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Dolby Laboratories Reports Third Quarter Fiscal 2015 Financial Results

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Jul 22, 2015

Dolby Laboratories Reports Third Quarter Fiscal 2015 Financial Results

SAN FRANCISCO--(BUSINESS WIRE)-- Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for the third quarter (Q3) of fiscal year 2015. For the third quarter, Dolby reported total revenue of $231.7 million, compared to $223.4 million for the third quarter of fiscal year 2014.

Third quarter GAAP net income was $35.5 million, or $0.34 per diluted share, compared to $39.8 million, or $0.38 per diluted share, for the third quarter of fiscal 2014. On a non-GAAP basis, third quarter net income was $51.4 million, or $0.49 per diluted share, compared to $54.3 million, or $0.52 per diluted share, for the third quarter of fiscal 2014. Dolby's non-GAAP measures are described and reconciled to the corresponding GAAP measures at the end of this release.

"Despite signs of near-term weakness in consumer markets, our core business remains strong and our growth initiatives continue to advance," said Kevin Yeaman, President and CEO, Dolby Laboratories. "The first five Dolby Cinema locations in the US opened this quarter and have been met with spectacular audience and industry reactions."

Dividend

Dolby today announced a cash dividend of $0.10 per share of Class A and Class B common stock, payable on August 11, 2015, to stockholders of record as of the close of business on August 3, 2015.

Financial Outlook

Q4 2015

Dolby estimates that total revenue for the fourth quarter (Q4) of 2015 will range from $230 million to $240 million. Gross margin percentages are projected to range between approximately 89 percent and 90 percent on a GAAP basis and between 90 percent and 91 percent on a non-GAAP basis.

Dolby anticipates that operating expenses will be between $167 million and $170 million on a GAAP basis and between $148 million and $151 million on a non-GAAP basis.

Dolby estimates that diluted earnings per share will be between $0.27 and $0.33 on a GAAP basis and between $0.43 and $0.49 on a non-GAAP basis.

Dolby estimates that its fiscal Q4 2015 effective tax rate will be approximately 26 percent on both a GAAP and non-GAAP basis.

Fiscal Year 2015

Dolby anticipates that total revenue will range from $970 million to $980 million.

Dolby anticipates that operating expenses will be between $658 million and $661 million on a GAAP basis and between $583 million and $586 million 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 2015 financial results for Dolby Laboratories at 2:00 p.m. PT (5:00 p.m. ET) on Wednesday, July 22, 2015. Access to the teleconference will be available over the Internet from http://investor.dolby.com/events.cfm or by dialing 1-888-206-4836. International callers can access the conference call at 1-913-312-0413.

A replay of the call will be available from 5:00 p.m. PT on Wednesday, July 22, 2015, until 9:00 p.m. PT on Wednesday, July 29, 2015, by dialing 1-877-870-5176 (international callers can access the replay by dialing 1-858-384-5517) and entering the confirmation code 9706853. 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. These measures are adjusted to exclude amounts related to stock-based compensation, expense associated with dividend equivalents paid on restricted stock units, the amortization of intangibles from business combinations, restructuring charges, and the related tax impact of these items. Dolby presents 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 both GAAP and non-GAAP measures 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 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 Dolby's investor relations website at 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 2015 and fiscal 2015, our ability to advance our long-term objectives, and future quarterly 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 personal computer, DVD, and Blu-ray Disc™, broadcast, consumer electronics, gaming, mobile, and automobile 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® 8 and Windows® 10 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; timing of revenue recognition under licensing agreements and other contractual arrangements; 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; 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; 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) creates audio, video, and voice technologies that transform entertainment and communications in mobile devices, at the cinema, at home, and at work. For 50 years, sight and sound experiences have become more vibrant, clear, and powerful in Dolby. For more information, please visit www.dolby.com.

Dolby and the double-D symbol are registered trademarks of Dolby Laboratories. Dolby Cinema is a trademark of Dolby Laboratories. Blu-ray Disc is a trademark of Blu-ray Disc Association. Windows is a registered trademark of Microsoft Corporation. S15/29000 DLB-F

           

DOLBY LABORATORIES, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

 
Fiscal Quarter Ended Fiscal Year-To-Date Ended

June 26,
2015

   

June 27,
2014

June 26,
2015

   

June 27,
2014

Revenue:        
Licensing $ 204,855 $ 205,625 $ 664,786 $ 669,901
Products 22,596 12,971 58,844 45,638
Services 4,251       4,754   14,260       17,680  
Total revenue 231,702       223,350   737,890       733,219  
 
Cost of revenue:
Cost of licensing 1,347 4,389 8,615 12,132
Cost of products 20,027 10,860 50,848 34,941
Cost of services 3,506       3,620   9,976       10,683  
Total cost of revenue 24,880       18,869   69,439       57,756  
               
Gross margin 206,822       204,481   668,451       675,463  
 
Operating expenses:
Research and development 45,508 46,786 150,703 136,047
Sales and marketing 70,782 63,602 204,740 188,809
General and administrative 45,587 44,205 135,956 132,570
Restructuring charges/(credits)       (688 ) (39 )     2,613  
Total operating expenses 161,877       153,905   491,360       460,039  
               
Operating income 44,945       50,576   177,091       215,424  
 
Other income/expense:
Interest income 1,453 959 3,444 2,533
Interest expense (69 ) (251 ) (115 ) (456 )
Other income/(expense), net 1,049       530   1,159       (2,064 )
Total other income/(expense) 2,433       1,238   4,488       13  
               
Income before income taxes 47,378 51,814 181,579 215,437
Provision for income taxes (11,522 )     (11,251 ) (45,254 )     (53,079 )
Net income including controlling interest 35,856 40,563 136,325 162,358
Less: net (income) attributable to controlling interest (350 )     (784 ) (1,488 )     (2,196 )
Net income attributable to Dolby Laboratories, Inc. $ 35,506       $ 39,779   $ 134,837       $ 160,162  
 
Net Income Per Share:
Basic $ 0.35 $ 0.39 $ 1.32 $ 1.57
Diluted $ 0.34 $ 0.38 $ 1.29 $ 1.55
Weighted-Average Shares Outstanding:
Basic 102,670 102,350 102,494 102,131
Diluted 104,105 103,942 104,127 103,605
 
Cash dividend declared per common share $ 0.10 $ $ 0.30 $
 

         

DOLBY LABORATORIES, INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

 

June 26,
2015

   

September 26,
2014

ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 470,868 $ 568,472
Restricted cash 1,919 2,142
Short-term investments 165,833 231,208
Accounts receivable, net 103,921 86,168
Inventories 20,070 8,536
Deferred taxes 87,367 86,445
Prepaid expenses and other current assets 45,551       22,880
Total current assets 895,529 1,005,851
Long-term investments 373,498 296,335
Property, plant and equipment, net 386,448 289,755
Intangible assets, net 117,726 63,700
Goodwill 312,454 277,574
Deferred taxes 56,217 41,746
Other non-current assets 9,763       9,051
Total assets $ 2,151,635       $ 1,984,012
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,566 $ 15,898
Accrued liabilities 163,776 158,376
Income taxes payable 2,600
Deferred revenue 18,016       12,496
Total current liabilities 209,358 189,370
Long-term deferred revenue 29,661 19,279
Other non-current liabilities 72,633       43,715
Total liabilities 311,652 252,364
 
Stockholders' equity:
Class A common stock 53 51
Class B common stock 51 52
Additional paid-in capital 65,586 46,415
Retained earnings 1,764,578 1,660,485
Accumulated other comprehensive income/(loss) (7,391 )     3,014
Total stockholders' equity - Dolby Laboratories, Inc. 1,822,877 1,710,017
Controlling interest 17,106       21,631
Total stockholders' equity 1,839,983       1,731,648
Total liabilities and stockholders' equity $ 2,151,635       $ 1,984,012
 

           

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

 
Fiscal Quarter Ended       Fiscal Year-To-Date Ended
June 26,
2015
    June 27,
2014
      June 26,
2015
    June 27,
2014
Operating activities:        
Net income including controlling interest $ 35,856 $ 40,563 $ 136,325 $ 162,358
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 17,189 13,877 50,767 38,991
Stock-based compensation 16,313 15,966 50,822 48,773
Amortization of premium on investments 2,413 2,462 7,224 7,056
Excess tax benefit from exercise of stock options (437 ) (295 ) (2,532 ) (1,857 )
Provision for doubtful accounts 457 118 (30 ) 625
Deferred income taxes (7,407 ) (3,634 ) (15,088 ) (9,936 )
Other non-cash items affecting net income 676 (488 ) 1,928 2,455
Changes in operating assets and liabilities:
Accounts receivable (5,860 ) 13,767 (9,317 ) 1,581
Inventories 3,841 1,014 5,238 2,654
Prepaid expenses and other assets (134 ) (662 ) (6,179 ) (1,801 )
Accounts payable and other liabilities (22,132 ) 11,696 (18,909 ) 17,033
Income taxes, net 6,226 (1,556 ) 18,290 11,830
Deferred revenue 1,672 (180 ) 7,158 (7,956 )
Other non-current liabilities (496 )     (100 )       420       162  
Net cash provided by operating activities 48,177       92,548         226,117       271,968  
 
Investing activities:
Purchase of investments (162,483 ) (124,520 ) (357,096 ) (303,350 )
Proceeds from sales of investment securities 100,562 76,873 220,636 140,297
Proceeds from maturities of investment securities 37,660 24,200 117,545 105,602
Purchases of property, plant and equipment (41,296 ) (19,250 ) (119,787 ) (37,122 )
Payments for business acquisitions, net of cash acquired (93,516 )
Purchase of intangible assets (16,300 ) (7,550 ) (22,716 ) (19,950 )
Proceeds from sale of property, plant and equipment and assets held for sale 15 3,313 18 3,355
Change in restricted cash 237       10         223       (159 )
Net cash used in investing activities (81,605 )     (46,924 )       (254,693 )     (111,327 )
 
Financing activities:
Proceeds from issuance of common stock 15,419 6,683 28,057 24,147
Repurchase of common stock (15,592 ) (29,298 ) (47,956 ) (40,958 )
Payment of cash dividend (10,274 ) (30,744 )
Distribution to controlling interest (5,628 )
Excess tax benefit from the exercise of stock options 437 295 2,532 1,857
Shares repurchased for tax withholdings on vesting of restricted stock (1,109 )     (863 )       (12,918 )     (9,221 )
Net cash used in financing activities (11,119 )     (23,183 )       (66,657 )     (24,175 )
 
Effect of foreign exchange rate changes on cash and cash equivalents 1,421       (1,243 )       (2,371 )     (766 )
Net increase/(decrease) in cash and cash equivalents (43,126 ) 21,198 (97,604 ) 135,700
Cash and cash equivalents at beginning of period 513,994       568,899         568,472       454,397  
Cash and cash equivalents at end of period $ 470,868       $ 590,097         $ 470,868       $ 590,097  
 

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

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 2015 and 2014:

 
Net income: Fiscal Quarter Ended
June 26,
2015
    June 27,
2014
GAAP net income $ 35.5 $ 39.8
Stock-based compensation 16.3 16.0
RSU dividend equivalent 0.6 0.7
Amortization of acquired intangibles 4.1 2.9
Restructuring charges, net (0.7 )
Income tax adjustments (5.1 )     (4.4 )
Non-GAAP net income $ 51.4       $ 54.3  
 
Diluted earnings per share: Fiscal Quarter Ended
June 26,
2015
    June 27,
2014
GAAP diluted earnings per share $ 0.34 $ 0.38
Stock-based compensation 0.16 0.15
RSU dividend equivalent 0.01 0.01
Amortization of acquired intangibles 0.04 0.03
Restructuring charges, net (0.01 )
Income tax adjustments (0.06 )     (0.04 )
Non-GAAP diluted earnings per share $ 0.49       $ 0.52  
 
Shares used in computing diluted earnings per share (in millions) 104 104
 
The following tables present a reconciliation between GAAP and non-GAAP versions of the estimated financial amounts for the fourth quarter of fiscal 2015 and fiscal year 2015 included in this release:
 
Gross margin: Q4 2015
GAAP gross margin (low - high end of range)

89% - 90

%

Stock-based compensation 0.1 %
Amortization of acquired intangibles 0.9 %
Non-GAAP gross margin (low - high end of range)

90 % - 91

%

 
Operating expenses: Q4 2015     Fiscal 2015
GAAP operating expenses (low - high end of range) $167 - $170 $658 - $661
Stock-based compensation (16 ) (66 )
RSU dividend equivalent (1 ) (2 )
Amortization of acquired intangibles (2 )     (7 )
Non-GAAP operating expenses (low - high end of range) $148 - $151       $583 - $586
 
Diluted earnings per share: Q4 2015
Low     High
GAAP diluted earnings per share $ 0.27 $ 0.33
Stock-based compensation 0.16 0.16
RSU dividend equivalent 0.01 0.01
Amortization of acquired intangibles 0.04 0.04
Income tax adjustments (0.05 )     (0.05 )
Non-GAAP diluted earnings per share $ 0.43       $ 0.49  
 
Shares used in computing diluted earnings per share (in millions) 104 104
 

Dolby Laboratories, Inc.
Investor Contact:
Elena Carr, 415-645-5583
investor@dolby.com
Media Contact:
Sean Durkin, 415-645-5176
news@dolby.com

Source: Dolby Laboratories, Inc.

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