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Dolby Laboratories Reports First Quarter Fiscal 2019 Financial Results
Globe Newswire 30-Jan-2019 4:15 PM
SAN FRANCISCO, Jan. 30, 2019 (GLOBE NEWSWIRE) -- Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for the first quarter (Q1) of fiscal 2019. For the first quarter, Dolby reported total revenue of $302.4 million, compared to $299.5 million for the first quarter of fiscal 2018.
"We're off to a solid start to 2019, and we are excited that a growing number of consumers around the world are able to enjoy Dolby experiences," said Kevin Yeaman, President and CEO, Dolby Laboratories. "Our momentum for Dolby Vision and Dolby Atmos was on strong display at CES, and we opened our first Dolby Cinema in the UK at the iconic Odeon Leicester Square."
First quarter GAAP net income was $98.2 million, or $0.93 per diluted share, compared to GAAP net loss of $53.3 million, or $0.52 per diluted share, for the first quarter of fiscal 2018. On a non-GAAP basis, first quarter net income was $78.7 million, or $0.74 per diluted share, compared to non-GAAP net income of $95.4 million, or $0.90 per diluted share, for the first 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 February 21, 2019, to stockholders of record as of the close of business on February 12, 2019.
Financial Outlook
Q2 Fiscal 2019
Dolby is providing the following estimates for its second quarter (Q2) of fiscal 2019:
Total revenue will range from $325 million to $345 million
Gross margin percentages will be approximately 88 percent on a GAAP basis and approximately 89 percent on a non-GAAP basis
Operating expenses will be between $206 million and $210 million on a GAAP basis and between $186 million and $190 million on a non-GAAP basis
Diluted earnings per share will be between $0.48 and $0.54 on a GAAP basis and between $0.81 and $0.87 on a non-GAAP basis
Effective tax rate will be between 38 percent and 42 percent on a GAAP basis and between 19 percent and 21 percent on a 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 13 percent and 15 percent on a GAAP basis and between 19 and 21 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 Q1 fiscal 2019 financial results for Dolby Laboratories at 2:00 p.m. PT (5:00 p.m. ET) on Wednesday, January 30, 2019. Access to the teleconference will be available over the Internet from http://investor.dolby.com/event-calendar or by dialing 1-866-548-4713. International callers can access the conference call at 1-323-794-2093.
A replay of the call will be available from 5:00 p.m. PT on Wednesday, January 30, 2019, until 9:00 p.m. PT on Wednesday, February 6, 2019, by dialing 1-844-512-2921 (international callers can access the replay by dialing 1-412-317-6671) and entering the confirmation code 8636587. 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 Q2 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 including the Broadcast, Consumer Electronics, Mobile, 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's SEC filings and reports, including the risks identified under the section captioned "Risk Factors" in its most recent annual report on Form 10-K. 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 - in Dolby Vision, Dolby Atmos, Dolby Cinema, 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
December 28, 2018
December 29, 2017 (as adjusted)
Revenue:
Licensing
$
260,279
$
270,172
Products and services
42,097
29,355
Total revenue
302,376
299,527
Cost of revenue:
Cost of licensing
11,397
9,259
Cost of products and services
27,232
21,634
Total cost of revenue
38,629
30,893
Gross margin
263,747
268,634
Operating expenses:
Research and development
58,647
56,444
Sales and marketing
85,602
70,149
General and administrative
50,813
48,285
Restructuring charges/(credits)
14
(197
)
Total operating expenses
195,076
174,681
Operating income
68,671
93,953
Other income/expense:
Interest income
5,185
3,781
Interest expense
(45
)
(35
)
Other income/(expense), net
443
(1,152
)
Total other income
5,583
2,594
Income before income taxes
74,254
96,547
Provision for income tax (expense)/benefit
24,104
(149,705
)
Net income/(loss) including controlling interest
98,358
(53,158
)
Less: net (income) attributable to controlling interest
(139
)
(144
)
Net income/(loss) attributable to Dolby Laboratories, Inc.
$
98,219
$
(53,302
)
Net income/(loss) per share:
Basic
$
0.96
$
(0.52
)
Diluted
$
0.93
$
(0.52
)
Weighted-average shares outstanding:
Basic
102,677
102,552
Diluted
106,130
102,552
DOLBY LABORATORIES, INC. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands; unaudited)
December 28, 2018
September 28, 2018 (as adjusted)
ASSETS
Current assets:
Cash and cash equivalents
$
790,787
$
918,063
Restricted cash
8,999
7,187
Short-term investments
175,557
178,138
Accounts receivable, net
181,614
200,933
Contract assets
199,480
165,959
Inventories
27,765
26,206
Prepaid expenses and other current assets
39,601
34,890
Total current assets
1,423,803
1,531,376
Long-term investments
201,428
187,782
Property, plant, and equipment, net
523,193
514,182
Goodwill and Intangible assets, net
516,332
512,001
Deferred taxes
107,313
74,766
Other non-current assets
50,991
42,280
Total assets
$
2,823,060
$
2,862,387
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
9,811
$
21,922
Accrued liabilities
265,091
272,967
Income taxes payable
121
2,680
Contract liabilities
19,562
20,502
Total current liabilities
294,585
318,071
Non-current contract liabilities
23,115
22,853
Other non-current liabilities
156,406
150,960
Total liabilities
474,106
491,884
Stockholders' equity:
Class A common stock
60
61
Class B common stock
41
41
Additional paid-in capital
—
66,127
Retained earnings
2,361,843
2,313,539
Accumulated other comprehensive (loss)
(18,639
)
(15,832
)
Total stockholders' equity – Dolby Laboratories, Inc.
2,343,305
2,363,936
Controlling interest
5,649
6,567
Total stockholders' equity
2,348,954
2,370,503
Total liabilities and stockholders' equity
$
2,823,060
$
2,862,387
DOLBY LABORATORIES, INC. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands; unaudited)
Fiscal Quarter Ended
December 28, 2018
December 29, 2017 (as adjusted)
Operating activities:
Net income/(loss) including controlling interest
$
98,358
$
(53,158
)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
20,029
19,882
Stock-based compensation
21,482
18,684
Amortization of premium on investments
309
742
Provision for doubtful accounts
1,605
1,119
Deferred income taxes
(32,571
)
32,725
Other non-cash items affecting net income
3,393
587
Changes in operating assets and liabilities:
Accounts receivable
17,736
(41,526
)
Contract assets
(33,519
)
(22,449
)
Inventories
(2,709
)
(1,491
)
Prepaid expenses and other assets
(13,157
)
(6,591
)
Accounts payable and other liabilities
(26,332
)
(33,006
)
Income taxes, net
1,546
99,551
Contract liabilities
(678
)
1,984
Other non-current liabilities
1,460
96
Net cash provided by operating activities
56,952
17,149
Investing activities:
Purchases of investment securities
(63,329
)
(74,479
)
Proceeds from sales of investment securities
32,582
28,383
Proceeds from maturities of investment securities
19,785
49,476
Purchases of PP&E
(18,539
)
(19,275
)
Purchase of intangible assets
(12,065
)
(11,198
)
Net cash used in investing activities
(41,566
)
(27,093
)
Financing activities:
Proceeds from issuance of common stock
14,272
41,463
Repurchase of common stock
(112,545
)
(29,993
)
Payment of cash dividend
(19,573
)
(16,377
)
Distribution to controlling interest
(906
)
(1,021
)
Shares repurchased for tax withholdings on vesting of restricted stock
(19,679
)
(15,346
)
Net cash used in financing activities
(138,431
)
(21,274
)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash
(2,419
)
870
Net decrease in cash, cash equivalents, and restricted cash
(125,464
)
(30,348
)
Cash, cash equivalents, and restricted cash at beginning of period
925,250
634,368
Cash, cash equivalents, and restricted cash at end of period
$
799,786
$
604,020
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 first quarter of fiscal 2019 and 2018:
Net income:
Fiscal Quarter Ended
December 28, 2018
December 29, 2017 (as adjusted)
GAAP net income/(loss)
$
98.2
$
(53.3)
Stock-based compensation
21.5
18.7
Amortization of acquisition-related intangibles
1.8
1.9
Restructuring credits, net
—
(0.2)
Impact of Tax Reform
(36.0)
137.6
Income tax adjustments
(6.8)
(9.3)
Non-GAAP net income
$
78.7
$
95.4
GAAP diluted earnings per share
$
0.93
$
(0.52)
Non-GAAP diluted earnings per share
$
0.74
$
0.90
GAAP diluted shares
106
103
Dilutive equity awards
—
3
Shares used in computing Non-GAAP diluted earnings per share
106
106
The following tables present a reconciliation between GAAP and non-GAAP versions of the estimated financial amounts for the second quarter of fiscal 2019 and fiscal year 2019 included in this release:
Gross margin:
Q2 2019
Fiscal 2019
GAAP gross margin
88%
87%
Stock-based compensation
0.2%
0.2%
Amortization of acquisition-related intangibles
0.8%
0.8%
Non-GAAP gross margin
89%
88%
Operating expenses:
Q2 2019
Fiscal 2019
GAAP operating expenses (low - high end of range)
$206 - $210
$786 - $796
Stock-based compensation
(19.0)
(77.0)
Amortization of acquisition-related intangibles
(1.0)
(4.0)
Non-GAAP operating expenses (low - high end of range)
$186 - $190
$705 - $715
Effective tax rate:
Q2 2019
Fiscal 2019
GAAP effective tax rate (low - high end of range)
38% - 42%
13% - 15%
Stock-based compensation (low - high end of range)
1% - 2%
1% - 2%
Amortization of acquisition-related intangibles (low - high end of range)
(1%) - 0%
(1%) - 0%
Income tax adjustments (low - high end of range)
(19%) - (23%)
4% - 6%
Non-GAAP effective tax rate (low - high end of range)
19% - 21%
19% - 21%
Diluted earnings per share:
Q2 2019
Low
High
GAAP diluted earnings per share
$
0.48
$
0.54
Stock-based compensation
0.19
0.19
Amortization of acquisition-related intangibles
0.02
0.02
Income tax adjustments
0.12
0.12
Non-GAAP diluted earnings per share
$
0.81
$
0.87
Shares used in computing diluted earnings per share
106
106
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 summarized financial information adjusted to reflect 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 tax (expense)/benefit
(149,705
)
(22,433
)
9,067
9,001
(154,070
)
(48,039
)
Net income/(loss) including controlling interest
(53,158
)
65,349
3,260
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
)
$
65,215
$
3,117
$
26,714
$
41,744
$
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
%
PC
8
%
16
%
9
%
12
%
11
%
13
%
Mobile
22
%
25
%
11
%
1
%
16
%
15
%
CE
14
%
14
%
15
%
19
%
15
%
13
%
Other
15
%
12
%
19
%
20
%
17
%
15
%
Total revenue
100
%
100
%
100
%
100
%
100
%
100
%
Investor Contact: Elena Carr Dolby Laboratories 415-645-5583 investor@dolby.com
