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Press release content from Globe Newswire. The AP news staff was not involved in its creation.

Dolby Laboratories Reports Second Quarter Fiscal 2019 Financial Results

May 1, 2019

SAN FRANCISCO, May 01, 2019 (GLOBE NEWSWIRE) -- Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company’s financial results for the second quarter (Q2) of fiscal 2019. For the second quarter, Dolby reported total revenue of $338.3 million, compared to $299.7 million for the second quarter of fiscal 2018.

“It was another solid quarter, as we continued to expand the amount of content and devices in Dolby Vision and Dolby Atmos and grow our footprint of Dolby Cinema,” said Kevin Yeaman, President and CEO, Dolby Laboratories. “Going forward, this means more people around the world will be able to enjoy experiences in Dolby.”

Second quarter GAAP net income was $73.4 million, or $0.70 per diluted share, compared to GAAP net income of $65.2 million, or $0.61 per diluted share, for the second quarter of fiscal 2018. On a non-GAAP basis, second quarter net income was $109.0 million, or $1.04 per diluted share, compared to non-GAAP net income of $78.1 million, or $0.73 per diluted share, for the second 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 May 22, 2019, to stockholders of record as of the close of business on May 14, 2019.

Financial Outlook

Q3 Fiscal 2019

Dolby is providing the following estimates for its third quarter (Q3) of fiscal 2019:

-- Total revenue will range from $295 million to $315 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 $201 million and $205 million on a GAAP basis and between $181 million and $185 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 19 percent and 21 percent on both a GAAP and 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 11 percent and 13 percent on a GAAP basis and between 19 and 20 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 Q2 fiscal 2019 financial results for Dolby Laboratories at 2:00 p.m. PT (5:00 p.m. ET) on Wednesday, May 1, 2019. Access to the teleconference will be available over the Internet from http://investor.dolby.com/event-calendar or by dialing 1-800-263-0877. International callers can access the conference call at 1-646-828-8143.

A replay of the call will be available from 5:00 p.m. PT on Wednesday, May 1, 2019, until 9:00 p.m. PT on Wednesday, May 8, 2019, by dialing 1-844-512-2921 (international callers can access the replay by dialing 1-412-317-6671) and entering the confirmation code 3557791. 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 Q3 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 the Broadcast, Mobile, Consumer Electronics, 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 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 – with Dolby Cinema, Dolby Vision, Dolby Atmos, 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.

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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, March 30, March 29, 2018 March 29, 2018 2019 (as 2019 (as adjusted) adjusted) ----------- ----------- ----------- ----------- Revenue: Licensing $ 310,308 $ 272,135 $ 570,587 $ 542,307 Products and services 27,950 27,587 70,047 56,942 --------- - --------- - --------- - --------- - Total revenue 338,258 299,722 640,634 599,249 --------- - --------- - --------- - --------- - Cost of revenue: Cost of licensing 16,074 10,610 27,471 19,869 Cost of products and services 20,501 20,417 47,733 42,051 --------- - --------- - --------- - --------- - Total cost of revenue 36,575 31,027 75,204 61,920 ----------- ----------- ----------- ----------- Gross margin 301,683 268,695 565,430 537,329 --------- - --------- - --------- - --------- - Operating expenses: Research and development 58,625 59,493 117,272 115,937 Sales and marketing 92,690 74,019 178,292 144,168 General and administrative 47,420 50,747 98,233 99,032 Restructuring charges/(credits) 18 (167 ) 32 (364 ) --------- - --------- - Total operating expenses 198,753 184,092 393,829 358,773 --------- - --------- - --------- - --------- - Operating income 102,930 84,603 171,601 178,556 --------- - --------- - --------- - --------- - Other income/expense: Interest income 7,494 3,892 12,679 7,673 Interest expense (32 ) (29 ) (77 ) (64 ) Other income/(expense), net (390 ) (684 ) 53 (1,836 ) --------- - --------- - --------- - --------- - Total other income 7,072 3,179 12,655 5,773 ----------- ----------- ----------- ----------- Income before income taxes 110,002 87,782 184,256 184,329 Provision for income taxes (36,427 ) (22,432 ) (12,323 ) (172,137 ) --------- - --------- - --------- - --------- - Net income including controlling interest 73,575 65,350 171,933 12,192 Less: net (income) attributable to controlling interest (135 ) (134 ) (274 ) (278 ) --------- - --------- - --------- - --------- - Net income attributable to Dolby Laboratories, Inc. $ 73,440 $ 65,216 $ 171,659 $ 11,914 - ------- - - ------- - - ------- - - ------- - Net income per share: Basic $ 0.72 $ 0.63 $ 1.68 $ 0.12 Diluted $ 0.70 $ 0.61 $ 1.63 $ 0.11 Weighted-average shares outstanding: Basic 102,141 103,771 102,409 103,162 Diluted 104,587 107,001 105,529 106,805

DOLBY LABORATORIES, INC.INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS(in thousands; unaudited)

March 29, September 28, 2019 2018 (as adjusted) ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 726,596 $ 918,063 Restricted cash 8,270 7,187 Short-term investments 158,679 178,138 Accounts receivable, net 211,714 200,933 Contract assets 244,917 165,959 Inventories 34,632 26,206 Prepaid expenses and other current assets 44,050 34,890 ----------- - ----------- - Total current assets 1,428,858 1,531,376 Long-term investments 199,302 187,782 Property, plant, and equipment, net 537,641 514,182 Goodwill and Intangible assets, net 513,750 512,001 Deferred taxes 113,409 74,766 Other non-current assets 50,991 42,280 ----------- - ----------- - Total assets $ 2,843,951 $ 2,862,387 - --------- - - --------- - LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 14,626 $ 21,922 Accrued liabilities 257,247 272,967 Income taxes payable 102 2,680 Contract liabilities 22,451 20,502 ----------- - ----------- - Total current liabilities 294,426 318,071 Non-current contract liabilities 22,008 22,853 Other non-current liabilities 174,660 150,960 ----------- - ----------- - Total liabilities 491,094 491,884 Stockholders’ equity: Class A common stock 59 61 Class B common stock 41 41 Additional paid-in capital — 66,127 Retained earnings 2,361,607 2,313,539 Accumulated other comprehensive (loss) (14,683 ) (15,832 ) ----------- - ----------- - Total stockholders’ equity – Dolby Laboratories, Inc. 2,347,024 2,363,936 Controlling interest 5,833 6,567 ----------- - ----------- - Total stockholders’ equity 2,352,857 2,370,503 ----------- - ----------- - Total liabilities and stockholders’ equity $ 2,843,951 $ 2,862,387 - --------- - - --------- -

DOLBY LABORATORIES, INC.INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands; unaudited)

Fiscal Year-To-Date Ended March 30, March 29, 2018 2019 (as adjusted) ----------- ----------- Operating activities: Net income including controlling interest $ 171,933 $ 12,192 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 40,799 40,684 Stock-based compensation 40,717 36,375 Amortization of premium on investments 338 1,472 Provision for doubtful accounts 1,963 1,607 Deferred income taxes (38,548 ) 36,475 Other non-cash items affecting net income 1,355 977 Changes in operating assets and liabilities: Accounts receivable (12,518 ) (39,296 ) Contract assets (78,949 ) (44,172 ) Inventories (7,983 ) (352 ) Prepaid expenses and other assets (16,976 ) (12,647 ) Accounts payable and other liabilities (17,490 ) (35,530 ) Income taxes, net 18,414 99,861 Contract liabilities 1,061 1,047 Other non-current liabilities 1,728 (652 ) --------- - --------- - Net cash provided by operating activities 105,844 98,041 --------- - --------- - Investing activities: Purchases of investment securities (152,499 ) (129,456 ) Proceeds from sales of investment securities 83,478 64,698 Proceeds from maturities of investment securities 78,714 118,874 Purchases of PP&E (56,082 ) (39,734 ) Purchase of intangible assets (17,065 ) (11,893 ) --------- - --------- - Net cash used in investing activities (63,454 ) (4,074 ) --------- - --------- - Financing activities: Proceeds from issuance of common stock 27,158 71,061 Repurchase of common stock (197,880 ) (34,993 ) Payment of cash dividend (39,035 ) (32,956 ) Distribution to controlling interest (1,014 ) (1,022 ) Shares repurchased for tax withholdings on vesting of restricted stock (20,680 ) (19,946 ) Net cash used in financing activities (231,451 ) (17,856 ) --------- - --------- - Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash (1,323 ) 3,122 --------- - --------- - Net increase/(decrease) in cash, cash equivalents, and restricted cash (190,384 ) 79,233 Cash, cash equivalents, and restricted cash at beginning of period 925,250 634,368 --------- - --------- - Cash, cash equivalents, and restricted cash at end of period $ 734,866 $ 713,601 - ------- - - ------- -

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 2019 and 2018: Net income: Fiscal Quarter Ended March March 29, 30, 2018 2019 (as adjusted) --------- -------- GAAP net income $ 73.4 $ 65.2 Stock-based compensation 19.2 17.7 Amortization of acquisition-related intangibles 2.4 1.9 Restructuring charges/(credits), net — (0.2 ) Impact of Tax Reform 18.9 — Income tax adjustments (4.9 ) (6.5 ) ------ - Non-GAAP net income $ 109.0 $ 78.1 - ----- - - ---- - Diluted earnings per share: Fiscal Quarter Ended March March 29, 30, 2018 2019 (as adjusted) --------- -------- GAAP diluted earnings per share $ 0.70 $ 0.61 Stock-based compensation 0.18 0.16 Amortization of acquisition-related intangibles 0.02 0.02 Impact of Tax Reform 0.18 — Income tax adjustments (0.04 ) (0.06 ) ------ - Non-GAAP diluted earnings per share $ 1.04 $ 0.73 - ----- - - ---- - Shares used in computing diluted earnings per share 105 107 The following tables present a reconciliation between GAAP and non-GAAP versions of the estimated financial amounts for the third quarter of fiscal 2019 and fiscal year 2019 included in this release: Gross margin: Q3 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: Q3 2019 Fiscal 2019 --------- -------- GAAP operating expenses (low - high end of range) $201 - $786 - $205 $796 Stock-based compensation (19) (77) Amortization of acquisition-related intangibles (1) (4) Non-GAAP operating expenses (low - high end of range) $181 - $705 - $185 $715 --------- -------- Effective tax rate: Fiscal 2019 -------- GAAP effective tax rate (low - high end of range) 11% - 13% 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) 19% - 20% -------- Diluted earnings per share: Q3 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 105 105

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.

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 March 30, June 29, September September September 29, 2017 2018 2018 28, 2018 28, 2018 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 taxes (149,705 ) (22,432 ) 9,067 9,001 (154,069 ) (48,039 ) Net income (loss) including (53,158 ) 65,350 3,260 26,852 42,304 207,104 controlling interest Less: net (income) attributable to (144 ) (134 ) (143 ) (138 ) (559 ) (625 ) controlling interest Net income/(loss) attributable to $ (53,302 ) $ 65,216 $ 3,117 $ 26,714 $ 41,745 $ 206,479 Dolby Laboratories, Inc. - ------- - - ------- - - ------- - - ------- - - ------- - - ------- - 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 DecembMarch June SeptemSeptemSeptem er 30, 29, ber ber ber 29, 2018 2018 28, 28, 29, 2017 2018 2018 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:Jason DeaDolby Laboratories415-357-7002 investor@dolby.com

Media Contact:Tony CarterDolby Laboratories404-316-0201 tony.carter@dolby.com