (127 )
Other income/(expense), net (464 ) 108     (5,903 ) (1,438 )
Total other income 5,298   3,141     12,869   8,012  
           
Income before income taxes 41,960   26,491     312,867   256,644  
Provision for income taxes 8,270   (4,551 )   (190,062 ) (54,217 )
Net income including controlling interest 50,230   21,940     122,805   202,427  
Less: net (income) attributable to controlling interest (138 ) (145 )   (559 ) (625 )
Net income attributable to Dolby Laboratories, Inc. $ 50,092   $ 21,795     $ 122,246   $ 201,802  
           
Net income per share:          
Basic $ 0.48   $ 0.21     $ 1.18   $ 1.98  
Diluted $ 0.47   $ 0.21     $ 1.14   $ 1.95  
Weighted-average shares outstanding:          
Basic 103,349   101,959     103,377   101,784  
Diluted 106,794   103,530     106,978   103,286  
                   

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

  September 28,
2018
September 29,
2017
ASSETS    
Current assets:    
Cash and cash equivalents $ 918,063   $ 627,017  
Restricted cash 7,187   7,351  
Short-term investments 178,138   247,757  
Accounts receivable, net 137,151   73,750  
Inventories 26,206   25,051  
Prepaid expenses and other current assets 35,209   30,508  
Total current assets 1,301,954   1,011,434  
Long-term investments 187,782   314,364  
Property, plant and equipment, net 514,182   485,275  
Goodwill and Intangible assets, net 512,001   500,735  
Deferred taxes 101,070   190,915  
Other non-current assets 42,280   30,831  
Total assets $ 2,659,269   $ 2,533,554  
     
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Current liabilities:    
Accounts payable $ 21,922   $ 14,373  
Accrued liabilities 223,594   207,034  
Income taxes payable 2,680   1,216  
Deferred revenue 23,931   23,150  
Total current liabilities 272,127   245,773  
Long-term deferred revenue 40,064   36,425  
Other non-current liabilities 150,960   107,514  
Total liabilities 463,151   389,712  
     
Stockholders’ equity:    
Class A common stock 61   58  
Class B common stock 41   43  
Additional paid-in capital 66,127   61,331  
Retained earnings 2,139,154   2,083,063  
Accumulated other comprehensive (loss) (15,832 ) (7,753 )
Total stockholders’ equity – Dolby Laboratories, Inc. 2,189,551   2,136,742  
Controlling interest 6,567   7,100  
Total stockholders’ equity 2,196,118   2,143,842  
Total liabilities and stockholders’ equity $ 2,659,269   $ 2,533,554  
             

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

  Fiscal Year-To-Date Ended
  September 28,
2018
September 29,
2017
Operating activities:    
Net income including controlling interest $ 122,805   $ 202,427  
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 81,283   84,308  
Stock-based compensation 71,249   65,343  
Amortization of premium on investments 2,473   2,758  
Provision for doubtful accounts 2,507   924  
Deferred income taxes 89,934   (29,368 )
Other non-cash items affecting net income 7,570   2,886  
Changes in operating assets and liabilities:    
Accounts receivable (65,723 ) 1,041  
Inventories (6,602 ) (11,922 )
Prepaid expenses and other assets (14,895 ) (12,411 )
Accounts payable and other liabilities 15,690   44,453  
Income taxes, net 39,738   26,950  
Deferred revenue 4,362   23  
Other non-current liabilities 1,811   381  
Net cash provided by operating activities 352,202   377,793  
     
Investing activities:    
Purchases of investment securities (174,195 ) (289,530 )
Proceeds from sales of investment securities 123,058   84,047  
Proceeds from maturities of investment securities 237,432   152,324  
Purchases of PP&E (72,814 ) (99,617 )
Payments for business acquisitions, net of cash acquired (22,852 )  
Purchase of intangible assets (12,543 ) (5,250 )
Change in restricted cash 164   (3,706 )
Net cash provided by (used in) investing activities 78,250   (161,732 )
     
Financing activities:    
Proceeds from issuance of common stock 106,162   69,998  
Repurchase of common stock (150,470 ) (100,000 )
Payment of cash dividend (66,155 ) (57,059 )
Distribution to controlling interest (1,022 ) (2,094 )
Shares repurchased for tax withholdings on vesting of restricted stock (22,144 ) (17,676 )
Net cash used in financing activities (133,629 ) (106,831 )
     
Effect of foreign exchange rate changes on cash and cash equivalents (5,777 ) 1,675  
Net increase in cash and cash equivalents 291,046   110,905  
Cash and cash equivalents at beginning of period 627,017   516,112  
Cash and cash equivalents at end of period $ 918,063   $ 627,017  


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 fourth quarter of fiscal 2018 and 2017 and fiscal 2018 and fiscal 2017:
           
Net income: Fiscal Quarter Ended   Fiscal Year Ended
  September 28,
2018
September 29,
2017
  September 28,
2018
September 29,
2017
GAAP net income $ 50.1   $ 21.8     $ 122.2   $ 201.8  
Stock-based compensation 17.8   16.4     71.2   65.3  
RSU dividend equivalent         0.2  
Amortization of acquisition-related intangibles 1.9   2.2     7.7   12.4  
Restructuring charges/(credits), net   12.9     (0.4 ) 12.9  
Impact of Tax Reform (33.2 )     121.4    
Income tax adjustments 10.2   (6.7 )   (8.9 ) (22.9 )
Non-GAAP net income $ 46.8   $ 46.6     $ 313.2   $ 269.7  
           
           
Diluted earnings per share: Fiscal Quarter Ended   Fiscal Year Ended
  September 28,
2018
September 29,
2017
  September 28,
2018
September 29,
2017
GAAP diluted earnings per share $ 0.47   $ 0.21     $ 1.14   $ 1.95  
Stock-based compensation 0.17   0.16     0.67   0.63  
Amortization of acquisition-related intangibles 0.02   0.02     0.07   0.12  
Restructuring charges/(credits), net   0.12       0.13  
Impact of tax reform (0.31 )     1.13    
Income tax adjustments 0.09   (0.06 )   (0.08 ) (0.22 )
Non-GAAP diluted earnings per share $ 0.44   $ 0.45     $ 2.93   $ 2.61  
           
           
Shares used in computing diluted earnings per share 107   104     107   103  
           

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

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Source: Dolby Laboratories