Dolby Investor Relations

Dolby Laboratories Reports Second Quarter Fiscal 2019 Financial Results

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May 1, 2019

Dolby Laboratories Reports Second Quarter Fiscal 2019 Financial Results

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 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 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'sSEC 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

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Source: Dolby Laboratories