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TMCNet:  Dolby Laboratories Reports Third Quarter Fiscal 2017 Financial Results

[July 25, 2017]

Dolby Laboratories Reports Third Quarter Fiscal 2017 Financial Results

Dolby Laboratories, Inc. (NYSE: DLB) today announced the Company's financial results for the third quarter (Q3) of fiscal 2017. For the third quarter, Dolby reported total revenue of $305.7 million, compared to $277.6 million for the third quarter of fiscal 2016.

Third quarter GAAP net income was $76.0 million, or $0.73 per diluted share, compared to $63.6 million, or $0.62 per diluted share, for the third quarter of fiscal 2016. On a non-GAAP basis, third quarter net income was $89.2 million, or $0.86 per diluted share, compared to $78.3 million, or $0.76 per diluted share, for the third quarter of fiscal 2016. Dolby's non-GAAP measures are described and reconciled to the corresponding GAAP measures at the end of this release.

"We had solid financial results this quarter," said Kevin Yeaman, President and CEO, Dolby Laboratories. "We also expanded our content ecosystem in Dolby Vision and Dolby Atmos, and grew our Dolby Cinema footprint by adding Les Cinémas Gaumont Pathé as a partner in Europe."

Dividend

Today, Dolby announced a cash dividend of $0.14 per share of Class A and Class B common stock, payable on August 15, 2017, to stockholders of record as of the close of business on August 7, 2017.

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 Dolby Laboratories at 2:00 p.m. PT (5:00 p.m. ET) on Tuesday, July 25, 2017. Access to the teleconference will be available over the Internet from http://investor.dolby.com/events.cfm or by dialing 1-888-504-7958. International callers can access the conference call at 1-719-325-2478.

A replay of the call will be available from 5:00 p.m. PT on Tuesday, July 25, 2017, until 9:00 p.m. PT on Tuesday, August 1, 2017, by dialing 1-844-512-2921 (international callers can access the replay by dialing 1-412-317-6671) and entering the confirmation code 8094306. 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 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 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 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 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 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 more than 50 years, sight and sound experiences have become more vibrant, clear, and powerful in Dolby. For more information, please visit www.dolby.com.

Dolby, Dolby Atmos, and the double-D symbol are registered trademarks of Dolby Laboratories. Dolby Cinema and Dolby Vision are trademarks of Dolby Laboratories. All 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)

 
 

Fiscal Quarter Ended

 

Fiscal Year-To-Date Ended

June 30,

       

July 1,

June 30,

       

July 1,

2017

       

2016

2017

       

2016

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 Dolby Laboratories, Inc. $ 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
 

 

DOLBY LABORATORIES, INC.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 
  June 30,         September 30,
2017         2016

ASSETS

(unaudited)

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
Goodwill 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

 
 

LIABILITIES AND STOCKHOLDERS' EQUITY

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 - Dolby Laboratories, Inc. 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

 
 

 

DOLBY LABORATORIES, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 
  Fiscal Year-To-Date Ended
June 30,         July 1,
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

 
 

       

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 2017 and 2016:

 
         

Fiscal Quarter Ended

June 30,

 

July 1,

Net income:

2017

   

2016

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

June 30,

July 1,

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:

 
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

GAAP operating expenses (low - high end of range) $176 - $180 $ 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) $158 - $162     $ 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
 


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