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August 2, 2012

Dolby Laboratories Reports Third Quarter Fiscal 2012 Results

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

For the third quarter, Dolby reported total revenue of $207.9 million, compared to $219.0 million for the third quarter of fiscal 2011.

Third quarter GAAP net income was $51.5 million, or $0.48 per diluted share, compared to $61.7 million, or $0.55 per diluted share, for the third quarter of fiscal 2011. On a non-GAAP basis, third quarter net income was $60.8 million, or $0.57 per diluted share, compared to $72.8 million, or $0.65 per diluted share, for the third 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.

"Though we are updating our outlook to reflect a challenging global economy, we continue to execute on our long-term growth initiatives," said Kevin Yeaman, President and Chief Executive Officer, Dolby Laboratories. "In the third quarter, we continued to experience growth from our presence in the smartphone market, and we showcased our next-generation audio technology, Dolby Atmos, to industry-wide acclaim with the highly anticipated release of Disney Pixar's Brave."

Financial Outlook

For fiscal 2012, Dolby is now anticipating total revenue to range from $900 million to $920 million.

GAAP

For fiscal 2012, gross margin is estimated to be approximately 90 percent, operating expenses are expected to range from $467 million to $473 million, and other income is expected to be approximately $7 million. The Company's effective tax rate is estimated to be approximately 28 percent for fiscal 2012. Although stock-based compensation expense may vary based on factors such as stock price or volatility, total stock-based compensation expense for fiscal 2012 is anticipated to be approximately $48 million. Charges related to the amortization of acquired intangibles are expected to be approximately $11 million for the fiscal year, and restructuring charges are expected to range from approximately $1 million to $2 million in fiscal 2012.

Non-GAAP

For fiscal 2012, gross margin is estimated to be approximately 91 percent, operating expenses are expected to range from $415 million to $420 million, and other income is expected to be approximately $7 million. The Company's effective tax rate is estimated to be approximately 28 percent for fiscal 2012. 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. 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 expect diluted shares outstanding of approximately 108 million. This outlook leads to a fiscal 2012 diluted earnings per share anticipated range of $2.35 to $2.43 on a GAAP basis and $2.75 to $2.83 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 Q3 fiscal 2012 financial results at 2:00 p.m. PT (5:00 p.m. ET) on Thursday, August 2, 2012.

Access to the teleconference will be available over the Internet from http://investor.dolby.com/medialist.cfm. To access the conference by phone, callers can dial 1-888-471-3841 from within the United States or 1-719-325-2345 from outside the country.

A replay of the call will be available from 5:00 p.m. PT on Thursday, August 2, 2012, until 9:00 p.m. PT on Thursday, August 9, 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 2367324. 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, net income, 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 its long-term growth initiatives and growth from its presence in the smartphone market, as well as anticipated performance of newly released technologies 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. Dolby Atmos is a trademark of Dolby Laboratories. Blu-ray Disc is a trademark of the Blu-ray Disc Association. Windows is a registered trademark of Microsoft Corporation. S12/25954 DLB-F

DOLBY LABORATORIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

(unaudited)

 
  Fiscal Quarter Ended   Fiscal Year-to-Date Ended
July 1,
2011
  June 29,
2012
  July 1,
2011
  June 29,
2012
Revenue:      
Licensing $ 181,790 $ 178,436 $ 584,593 $ 603,409
Products 28,395 22,132 100,769 75,760
Services 8,814     7,304     26,375     22,340  
Total revenue 218,999     207,872     711,737     701,509  
 
Cost of revenue:
Cost of licensing 4,095 2,892 13,827 9,523
Cost of products 20,320 14,529 62,549 46,052
Cost of services 3,518     3,610     9,153     9,458  
Total cost of revenue 27,933     21,031     85,529     65,033  
Gross margin 191,066     186,841     626,208     636,476  
Operating expenses:
Research and development 34,086 35,123 90,812 102,185
Sales and marketing 36,726 46,819 112,488 133,029
General and administrative 32,397 36,859 104,594 109,605
Restructuring charges, net (48 )   (85 )   737     1,193  
Total operating expenses 103,161     118,716     308,631     346,012  
Operating income 87,905 68,125 317,577 290,464
Other income, net 2,546 2,196 6,434 5,576
Income before income taxes 90,451 70,321 324,011 296,040
Provision for income taxes (28,404 )   (18,915 )   (92,717 )   (82,951 )
Net income including controlling interest 62,047 51,406 231,294 213,089
Less: net (income) / loss attributable to controlling interest (299 )   123     (1,098 )   (281 )
Net income attributable to Dolby Laboratories, Inc. $ 61,748     $ 51,529     $ 230,196     $ 212,808  
 
Basic earnings per share $ 0.55 $ 0.48 $ 2.06 $ 1.97
Diluted earnings per share $ 0.55 $ 0.48 $ 2.03 $ 1.96
 
Weighted-average shares outstanding (basic) 111,494 106,328 111,893 107,876
Weighted-average shares outstanding (diluted) 112,349 107,202 113,165 108,493
 

DOLBY LABORATORIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

       

September 30,
2011

 

June 29,
2012

ASSETS  
Current assets:
Cash and cash equivalents $ 551,512 $ 670,408
Short-term investments 391,281 322,399
Accounts receivable, net 61,815 46,034
Inventories 26,244 12,760
Deferred taxes 90,869 89,983
Prepaid expenses and other current assets   36,877     27,447
Total current assets 1,158,598 1,169,031
Long-term investments 272,797 295,950
Property, plant and equipment, net 117,107 140,127
Intangible assets, net 51,573 42,115
Goodwill 263,260 263,536
Deferred taxes 14,779 22,157
Other non-current assets 6,273     20,639
Total assets $ 1,884,387     $ 1,953,555
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 127,922 $ 124,192
Income taxes payable 4,762 3,147
Deferred revenue 26,701     25,099
Total current liabilities 159,385 152,438
Long-term deferred revenue 15,526 16,878
Deferred taxes 671 615
Other non-current liabilities 23,455     32,562
Total liabilities 199,037 202,493
Stockholders' equity:
Class A common stock 52 48
Class B common stock 58 57
Additional paid-in capital 210,681 64,969
Retained earnings 1,445,189 1,657,997
Accumulated other comprehensive income 7,533     5,897
Total stockholders' equity - Dolby Laboratories, Inc. 1,663,513 1,728,968
Controlling interest 21,837     22,094
Total stockholders' equity 1,685,350     1,751,062
Total liabilities and stockholders' equity $ 1,884,387     $ 1,953,555
 

DOLBY LABORATORIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 
 

Fiscal Quarter Ended

  Fiscal Year-to-Date Ended

July 1,
2011

 

June 29,
2012

 

July 1,
2011

 

June 29,
2012

Operating activities:      
Net income including controlling interest $ 62,047 $ 51,406 $ 231,294 $ 213,089
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12,930 11,086 33,975 31,189
Stock-based compensation expense 10,916 10,741 32,916 34,243
Amortization of premium on investments 4,570 3,974 12,375 13,280
Excess tax benefit from exercise of stock options (1,338 ) (516 ) (12,643 ) (941 )
Provision for doubtful accounts (28 ) 317 828 449
Deferred taxes 2,045 2,955 1,573 (7,075 )
Payment on litigation settlement (3,000 ) (3,000 )
Other non-cash items affecting net income 18 (2,199 ) 175 38
Changes in operating assets and liabilities:
Accounts receivable 34,283 11,256 14,065 15,359
Inventories 7,965 4,399 4,927 5,275
Prepaid expenses and other assets (3,003 ) 1,710 (6,718 ) 582
Accounts payable and other liabilities (14,016 ) 11,508 (27,394 ) 874
Income taxes, net 5,766 (7,251 ) 6,386 6,857
Deferred revenues 3,412     (1,057 )   5,400     (221 )
Net cash provided by operating activities 122,567     98,329     294,159     312,998  
Investing activities:
Purchases of available-for-sale securities (86,788 ) (309,645 ) (454,795 ) (431,894 )
Proceeds from sales of available-for-sale securities 53,957 156,066 169,419 261,520
Proceeds from maturities of available-for-sale securities 53,286 91,400 176,200 202,915
Purchases of property, plant and equipment (10,782 ) (19,775 ) (30,334 ) (50,225 )
Acquisitions, net of cash acquired (3,350 ) (575 )
Purchases of intangible assets (350 ) (350 )
Proceeds from sales of property, plant and equipment and assets held for sale 280     273     3,077     988  
Net cash provided by/(used in) investing activities 9,953     (82,031 )   (139,783 )   (17,621 )
Financing activities:
Proceeds from issuance of common stock, net of shares withheld for taxes 7,705 9,292 22,920 12,816
Repurchase of common stock (67,376 ) (103,810 ) (142,500 ) (189,959 )
Excess tax benefit from exercise of stock options 1,338     516     12,643     941  
Net cash used in financing activities (58,333 )   (94,002 )   (106,937 )   (176,202 )
Effect of foreign exchange rate changes on cash and cash equivalents 149     124     1,304     (279 )
Net increase/(decrease) in cash and cash equivalents 74,336 (77,580 ) 48,743 118,896
Cash and cash equivalents at beginning of period 520,268     747,988     545,861     551,512  
Cash and cash equivalents at end of period $ 594,604     $ 670,408     $ 594,604     $ 670,408  
 

GAAP to Non-GAAP Reconciliations

(In millions, except per share data)
   
The following tables show the Company's third 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
July 1,
2011
  June 29,
2012
(in thousands)
GAAP net income $ 61.7 $ 51.5
Stock-based compensation 10.9 10.7
Amortization of acquired intangibles 5.2 2.5
Restructuring charges, net
Income tax adjustments (5.0 )   (3.9 )
Non-GAAP net income $ 72.8     $ 60.8  
 
Diluted earnings per share: Fiscal Quarter Ended
July 1,
2011
  June 29,
2012
GAAP diluted earnings per share $ 0.55 $ 0.48
Stock-based compensation 0.10 0.10
Amortization of acquired intangibles 0.05 0.02
Restructuring charges, net
Income tax adjustments (0.05 )   (0.03 )
Non-GAAP diluted earnings per share $ 0.65     $ 0.57  
 
Shares used in computing diluted earnings per share (in millions) 112 107
 
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 37 % 38 %
Stock-based compensation 1 % 1 %
Amortization of acquired intangibles 2 %   2 %
Non-GAAP products gross margin 40 %   41 %
 
Operating expenses: Fiscal Year 2012
Low   High
GAAP operating expenses $ 467 $ 473
Stock-based compensation (47 ) (47 )
Amortization of acquired intangibles (4 ) (4 )
Restructuring charges, net (1 )   (2 )
Non-GAAP operating expenses $ 415     $ 420  
 
Diluted earnings per share: Fiscal Year 2012
Low   High
GAAP diluted earnings per share $ 2.35 $ 2.43
Stock-based compensation 0.44 0.44
Amortization of acquired intangibles 0.10 0.10
Restructuring charges, net 0.01 0.02
Income tax adjustments (0.15 )   (0.16 )
Non-GAAP diluted earnings per share $ 2.75     $ 2.83  
 
Shares used in computing diluted earnings per share 108 108

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

Source: Dolby Laboratories, Inc.

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