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
[email protected]

Media Contact:
Tony Carter
Dolby Laboratories
404-316-0201
[email protected]