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Dolby Laboratories Reports Second Quarter Fiscal 2012 Results

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May 3, 2012

Dolby Laboratories Reports Second Quarter Fiscal 2012 Results

SAN FRANCISCO--(BUSINESS WIRE)-- Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for its second quarter of fiscal 2012.

For the second quarter, Dolby reported total revenue of $260.3 million, compared to $250.0 million for the second quarter of fiscal 2011.

Second quarter GAAP net income was $88.1 million, or $0.81 per diluted share, compared to $82.1 million, or $0.72 per diluted share, for the second quarter of fiscal 2011. On a non-GAAP basis, second quarter net income was $99.2 million, or $0.91 per diluted share, compared to $92.2 million, or $0.81 per diluted share, for the second quarter of fiscal 2011. Dolby's non-GAAP measures exclude expenses related to stock-based compensation, the amortization of intangibles from business combinations, restructuring charges, and the related tax impact of these items.

"We continue to make excellent progress toward establishing Dolby® Digital Plus as a de facto standard in the online and cloud-based ecosystem," said Kevin Yeaman, President and Chief Executive Officer, Dolby Laboratories. "Microsoft® will incorporate Dolby Digital Plus in all versions of its Windows® 8 operating system for PCs and tablets for online and file-based content, and leading providers of cloud-encoding solutions, such as Microsoft's Azure, Encoding.com, Zencoder™, Digital Rapids®, Nativ, and LinkoTec will also adopt Dolby Digital Plus in their platforms."

Microsoft and Dolby have entered into an agreement pursuant to which Microsoft will include Dolby Digital Plus 5.1-channel decoding and Dolby Digital two-channel encoding in Windows 8. Under this arrangement, original equipment manufacturers (OEMs) generally will be required to directly license and pay Dolby a base royalty rate for the right to use the Dolby technologies included in Windows 8 and installed on PCs and tablets for online and file-based content. Dolby expects the majority of PCs to continue to ship with optical disc drives when Windows 8 is released and to include optical disc playback functionality. For devices that also include optical disc playback functionality, which will be enabled by independent software vendor (ISV) applications installed on devices running Windows 8, OEMs will be required to pay a higher per-unit rate. This higher rate is consistent with historical rates paid for the inclusion of Dolby disc playback software. Dolby expects to receive only one royalty payment per device containing these technologies.

Dolby does not expect this agreement to affect its fiscal 2012 outlook because Windows 8 is not expected to ship until Dolby's fiscal 2013.

Financial Targets

For fiscal 2012, Dolby is now targeting revenue of $910 million to $960 million.

GAAP

For fiscal 2012, Dolby continues to target total gross margin of approximately 90 percent, operating expenses of $465 million to $475 million, and other income of approximately $5 million. In addition, Dolby is now targeting an effective tax rate of approximately 28 percent to 29 percent for fiscal 2012. Although stock-based compensation expense may vary based on factors such as stock price or volatility, Dolby continues to target stock-based compensation expense for fiscal 2012 of approximately $51 million. In addition, Dolby continues to target charges related to the amortization of acquired intangibles for fiscal 2012 of approximately $10 million and restructuring charges of approximately $2 million.

Non-GAAP

For fiscal 2012, Dolby continues to target total gross margin of approximately 91 percent, operating expenses of $410 million to $420 million, and other income of approximately $5 million. In addition, Dolby is now targeting an effective tax rate of approximately 28 percent to 29 percent for fiscal 2012. Dolby's non-GAAP targets exclude expenses related to stock-based compensation, the amortization of intangibles from business combinations, restructuring charges, and the related tax impact of these items. In addition, the non-GAAP measures exclude a one-time benefit resulting from the release of a deferred tax liability in the first quarter of fiscal 2011.

Diluted Earnings per Share

Dolby continues to target diluted shares outstanding of approximately 108 million. These targets lead to a fiscal 2012 diluted earnings per share target range of $2.38 to $2.62 on a GAAP basis and $2.80 to $3.04 on a non-GAAP basis.

The Company's Conference Call Information

Members of Dolby Laboratories' management will lead a conference call open to all interested parties to discuss the Company's Q2 fiscal 2012 financial results at 2:00 p.m. PT (5:00 p.m. ET) on Thursday, May 3, 2012.

Access to the teleconference will be available over the Internet from http://investor.dolby.com/medialist.cfm or by dialing 1-800-211-3767 from within the United States or 1-719-325-2371 from outside the country.

A replay of the call will be available from 5:00 p.m. PT on Thursday, May 3, 2012, until 9:00 p.m. PT on Thursday, May 10, 2012. Callers can dial 1-877-870-5176 from within the United States or 1-858-384-5517 from outside the country, and then enter the confirmation code 2955384. An archived version of the teleconference will also be available on the Dolby Laboratories website, www.dolby.com.

Non-GAAP Financial Information

To supplement Dolby's financial statements presented on a GAAP basis, Dolby provides non-GAAP financial measures of gross margin, operating expense, tax rate, and diluted earnings per share. These measures are adjusted to exclude the charges and expenses discussed above. Dolby presents such non-GAAP financial measures in reporting its financial results 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. Dolby's management believes it is useful for itself and investors to review, as applicable, both GAAP information that includes the impact of stock-based compensation expense, amortization of intangible assets acquired through business combinations, restructuring charges, the related tax impact of all of these items on the provision for income taxes, and a one-time benefit resulting from the release of a deferred tax liability in the first quarter of fiscal 2011, and the non-GAAP measures that exclude such information in order to assess the performance of Dolby's business for planning and forecasting in subsequent periods. Dolby's management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Whenever Dolby uses such a non-GAAP financial measure, it provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. 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 measure as detailed above. Investors are also encouraged to review Dolby's GAAP financial statements as reported in its SEC filings. A reconciliation between GAAP and non-GAAP financial measures is provided at the end of this press release and on Dolby's investor relations website at http://investor.dolby.com/medialist.cfm.

Forward-Looking Statements

Certain statements in this press release, including statements relating to Dolby's expectations regarding revenue, gross margin, operating expense, other income, tax rate, stock-based compensation, amortization of intangibles, restructuring charges, and diluted earnings per share for fiscal 2012, and its statements regarding establishing Dolby Digital Plus as a de facto standard in the online and cloud-based ecosystem, Dolby licensees' plans, Dolby's expectations regarding the incorporation of Dolby Digital Plus in the Microsoft Windows operating system, the number of PCs that will ship with optical disc drives and include optical disc playback functionality when Windows 8 is launched, the timing of Windows 8 shipments and related effect on Dolby's fiscal 2012 outlook, Dolby's direct license arrangements with OEMs, anticipated royalty rates, the benefits that may be derived from these expectations and the anticipated future licensing revenue that will be derived from the inclusion of Dolby Digital Plus in the Windows operating system 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 personal computer, DVD, and Blu-ray Disc™, broadcast, consumer electronics, gaming, mobile, and automobile markets; the timing of the launch date of Windows 8; pricing pressures; risks associated with the rate at which OEMs include optical disc playback in Windows 8 devices and the rate of consumer adoption of Windows operating systems; risks that shifts from disc-based media to online media content could result in fewer devices with Dolby technologies; risks associated with the effects of macroeconomic conditions; the timing of Dolby's receipt of royalty reports and/or payments from its licensees; Dolby's accuracy of calculation of royalties due to its licensors; 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 in the entertainment industry; 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; the development and growth of the market for digital cinema and digital 3D and Dolby's ability to successfully penetrate this market; Dolby's ability to expand its business generally, and to expand its business beyond sound technologies to other technologies related to digital entertainment delivery, by acquiring and successfully integrating businesses or technologies; and other risks detailed in Dolby's Securities and Exchange Commission 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 the global leader in technologies that are essential elements in the best entertainment experiences. Founded in 1965 and best known for high-quality audio and surround sound, Dolby creates innovations that enrich entertainment at the movies, at home, or on the go. For more information about Dolby Laboratories or Dolby technologies, please visit www.dolby.com.

Dolby and the double-D symbol are registered trademarks of Dolby Laboratories. All other trademarks remain the property of their respective owners. S12/25645 DLB-F

 

DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
 
  Fiscal Quarter Ended   Fiscal Year-to-Date Ended

April 1,
2011

  March 30,
2012
  April 1,
2011
  March 30,
2012
 
(unaudited)
(in thousands, except per share amounts)
 
Revenue:      
Licensing $ 214,627 $ 225,349 $ 402,803 $ 424,973
Products 26,347 27,228 72,374 53,628
Services 9,052     7,682     17,561     15,036  
Total revenue 250,026     260,259     492,738     493,637  
 
Cost of revenue:
Cost of licensing 5,771 3,303 9,732 6,631
Cost of products 20,031 17,635 42,229 31,523
Cost of services 2,655     2,654     5,635     5,848  
Total cost of revenue 28,457     23,592     57,596     44,002  
Gross margin 221,569     236,667     435,142     449,635  
Operating expenses:
Research and development 28,399 34,236 56,726 67,062
Sales and marketing 37,545 43,194 75,762 86,210
General and administrative 35,155 37,281 72,197 72,746
Restructuring charges, net     910     785     1,278  
Total operating expenses 101,099     115,621     205,470     227,296  
Operating income 120,470 121,046 229,672 222,339
Other income, net 2,024     1,469     3,888     3,380  
Income before provision for income taxes 122,494 122,515 233,560 225,719
Provision for income taxes (40,012 )   (34,198 )   (64,313 )   (64,036 )
Net income including controlling interest 82,482 88,317 169,247 161,683
Less: net (income) / loss attributable to controlling interest (421 )   (197 )   (799 )   (404 )
Net income attributable to Dolby Laboratories, Inc. $ 82,061     $ 88,120     $ 168,448     $ 161,279  
 
Basic earnings per share 0.73 0.81 1.50 1.48
Diluted earnings per share 0.72 0.81 1.48 1.48
 
Weighted-average shares outstanding (basic) 112,140 108,415 112,086 108,650
Weighted-average shares outstanding (diluted) 113,346 109,170 113,535 109,242
 

 

DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

 
   

September 30,
2011

 

March 30,
2012

 

(unaudited)
(in thousands)

 
ASSETS
Current assets:
Cash and cash equivalents $ 551,512   $ 747,988
Short-term investments 391,281 350,735
Accounts receivable, net 61,815 57,762
Inventories 26,244 16,562
Deferred taxes 90,869 94,859
Prepaid expenses and other current assets   36,877     26,099
Total current assets 1,158,598 1,294,005
Long-term investments 272,797 209,804
Property, plant and equipment, net 117,107 135,517
Intangible assets, net 51,573 44,816
Goodwill 263,260 264,750
Deferred taxes 14,779 20,337
Other non-current assets   6,273     16,171
Total assets $ 1,884,387   $ 1,985,400
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 127,922 $ 113,689
Income taxes payable 4,762 9,391
Deferred revenue   26,701     26,718
Total current liabilities 159,385 149,798
Long-term deferred revenue 15,526 16,332
Deferred taxes 671 658
Other non-current liabilities   23,455     31,445
Total liabilities 199,037 198,233
Stockholders' equity:
Class A common stock 52 50
Class B common stock 58 57
Additional paid-in capital 210,681 149,082
Retained earnings 1,445,189 1,606,468
Accumulated other comprehensive income   7,533     9,130
Total stockholders' equity - Dolby Laboratories, Inc. 1,663,513 1,764,787
Controlling interest   21,837     22,380
Total stockholders' equity   1,685,350     1,787,167
Total liabilities and stockholders' equity $ 1,884,387   $ 1,985,400

 

 

DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
 

Fiscal Quarter Ended

  Fiscal Year-to-Date Ended
April 1, 2011   March 30, 2012   April 1, 2011   March 30, 2012
 

(unaudited)
(in thousands)

Operating activities:      
Net income including controlling interest $ 82,482 $ 88,317 $ 169,247 $ 161,683
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 11,506 10,174 21,045 20,103
Stock-based compensation expense 10,740 12,063 22,000 23,502
Amortization of premium on investments 4,570 4,386 7,805 9,306
Excess tax benefit from exercise of stock options (1,919 ) (368 ) (11,305 ) (425 )
Provision for doubtful accounts 523 184 856 132
Deferred taxes 6,168 (2,387 ) (472 ) (10,030 )
Other non-cash items affecting net income 633 1,010 157 2,237
Changes in operating assets and liabilities:
Accounts receivable (5,429 ) (3,428 ) (20,218 ) 4,103
Inventories (3,574 ) 8,147 (3,038 ) 876
Prepaid expenses and other assets (2,265 ) (2,229 ) (3,715 ) (1,128 )
Accounts payable and other liabilities 14,564 11,834 (13,379 ) (10,634 )
Income taxes, net (19,890 ) (10,323 ) 620 14,108
Deferred revenues   2,831       1,497       1,988       836  
Net cash provided by operating activities   100,940       118,877       171,591       214,669  
Investing activities:
Purchases of available-for-sale securities (58,347 ) (67,523 ) (368,007 ) (122,249 )
Proceeds from sales of available-for-sale securities 17,551 53,966 115,462 105,454
Proceeds from maturities of available-for-sale securities 61,000 63,870 122,914 111,515
Purchases of property, plant and equipment (9,906 ) (17,884 ) (19,551 ) (30,450 )
Acquisitions, net of cash acquired - - (3,350 ) (575 )
Proceeds from sales of property, plant and equipment and assets held for sale   2,176       380       2,797       715  
Net cash provided by/(used in) investing activities   12,474       32,809       (149,735 )     64,410  
Financing activities:
Proceeds from issuance of common stock, net of shares withheld for taxes (534 ) 1,741 15,215 3,524
Repurchase of common stock (29,158 ) (60,081 ) (75,124 ) (86,149 )
Excess tax benefit from exercise of stock options   1,919       368       11,305       425  
Net cash used in financing activities   (27,773 )     (57,972 )     (48,604 )     (82,200 )
Effect of foreign exchange rate changes on cash and cash equivalents   989       (140 )     1,155       (403 )
Net increase/(decrease) in cash and cash equivalents 86,630 93,574 (25,593 ) 196,476
Cash and cash equivalents at beginning of period   433,638       654,414       545,861       551,512  
Cash and cash equivalents at end of period $ 520,268     $ 747,988     $ 520,268     $ 747,988  
 

 

GAAP to Non-GAAP Reconciliations
(In millions, except per share data)

 
The following tables show the Company's second quarter of fiscal years 2011 and 2012 GAAP financial measures reconciled to non-GAAP financial measures included in this release:
 
Net income:   Fiscal Quarter Ended

April 1,
2011

 

March 30,
2012

 
GAAP net income $ 82.1 $ 88.1
Stock-based compensation 10.7 12.1
Amortization of acquired intangibles 4.4 2.7
Restructuring charges, net - 0.9
Income tax adjustments   (5.0 )     (4.6 )
Non-GAAP net income $ 92.2     $ 99.2  
 
Diluted earnings per share: Fiscal Quarter Ended

April 1,
2011

 

March 30,
2012

 
GAAP diluted earnings per share $ 0.72 $ 0.81
Stock-based compensation 0.09 0.11
Amortization of acquired intangibles 0.04 0.02
Restructuring charges, net - 0.01
Income tax adjustments   (0.04 )     (0.04 )
Non-GAAP diluted earnings per share $ 0.81     $ 0.91  
 
Shares used in computing diluted earnings per share (in 000s) 113 109
 
The following tables show the Company's fiscal year 2012 GAAP financial targets reconciled to non-GAAP financial targets included in this release (numbers are approximate):
 
Gross margin:
Fiscal Year 2012
GAAP gross margin 90 %
Stock-based compensation - %
Amortization of acquired intangibles   1 %
Non-GAAP gross margin   91 %
 
Product gross margin: Fiscal Year 2012
Low   High
GAAP products gross margin 35 % 37 %
Stock-based compensation 1 % 1 %
Amortization of acquired intangibles   2 %     2 %
Non-GAAP products gross margin   38 %     40 %
     
Operating expenses: Fiscal Year 2012
Low   High
GAAP operating expenses $ 465 $ 475
Stock-based compensation (50 ) (50 )
Amortization of acquired intangibles (3 ) (3 )
Restructuring charges, net   (2 )     (2 )
Non-GAAP operating expenses $ 410     $ 420  
 
Diluted earnings per share: Fiscal Year 2012
Low   High
GAAP diluted earnings per share $ 2.38 $ 2.62
Stock-based compensation 0.47 0.47
Amortization of acquired intangibles 0.09 0.09
Restructuring charges, net 0.02 0.02
Income tax adjustments   (0.16 )     (0.16 )
Non-GAAP diluted earnings per share $ 2.80     $ 3.04  
 
Shares used in computing diluted earnings per share 108 108

Dolby Laboratories
Alex Hughes, 415-645-4572 (Investors)
investor@dolby.com
or
Sean Durkin, 415-645-5176 (Media)
news@dolby.com

Source: Dolby Laboratories, Inc.

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