SAN FRANCISCO, April 24, 2018 (GLOBE NEWSWIRE) -- Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for the second quarter (Q2) of fiscal 2018. For the second quarter, Dolby reported total revenue of $301.4 million, compared to $267.5 million for the second quarter of fiscal 2017.

“We had another solid quarter with growth in several areas,” said Kevin Yeaman, President and CEO, Dolby Laboratories. “Both Samsung and Huawei adopted Dolby Atmos into their mobile phones, and we have continued expansion of Dolby Cinema entering Japan and adding another major exhibitor in China.”

Second quarter GAAP net income was $70.6 million, or $0.66 per diluted share, compared to net income of $50.6 million, or $0.49 per diluted share, for the second quarter of fiscal 2017. On a non-GAAP basis, second quarter net income was $83.5 million, or $0.78 per diluted share, compared to $65.1 million, or $0.63 per diluted share, for the second quarter of fiscal 2017. Dolby's non-GAAP measures are described and reconciled to the corresponding GAAP measures at the end of this release.

Dividend

Today, Dolby announced a cash dividend of $0.16 per share of Class A and Class B common stock, payable on May 16, 2018, to stockholders of record as of the close of business on May 7, 2018.

Financial Outlook

Q3 Fiscal 2018

Dolby is providing the following estimates for its third quarter (Q3) of fiscal 2018:

  • Total revenue will range from $310 million to $320 million
  • Gross margin percentages will be between 88.5 percent and 89.5 percent on a GAAP basis and between 89.5 percent and 90.5 percent on a non-GAAP basis
  • Operating expenses will be between $190 million and $194 million on a GAAP basis and between $172 million and $176 million on a non-GAAP basis
  • Diluted earnings per share will be between $0.64 and $0.70 on a GAAP basis and between $0.78 and $0.84 on a non-GAAP basis
  • Effective tax rate will be between 20 percent and 23 percent on both a GAAP and non-GAAP basis

Fiscal Year 2018

Dolby is providing the following estimates for its fiscal 2018:

  • Total revenue will range from $1.165 billion to $1.185 billion
  • Gross margin percentages will be between 87.5 percent and 88.5 percent on a GAAP basis and between 88.5 percent and 89.5 percent on a non-GAAP basis
  • Operating expenses will range from $744 million to $749 million on a GAAP basis and from $670 million to $675 million on a non-GAAP basis
  • The ongoing tax rate for the remainder of fiscal 2018 will be between 20 percent to 23 percent on both a GAAP and non-GAAP basis

Conference Call Information

Members of Dolby management will lead a conference call open to all interested parties to discuss Q2 fiscal 2018 financial results for Dolby Laboratories at 2:00 p.m. PT (5:00 p.m. ET) on Tuesday, April 24, 2018. Access to the teleconference will be available over the Internet from http://investor.dolby.com/events.cfm or by dialing 1-800-239-9838. International callers can access the conference call at 1-323-794-2551.

A replay of the call will be available from 5:00 p.m. PT on Tuesday, April 24, 2018, until 9:00 p.m. PT on Tuesday, May 1, 2018, by dialing 1-844-512-2921 (international callers can access the replay by dialing 1-412-317-6671) and entering the confirmation code 5963100. 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.

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 U.S. Tax Cuts and Jobs Act (Tax Reform):  The enactment of Tax Reform requires estimates based on Dolby's current understanding of the new tax laws. These charges are the result of a discrete and infrequent event 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 Q3 fiscal 2018 and fiscal 2018, 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; the impact of Tax Reform; the impact of changes in revenue recognition standards; 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) 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, and Dolby Audio - revolutionize entertainment and communications at the cinema, on the go, in the home, and at work.

Dolby, Dolby Atmos, Dolby Voice 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; unaudited)
 
 Fiscal Quarter Ended Fiscal Year-To-Date Ended
 March 30,
 2018		March 31,
 2017		 March 30,
 2018		March 31,
 2017
Revenue:     
Licensing$273,143 $241,617  $531,159 $474,316 
Products22,665 20,713  47,598 48,924 
Services5,547 5,144  10,395 10,501 
Total revenue301,355 267,474  589,152 533,741 
      
Cost of revenue:     
Cost of licensing10,610 8,796  19,869 16,917 
Cost of products15,603 13,988  32,638 31,708 
Cost of services4,746 4,193  9,328 8,319 
Total cost of revenue30,959 26,977  61,835 56,944 
      
Gross margin270,396 240,497  527,317 476,797 
      
Operating expenses:     
Research and development59,493 58,341  115,937 115,859 
Sales and marketing74,019 75,620  144,168 146,795 
General and administrative50,747 43,253  99,032 84,793 
Restructuring charges/(credits)(167)—  (364)— 
Total operating expenses184,092 177,214  358,773 347,447 
      
Operating income86,304 63,283  168,544 129,350 
      
Other income/expense:     
Interest income3,892 2,186  7,673 4,000 
Interest expense(29)(37) (64)(63)
Other income/(expense), net(684)762  (1,836)563 
Total other income3,179 2,911  5,773 4,500 
      
Income before income taxes89,483 66,194  174,317 133,850 
Provision for income taxes(18,718)(15,467) (185,030)(29,549)
Net income/(loss) including controlling interest70,765 50,727  (10,713)104,301 
Less: net (income) attributable to controlling interest(134)(137) (278)(337)
Net income/(loss) attributable to Dolby Laboratories, Inc.$70,631 $50,590  $(10,991)$103,964 
      
Net income/(loss) per share:     
Basic$0.68 $0.50  $(0.11)$1.02 
Diluted$0.66 $0.49  $(0.11)$1.00 
Weighted-average shares outstanding:     
Basic103,771 101,787  103,162 101,635 
Diluted107,001 103,883  103,162 103,867 


DOLBY LABORATORIES, INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands; unaudited)
 
 March 30,
 2018		September 29,
 2017
ASSETS  
Current assets:  
Cash and cash equivalents$705,519 $627,017 
Restricted cash8,082 7,351 
Short-term investments240,497 247,757 
Accounts receivable, net141,257 73,750 
Inventories24,066 25,051 
Prepaid expenses and other current assets35,244 30,508 
Total current assets1,154,665 1,011,434 
Long-term investments262,062 314,364 
Property, plant and equipment, net500,981 485,275 
Intangible assets, net191,340 189,648 
Goodwill316,558 311,087 
Deferred taxes141,580 190,915 
Other non-current assets39,453 30,831 
Total assets$2,606,639 $2,533,554 
   
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$18,200 $14,373 
Accrued liabilities167,793 207,034 
Income taxes payable4,614 1,216 
Deferred revenue22,542 23,150 
Total current liabilities213,149 245,773 
Long-term deferred revenue37,430 36,425 
Other non-current liabilities202,082 107,514 
Total liabilities452,661 389,712 
   
Stockholders’ equity:  
Class A common stock59 58 
Class B common stock43 43 
Additional paid-in capital113,827 61,331 
Retained earnings2,039,116 2,083,063 
Accumulated other comprehensive (loss)(5,616)(7,753)
Total stockholders’ equity – Dolby Laboratories, Inc.2,147,429 2,136,742 
Controlling interest6,549 7,100 
Total stockholders’ equity2,153,978 2,143,842 
Total liabilities and stockholders’ equity$2,606,639 $2,533,554 


DOLBY LABORATORIES, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
 
 Fiscal Year-To-Date Ended
 March 30,
 2018		March 31,
 2017
Operating activities:  
Net income/(loss) including controlling interest$(10,713)$104,301 
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:  
Depreciation and amortization40,684 44,061 
Stock-based compensation36,375 33,198 
Amortization of premium on investments1,472 1,376 
Provision for doubtful accounts1,607 1,010 
Deferred income taxes48,332 (8,856)
Other non-cash items affecting net income977 160 
Changes in operating assets and liabilities:  
Accounts receivable(69,018)(13,538)
Inventories(352)(3,253)
Prepaid expenses and other assets(12,732)(11,280)
Accounts payable and other liabilities(38,124)495 
Income taxes, net99,861 11,089 
Deferred revenue324 85 
Other non-current liabilities(652)480 
Net cash provided by operating activities98,041 159,328 
   
Investing activities:  
Purchases of investment securities(129,456)(98,789)
Proceeds from sales of investment securities64,698 23,071 
Proceeds from maturities of investment securities118,874 66,171 
Purchases of PP&E(39,734)(51,230)
Payments for business acquisitions, net of cash acquired(6,563)— 
Purchase of intangible assets(11,893)(5,250)
Change in restricted cash(731)(2,107)
Net cash used in investing activities(4,805)(68,134)
   
Financing activities:  
Proceeds from issuance of common stock71,061 24,210 
Repurchase of common stock(34,993)(50,000)
Payment of cash dividend(32,956)(28,494)
Distribution to controlling interest(1,022)(2,094)
Shares repurchased for tax withholdings on vesting of restricted stock(19,946)(15,799)
Net cash used in financing activities(17,856)(72,177)
   
Effect of foreign exchange rate changes on cash and cash equivalents3,122 (2,621)
Net increase in cash and cash equivalents78,502 16,396 
Cash and cash equivalents at beginning of period627,017 516,112 
Cash and cash equivalents at end of period$705,519 $532,508 


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 second quarter of fiscal 2018 and 2017:
   
Net income:Fiscal Quarter Ended
 March 30,
 2018		March 31,
 2017
GAAP net income$70.6 $50.6 
Stock-based compensation17.7 15.9 
Amortization of acquisition-related intangibles1.9 3.8 
Restructuring credits, net(0.2)— 
Income tax adjustments(6.5)(5.2)
Non-GAAP net income$83.5 $65.1 
   
Diluted earnings per share:Fiscal Quarter Ended
 March 30,
 2018		March 31,
 2017
GAAP diluted earnings per share$0.66 $0.49 
Stock-based compensation0.16 0.16 
Amortization of acquisition-related intangibles0.02 0.03 
Restructuring charges, net— — 
Income tax adjustments(0.06)(0.05)
Non-GAAP diluted earnings per share$0.78 $0.63 
   
Shares used in computing diluted earnings per share107 104 
   
The following tables present a reconciliation between GAAP and non-GAAP versions of the estimated financial amounts for the third quarter of fiscal 2018 and fiscal year 2018 included in this release:
   
Gross margin:Q3 2018Fiscal 2018
GAAP gross margin (low - high end of range)88.5%-89.5% 87.5%-88.5% 
Stock-based compensation0.2% 0.2% 
Amortization of acquisition-related intangibles0.8% 0.8% 
Non-GAAP gross margin (low - high end of range)89.5%-90.5%
 88.5%-89.5%
 
       
Operating expenses:Q3 2018Fiscal 2018
GAAP operating expenses (low - high end of range)$190 - $194 $744 - $749 
Stock-based compensation(17.0)(71.0)
Amortization of acquisition-related intangibles(1.0)(3.0)
Non-GAAP operating expenses (low - high end of range)$172 - $176 $670 - $675 
   
Diluted earnings per share:Q3 2018
 LowHigh
GAAP diluted earnings per share$0.64 $0.70 
Stock-based compensation0.16 0.16 
Amortization of acquisition-related intangibles0.02 0.02 
Income tax adjustments(0.04)(0.04)
Non-GAAP diluted earnings per share$0.78 $0.84 
   
Shares used in computing diluted earnings per share107 107 

Investor Contact:
Elena Carr
Dolby Laboratories
415-645-5583
investor@dolby.com

Media Contact:
Tony Carter
Dolby Laboratories
404-316-0201
tony.carter@dolby.com

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