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Dolby Laboratories Reports Third Quarter Fiscal 2017 Financial Results
Third quarter GAAP net income was
"We had solid financial results this quarter," said
Dividend
Today, Dolby announced a cash dividend of
Financial Outlook
Q4 Fiscal 2017
Dolby is providing the following estimates for its fourth quarter (Q4) of fiscal 2017:
-
Total revenue will range from
$230 million to$250 million - Gross margin percentages will be between 87 percent and 88 percent on a GAAP basis, and between 88 percent and 89 percent on a non-GAAP basis
-
Operating expenses will range from
$176 million to$180 million on a GAAP basis, and from$158 million to$162 million on a non-GAAP basis -
Diluted earnings per share will be between
$0.22 and$0.28 on a GAAP basis, and between$0.36 and$0.42 on a non-GAAP basis - Effective tax rate will be between 24 percent and 25 percent on both a GAAP and non-GAAP basis
Fiscal Year 2017
Dolby is providing the following estimates for its fiscal 2017:
-
The midpoint of total revenue guidance remains at approximately
$1.08 billion -
Operating expenses will be approximately
$706 million on a GAAP basis and approximately$635 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 2017 financial results for
A replay of the call will be available from
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.
Expense associated with dividend equivalents paid on restricted stock units: In connection with a special dividend declared in the first quarter of fiscal 2013, we modified restricted stock units (RSUs) that were unvested at that time to preserve their pre-cash dividend economic value. The special dividend was a discrete and infrequent event that is not representative of our normal operating activities; therefore, we exclude the compensation cost related to the dividend equivalents to provide a more accurate view of our underlying operating results.
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.
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
Forward-Looking Statements
Certain statements in this press release, including, but not limited to,
statements relating to Dolby's expected financial results for Q4 fiscal
2017 and fiscal 2017, 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, PC, Consumer
Electronics, Mobile, 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; 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
About
Dolby, Dolby Atmos, and the double-D symbol are registered trademarks of
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INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
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(in thousands, except per share amounts) |
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Fiscal Quarter Ended |
Fiscal Year-To-Date Ended |
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2017 |
2016 |
2017 |
2016 |
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Revenue: |
(unaudited) |
(unaudited) |
(unaudited) |
(unaudited) |
||||||||||||||||||
Licensing |
$ | 278,106 | $ | 253,026 | $ | 752,422 | $ | 713,491 | ||||||||||||||
Products | 22,569 | 20,638 | 71,493 | 65,510 | ||||||||||||||||||
Services | 4,990 | 3,923 | 15,491 | 13,740 | ||||||||||||||||||
Total revenue | 305,665 | 277,587 | 839,406 | 792,741 | ||||||||||||||||||
Cost of revenue: | ||||||||||||||||||||||
Cost of licensing | 12,711 | 6,620 | 29,628 | 19,851 | ||||||||||||||||||
Cost of products | 14,910 | 14,098 | 46,618 | 47,114 | ||||||||||||||||||
Cost of services | 4,504 | 3,903 | 12,823 | 11,795 | ||||||||||||||||||
Total cost of revenue | 32,125 | 24,621 | 89,069 | 78,760 | ||||||||||||||||||
Gross margin | 273,540 | 252,966 | 750,337 | 713,981 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||
Research and development | 59,631 | 54,977 | 175,490 | 160,393 | ||||||||||||||||||
Sales and marketing | 73,480 | 74,234 | 220,275 | 220,503 | ||||||||||||||||||
General and administrative | 44,497 | 42,570 | 129,290 | 129,130 | ||||||||||||||||||
Restructuring charges/(credits) | — | (10 | ) | — | 1,245 | |||||||||||||||||
Total operating expenses | 177,608 | 171,771 | 525,055 | 511,271 | ||||||||||||||||||
Operating income | 95,932 | 81,195 | 225,282 | 202,710 | ||||||||||||||||||
Other income/expense: | ||||||||||||||||||||||
Interest income | 2,511 | 1,464 | 6,511 | 4,011 | ||||||||||||||||||
Interest expense | (31 | ) | (26 | ) | (94 | ) | (88 | ) | ||||||||||||||
Other income/(expense), net | (2,109 | ) | (849 | ) | (1,546 | ) | (1,542 | ) | ||||||||||||||
Total other income | 371 | 589 | 4,871 | 2,381 | ||||||||||||||||||
Income before income taxes | 96,303 | 81,784 | 230,153 | 205,091 | ||||||||||||||||||
Provision for income taxes | (20,117 | ) | (18,017 | ) | (49,666 | ) | (42,768 | ) | ||||||||||||||
Net income including controlling interest | 76,186 | 63,767 | 180,487 | 162,323 | ||||||||||||||||||
Less: net (income) attributable to controlling interest | (143 | ) | (139 | ) | (480 | ) | (396 | ) | ||||||||||||||
Net income attributable to |
$ | 76,043 | $ | 63,628 | $ | 180,007 | $ | 161,927 | ||||||||||||||
Net income per share: | ||||||||||||||||||||||
Basic | $ | 0.75 | $ | 0.63 | $ | 1.77 | $ | 1.61 | ||||||||||||||
Diluted | $ | 0.73 | $ | 0.62 | $ | 1.73 | $ | 1.59 | ||||||||||||||
Weighted-average shares outstanding: | ||||||||||||||||||||||
Basic | 101,905 | 100,533 | 101,725 | 100,578 | ||||||||||||||||||
Diluted | 104,222 | 102,677 | 103,986 | 101,979 | ||||||||||||||||||
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INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS |
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(in thousands) |
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2017 | 2016 | ||||||||||
ASSETS |
(unaudited) |
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Current assets: | |||||||||||
Cash and cash equivalents | $ | 592,616 | $ | 516,112 | |||||||
Restricted cash | 6,187 | 3,645 | |||||||||
Short-term investments | 247,665 | 121,629 | |||||||||
Accounts receivable, net | 82,102 | 75,688 | |||||||||
Inventories | 19,950 | 16,354 | |||||||||
Prepaid expenses and other current assets | 29,790 | 26,302 | |||||||||
Total current assets | 978,310 | 759,730 | |||||||||
Long-term investments | 303,320 | 393,904 | |||||||||
Property, plant, and equipment, net |
476,353 | 443,656 | |||||||||
Intangible assets, net | 196,494 | 215,342 | |||||||||
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309,911 | 309,616 | |||||||||
Deferred taxes | 178,466 | 166,790 | |||||||||
Other non-current assets | 30,252 | 21,068 | |||||||||
Total assets |
$ |
2,473,106 |
$ |
2,310,106 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: | |||||||||||
Accounts payable | $ | 12,728 | $ | 17,544 | |||||||
Accrued liabilities | 176,985 | 169,055 | |||||||||
Income taxes payable | 852 | 2,304 | |||||||||
Deferred revenue | 22,835 | 24,180 | |||||||||
Total current liabilities | 213,400 | 213,083 | |||||||||
Long-term deferred revenue | 36,123 | 35,366 | |||||||||
Other non-current liabilities | 101,204 | 82,922 | |||||||||
Total liabilities | 350,727 | 331,371 | |||||||||
Stockholders' equity: | |||||||||||
Class A common stock | 57 | 57 | |||||||||
Class B common stock | 44 | 44 | |||||||||
Additional paid-in capital | 51,426 | 42,032 | |||||||||
Retained earnings | 2,075,559 | 1,938,320 | |||||||||
Accumulated other comprehensive (loss) | (11,518 | ) | (10,197 | ) | |||||||
Total stockholders' equity - |
2,115,568 | 1,970,256 | |||||||||
Controlling interest | 6,811 | 8,479 | |||||||||
Total stockholders' equity | 2,122,379 | 1,978,735 | |||||||||
Total liabilities and stockholders' equity | $ |
2,473,106 |
$ |
2,310,106 |
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INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
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(in thousands) |
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Fiscal Year-To-Date Ended | |||||||||||
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2017 | 2016 | ||||||||||
Operating activities: |
(unaudited) |
(unaudited) | |||||||||
Net income including controlling interest | $ | 180,487 | $ | 162,323 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 64,543 | 63,829 | |||||||||
Stock-based compensation | 48,940 | 51,473 | |||||||||
Amortization of premium on investments | 2,077 | 3,288 | |||||||||
Excess tax benefit from exercise of stock options | (4,881 | ) | (1,313 | ) | |||||||
Provision for doubtful accounts | 1,167 | 1,133 | |||||||||
Deferred income taxes | (11,446 | ) | (5,838 | ) | |||||||
Other non-cash items affecting net income | 2,547 | 306 | |||||||||
Changes in operating assets and liabilities: | |||||||||||
Accounts receivable | (7,576 | ) | 8,798 | ||||||||
Inventories | (6,840 | ) | (6,024 | ) | |||||||
Prepaid expenses and other assets | (10,657 | ) | (11,075 | ) | |||||||
Accounts payable and other liabilities | 14,877 | 10,808 | |||||||||
Income taxes, net | 19,033 | (1,612 | ) | ||||||||
Deferred revenue | (560 | ) | 8,052 | ||||||||
Other non-current liabilities | 773 | (193 | ) | ||||||||
Net cash provided by operating activities | 292,484 | 283,955 | |||||||||
Investing activities: | |||||||||||
Purchase of investments | (204,447 | ) | (247,680 | ) | |||||||
Proceeds from sales of investment securities | 36,579 | 242,141 | |||||||||
Proceeds from maturities of investment securities | 126,199 | 77,668 | |||||||||
Purchases of PP&E | (81,668 | ) | (77,079 | ) | |||||||
Purchase of intangible assets | (5,250 | ) | (118,770 | ) | |||||||
Change in restricted cash | (2,542 | ) | (2,737 | ) | |||||||
Net cash used in investing activities | (131,129 | ) | (126,457 | ) | |||||||
Financing activities: | |||||||||||
Proceeds from issuance of common stock | 47,765 | 44,067 | |||||||||
Repurchase of common stock | (74,994 | ) | (84,854 | ) | |||||||
Payment of cash dividend | (42,768 | ) | (36,256 | ) | |||||||
Distribution to controlling interest | (2,094 | ) | (214 | ) | |||||||
Excess tax benefit from exercise of stock options | 4,881 | 1,313 | |||||||||
Shares repurchased for tax withholdings on vesting of restricted stock | (16,875 | ) | (12,153 | ) | |||||||
Net cash used in financing activities | (84,085 | ) | (88,097 | ) | |||||||
Effect of foreign exchange rate changes on cash and cash equivalents | (766 | ) | (1,336 | ) | |||||||
Net increase in cash and cash equivalents | 76,504 | 68,065 | |||||||||
Cash and cash equivalents at beginning of period | 516,112 | 531,926 | |||||||||
Cash and cash equivalents at end of period | $ |
592,616 |
$ |
599,991 |
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GAAP to Non-GAAP Reconciliations |
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(in millions, except per share data) |
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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 2017 and 2016: |
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Fiscal Quarter Ended |
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Net income: |
2017 |
2016 |
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GAAP net income | $ | 76.0 | $ | 63.6 | |||||||||||||
Stock-based compensation |
15.7 | 16.0 | |||||||||||||||
RSU dividend equivalent | — | 0.2 | |||||||||||||||
Amortization of acquisition-related intangibles | 2.6 | 3.8 | |||||||||||||||
Income tax adjustments | (5.1 | ) | (5.3 | ) | |||||||||||||
Non-GAAP net income | $ | 89.2 | $ | 78.3 | |||||||||||||
Fiscal Quarter Ended |
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Diluted earnings per share: |
2017 |
2016 | |||||||||||||||
GAAP diluted earnings per share | $ | 0.73 | $ | 0.62 | |||||||||||||
Stock-based compensation | 0.16 | 0.16 | |||||||||||||||
RSU dividend equivalent | — | — | |||||||||||||||
Amortization of acquisition-related intangibles | 0.02 | 0.04 | |||||||||||||||
Income tax adjustments | (0.05 | ) | (0.06 | ) | |||||||||||||
Non-GAAP diluted earnings per share | $ | 0.86 | $ | 0.76 | |||||||||||||
Shares used in computing diluted earnings per share | 104 | 103 | |||||||||||||||
The following tables present a reconciliation between GAAP and non-GAAP versions of the estimated financial amounts for the fourth quarter of fiscal 2017 and fiscal year 2017 included in this release: |
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Gross margin: | Q4 2017 | ||||||||||||||||
GAAP gross margin (low - high end of range) | 87% - 88% | ||||||||||||||||
Stock-based compensation | 0.2% | ||||||||||||||||
Amortization of acquisition-related intangibles | 0.8% | ||||||||||||||||
Non-GAAP gross margin (low - high end of range) | 88% - 89% | ||||||||||||||||
Operating expenses: |
Q4 2017 |
Fiscal 2017 |
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GAAP operating expenses (low - high end of range) |
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$ | 706 | ||||||||||||||
Stock-based compensation | (17.0 | ) | (66.0 | ) | |||||||||||||
Amortization of acquisition-related intangibles | (1.0 | ) | (5.0 | ) | |||||||||||||
Non-GAAP operating expenses (low - high end of range) |
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$ | 635 | ||||||||||||||
Q4 2017 | |||||||||||||||||
Diluted earnings per share: |
Low |
High | |||||||||||||||
GAAP diluted earnings per share | $ | 0.22 | $ | 0.28 | |||||||||||||
Stock-based compensation | 0.16 | 0.16 | |||||||||||||||
Amortization of acquisition-related intangibles | 0.03 | 0.03 | |||||||||||||||
Income tax adjustments | (0.05 | ) | (0.05 | ) | |||||||||||||
Non-GAAP diluted earnings per share | $ | 0.36 | $ | 0.42 | |||||||||||||
Shares used in computing diluted earnings per share | 104 | 104 | |||||||||||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20170725006396/en/
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investor@dolby.com
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