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Dolby Laboratories Reports Third Quarter Fiscal 2019 Financial Results
“We continue to see
Third quarter GAAP net income was
As previously indicated,
Dividend
Today,
Stock Repurchase Program
Today,
Financial Outlook
Q4 Fiscal 2019
- Total revenue will range from
$288 million to $308 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
$199 million and $203 million on a GAAP basis and between$178 million and $182 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 18 percent and 20 percent on both a GAAP and non-GAAP basis
Fiscal Year 2019
- Total revenue will range from
$1.23 billion to $1.25 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
$821 million to $825 million on a GAAP basis and from$708 million to $712 million on a non-GAAP basis - Effective tax rate for the year will be between 9 percent and 10 percent on a GAAP basis and between 17 and 18 percent on a non-GAAP basis
Conference Call Information
Members of
A replay of the call will be available from
Non-GAAP Financial Information
To supplement
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 restructuring plans and primarily relate to costs associated with exit or disposal activities, 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,
Forward-Looking Statements
Certain statements in this press release, including, but not limited to, statements relating to
About
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts; unaudited)
Fiscal Quarter Ended | Fiscal Year-To-Date Ended | ||||||||||||
June 28, 2019 |
June 29, 2018 (as adjusted) |
June 28, 2019 |
June 29, 2018 (as adjusted) |
||||||||||
Revenue: | |||||||||||||
Licensing | $ | 271,897 | $ | 183,771 | $ | 842,484 | $ | 726,078 | |||||
Products and services | 30,262 | 31,009 | 100,309 | 87,951 | |||||||||
Total revenue | 302,159 | 214,780 | 942,793 | 814,029 | |||||||||
Cost of revenue: | |||||||||||||
Cost of licensing | 13,290 | 12,111 | 40,761 | 31,980 | |||||||||
Cost of products and services | 26,400 | 22,272 | 74,133 | 64,323 | |||||||||
Total cost of revenue | 39,690 | 34,383 | 114,894 | 96,303 | |||||||||
Gross margin | 262,469 | 180,397 | 827,899 | 717,726 | |||||||||
Operating expenses: | |||||||||||||
Research and development | 60,408 | 60,357 | 177,680 | 176,294 | |||||||||
Sales and marketing | 83,390 | 79,834 | 261,686 | 224,002 | |||||||||
General and administrative | 54,183 | 47,893 | 152,412 | 146,925 | |||||||||
Restructuring charges/(credits) | 30,232 | (82 | ) | 30,264 | (446 | ) | |||||||
Total operating expenses | 228,213 | 188,002 | 622,042 | 546,775 | |||||||||
Operating income/(loss) | 34,256 | (7,605 | ) | 205,857 | 170,951 | ||||||||
Other income/expense: | |||||||||||||
Interest income | 6,551 | 5,487 | 19,230 | 13,160 | |||||||||
Interest expense | (29 | ) | (87 | ) | (106 | ) | (151 | ) | |||||
Other income/(expense), net | 1,022 | (3,603 | ) | 1,075 | (5,439 | ) | |||||||
Total other income | 7,544 | 1,797 | 20,199 | 7,570 | |||||||||
Income/(loss) before income taxes | 41,800 | (5,808 | ) | 226,056 | 178,521 | ||||||||
Provision for income taxes | (2,163 | ) | 9,067 | (14,486 | ) | (163,070 | ) | ||||||
Net income including controlling interest | 39,637 | 3,259 | 211,570 | 15,451 | |||||||||
Less: net (income) attributable to controlling interest | (63 | ) | (143 | ) | (337 | ) | (421 | ) | |||||
Net income attributable to Dolby Laboratories, Inc. | $ | 39,574 | $ | 3,116 | $ | 211,233 | $ | 15,030 | |||||
Net income per share: | |||||||||||||
Basic | $ | 0.39 | $ | 0.03 | $ | 2.07 | $ | 0.15 | |||||
Diluted | $ | 0.38 | $ | 0.03 | $ | 2.01 | $ | 0.14 | |||||
Weighted-average shares outstanding: | |||||||||||||
Basic | 101,218 | 103,836 | 102,012 | 103,386 | |||||||||
Diluted | 103,717 | 106,950 | 105,025 | 106,943 |
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands; unaudited)
June 28, 2019 |
September 28, 2018 (as adjusted) |
|||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 716,560 | $ | 918,063 | ||
Restricted cash | 7,485 | 7,187 | ||||
Short-term investments | 120,737 | 178,138 | ||||
Accounts receivable, net | 231,185 | 166,133 | ||||
Contract assets | 182,912 | 165,959 | ||||
Inventories, net | 38,908 | 26,206 | ||||
Prepaid expenses and other current assets | 41,030 | 34,890 | ||||
Total current assets | 1,338,817 | 1,496,576 | ||||
Long-term investments | 211,352 | 187,782 | ||||
Property, plant, and equipment, net | 524,641 | 514,182 | ||||
Goodwill and intangible assets, net | 525,240 | 512,001 | ||||
Deferred taxes | 109,208 | 74,766 | ||||
Other non-current assets | 100,550 | 80,080 | ||||
Total assets | $ | 2,809,808 | $ | 2,865,387 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 14,304 | $ | 21,922 | ||
Accrued liabilities | 243,738 | 243,128 | ||||
Income taxes payable | 862 | 2,680 | ||||
Contract liabilities | 19,435 | 17,468 | ||||
Total current liabilities | 278,339 | 285,198 | ||||
Non-current contract liabilities | 24,428 | 25,887 | ||||
Other non-current liabilities | 186,765 | 183,799 | ||||
Total liabilities | 489,532 | 494,884 | ||||
Stockholders’ equity: | ||||||
Class A common stock | 58 | 61 | ||||
Class B common stock | 41 | 41 | ||||
Additional paid-in capital | — | 66,127 | ||||
Retained earnings | 2,328,918 | 2,313,539 | ||||
Accumulated other comprehensive (loss) | (14,496 | ) | (15,832 | ) | ||
Total stockholders’ equity – Dolby Laboratories, Inc. | 2,314,521 | 2,363,936 | ||||
Controlling interest | 5,755 | 6,567 | ||||
Total stockholders’ equity | 2,320,276 | 2,370,503 | ||||
Total liabilities and stockholders’ equity | $ | 2,809,808 | $ | 2,865,387 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
Fiscal Year-To-Date Ended | ||||||
June 28, 2019 |
June 29, 2018 (as adjusted) |
|||||
Operating activities: | ||||||
Net income including controlling interest | $ | 211,570 | $ | 15,451 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Depreciation and amortization | 62,814 | 61,398 | ||||
Stock-based compensation | 59,580 | 53,476 | ||||
Amortization of premium on investments | 319 | 2,046 | ||||
Provision for doubtful accounts | 5,201 | 2,465 | ||||
Deferred income taxes | (34,872 | ) | 15,163 | |||
Restructuring charge for exit of leased building | 27,463 | — | ||||
Other non-cash items affecting net income | 2,100 | 5,147 | ||||
Changes in operating assets and liabilities: | ||||||
Accounts receivable, net | (70,022 | ) | 1,975 | |||
Contract assets | (16,942 | ) | 12,897 | |||
Inventories | (15,976 | ) | (508 | ) | ||
Prepaid expenses and other assets | (13,719 | ) | (13,718 | ) | ||
Accounts payable and accrued liabilities | (10,733 | ) | (16,368 | ) | ||
Income taxes, net | (5,226 | ) | 102,422 | |||
Contract liabilities | 491 | (838 | ) | |||
Other non-current liabilities | (4,854 | ) | (537 | ) | ||
Net cash provided by operating activities | 197,194 | 240,471 | ||||
Investing activities: | ||||||
Purchases of investment securities | (220,321 | ) | (151,585 | ) | ||
Proceeds from sales of investment securities | 149,023 | 72,090 | ||||
Proceeds from maturities of investment securities | 109,821 | 194,038 | ||||
Purchases of property, plant, and equipment | (79,670 | ) | (54,869 | ) | ||
Payments for business acquisitions, net of cash acquired | (14,919 | ) | (6,563 | ) | ||
Purchase of intangible assets | (17,255 | ) | (12,543 | ) | ||
Net cash (used in)/provided by investing activities | (73,321 | ) | 40,568 | |||
Financing activities: | ||||||
Proceeds from issuance of common stock | 45,027 | 85,941 | ||||
Repurchase of common stock | (286,512 | ) | (90,480 | ) | ||
Payment of cash dividend | (58,318 | ) | (49,596 | ) | ||
Distribution to controlling interest | (1,015 | ) | (1,022 | ) | ||
Shares repurchased for tax withholdings on vesting of restricted stock | (21,761 | ) | (21,189 | ) | ||
Net cash used in financing activities | (322,579 | ) | (76,346 | ) | ||
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash | (2,499 | ) | (1,598 | ) | ||
Net increase/(decrease) in cash, cash equivalents, and restricted cash | (201,205 | ) | 203,095 | |||
Cash, cash equivalents, and restricted cash at beginning of period | 925,250 | 634,368 | ||||
Cash, cash equivalents, and restricted cash at end of period | $ | 724,045 | $ | 837,463 |
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 third quarter of fiscal 2019 and 2018: | ||||||
Net income: | Fiscal Quarter Ended | |||||
June 28, 2019 |
June 29, 2018 (as adjusted) |
|||||
GAAP net income | $ | 39.6 | $ | 3.1 | ||
Stock-based compensation | 18.8 | 17.1 | ||||
Amortization of acquisition-related intangibles | 2.6 | 2.0 | ||||
Restructuring charges/(credits), net | 30.2 | (0.1 | ) | |||
Impact of Tax Reform | (1.1 | ) | — | |||
Income tax adjustments | (10.8 | ) | (3.3 | ) | ||
Non-GAAP net income | $ | 79.3 | $ | 18.8 | ||
Diluted earnings per share: | Fiscal Quarter Ended | |||||
June 28, 2019 |
June 29, 2018 (as adjusted) |
|||||
GAAP diluted earnings per share | $ | 0.38 | $ | 0.03 | ||
Stock-based compensation | 0.18 | 0.16 | ||||
Amortization of acquisition-related intangibles | 0.02 | 0.02 | ||||
Restructuring charges/(credits), net | 0.29 | — | ||||
Impact of Tax Reform | (0.01 | ) | — | |||
Income tax adjustments | (0.10 | ) | (0.03 | ) | ||
Non-GAAP diluted earnings per share | $ | 0.76 | $ | 0.18 | ||
Shares used in computing diluted earnings per share | 104 | 107 | ||||
The following tables present a reconciliation between GAAP and non-GAAP versions of the estimated financial amounts for the fourth quarter of fiscal 2019 and fiscal year 2019 included in this release: | ||||||
Gross margin: | Q4 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: | Q4 2019 | Fiscal 2019 | ||||
GAAP operating expenses (low - high end of range) | $199 - $203 | $821 - $825 | ||||
Stock-based compensation | (20 | ) | (78 | ) | ||
Amortization of acquisition-related intangibles | (1 | ) | (5 | ) | ||
Restructuring charges, net | $ | — | $ | (30 | ) | |
Non-GAAP operating expenses (low - high end of range) | $178 - $182 | $708 - $712 | ||||
Effective tax rate: | Fiscal 2019 | |||||
GAAP effective tax rate (low - high end of range) | 9% - 10% | |||||
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) | 17% - 18% | |||||
Diluted earnings per share: | Q4 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 | 104 | 104 |
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.
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/(loss) | 93,953 | 84,603 | (7,605 | ) | 12,553 | 183,504 | 247,131 | |||||||||||
Other income/expense: | ||||||||||||||||||
Interest income | 3,781 | 3,892 | 5,487 | 5,809 | 18,969 | 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 | 1,797 | 5,298 | 12,868 | 8,012 | ||||||||||||
Income (loss) before income taxes | 96,547 | 87,782 | (5,808 | ) | 17,851 | 196,372 | 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 | 3,259 | 26,852 | 42,303 | 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 | $ | 3,116 | $ | 26,714 | $ | 41,744 | $ | 206,479 | |||||
Net/(loss) income 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:
415-357-7002
investor@dolby.com
Media Contact:
415-505-8357
karen.hartquist@dolby.com
Source: Dolby Laboratories