Dolby Laboratories Reports First Quarter Fiscal 2012 Results

SAN FRANCISCO--()--Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for its first quarter of fiscal 2012.

For the first quarter, Dolby reported total revenue of $233.4 million, compared to $242.7 million for the first quarter of fiscal 2011.

First quarter GAAP net income was $73.2 million, or $0.67 per diluted share, compared to $86.4 million, or $0.76 per diluted share, for the first quarter of fiscal 2011. On a non-GAAP basis, first quarter net income was $83.1 million, or $0.76 per diluted share, compared to $85.0 million, or $0.75 per diluted share, for the first quarter of fiscal 2011. Dolby’s non-GAAP measures exclude expenses related to stock-based compensation, the amortization of intangibles from business combinations, restructuring charges, and the related tax impact of these items. In addition, the non-GAAP measures exclude a one-time benefit resulting from the release of a deferred tax liability in the first quarter of fiscal 2011.

"In the first quarter, we grew licensing revenue year over year on the strength of our broadcast and mobile markets," said Kevin Yeaman, President and Chief Executive Officer, Dolby Laboratories. "We continue to enhance the entertainment experience in online content with the addition of services such as HBO Go®, which recently announced the adoption of Dolby® Digital Plus.”

Financial Targets

For fiscal 2012, Dolby continues to target revenue of $910 million to $970 million.

GAAP

For fiscal 2012, Dolby continues to target total gross margin of approximately 90 percent, operating expenses of $465 million to $475 million, and other income of approximately $5 million. In addition, Dolby continues to target a tax rate of approximately 29 percent to 30 percent for fiscal 2012. While stock-based compensation expense may vary based on factors such as stock price or volatility, Dolby continues to target stock-based compensation expense for fiscal 2012 of approximately $51 million. In addition, Dolby continues to target charges related to the amortization of acquired intangibles for fiscal 2012 of approximately $10 million and restructuring charges of approximately $2 million.

Non-GAAP

For fiscal 2012, Dolby continues to target total gross margin of approximately 91 percent, operating expenses of $410 million to $420 million, and other income of approximately $5 million. In addition, Dolby continues to target a tax rate of approximately 29 percent to 30 percent for fiscal 2012. Dolby’s non-GAAP targets exclude expenses related to stock-based compensation, the amortization of intangibles from business combinations, restructuring charges, and the related tax impact of these items. In addition, the non-GAAP measures exclude a one-time benefit resulting from the release of a deferred tax liability in the first quarter of fiscal 2011.

Diluted Earnings per Share

Dolby continues to target diluted shares outstanding of approximately 110 million. These targets lead to a fiscal 2012 diluted earnings per share target range of $2.31 to $2.61 on a GAAP basis and $2.71 to $3.02 on a non-GAAP basis.

The Company's Conference Call Information

Members of Dolby Laboratories' management will lead a conference call open to all interested parties to discuss the Company's first quarter fiscal 2012 financial results at 2:00 p.m. PT (5:00 p.m. ET) on Tuesday, January 31, 2012.

Access to the teleconference will be available over the Internet from http://investor.dolby.com/medialist.cfm or by dialing 1-888-437-9274 from within the United States or 1-719-325-2297 from outside the country.

A replay of the call will be available from 5:00 p.m. PT on Tuesday, January 31, 2012, until 9:00 p.m. PT on Tuesday, February 7, 2012. Callers can dial 1-877-870-5176 from within the United States or 1-858-384-5517 from outside the country, and then enter the confirmation code 5824012. An archived version of the teleconference will also be available on the Dolby Laboratories website, www.dolby.com.

Non-GAAP Financial Information

To supplement Dolby’s financial statements presented on a GAAP basis, Dolby provides non-GAAP financial measures of gross margin, operating expense, tax rate, and diluted earnings per share. These measures are adjusted to exclude the charges and expenses discussed above. Dolby presents such non-GAAP financial measures in reporting its financial results 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. Dolby’s management believes it is useful for itself and investors to review, as applicable, both GAAP information that includes the impact of stock-based compensation expense, amortization of intangible assets acquired through business combinations, restructuring charges, the related tax impact of all of these items on the provision for income taxes, and a one-time benefit resulting from the release of a deferred tax liability in the first quarter of fiscal 2011, and the non-GAAP measures that exclude such information in order to assess the performance of Dolby’s business for planning and forecasting in subsequent periods. Dolby’s management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Whenever Dolby uses such a non-GAAP financial measure, it provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. 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 measure as detailed above. Investors are also encouraged to review Dolby’s GAAP financial statements as reported in its SEC filings. A reconciliation between GAAP and non-GAAP financial measures is provided at the end of this press release and on Dolby's investor relations website at http://investor.dolby.com/medialist.cfm.

Forward-Looking Statements

Certain statements in this press release, including statements relating to Dolby's expectations regarding revenue, gross margin, operating expense, other income, tax rate, stock-based compensation, amortization of intangibles, restructuring charges, and diluted earnings per share for fiscal 2012, and its statements regarding the strength of its broadcast and mobile markets, its opportunities with respect to online content, and the benefits that may be derived from them 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 that Dolby technologies may not be included in future PC operating systems; risks associated with trends in the markets in which Dolby operates, including the personal computer, DVD, and Blu-ray Disc™, broadcast, consumer electronics, gaming, mobile, and automobile markets; pricing pressures; risks that shifts from disc-based media to online media content could result in fewer devices with Dolby technologies; risks associated with the effects of macroeconomic conditions; the timing of Dolby’s receipt of royalty reports and/or payments from its licensees; Dolby’s accuracy of calculation of royalties due to its licensors; 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 in the entertainment industry; 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; the development and growth of the market for digital cinema and digital 3D and Dolby’s ability to successfully penetrate this market; Dolby’s ability to expand its business generally, and to expand its business beyond sound technologies to other technologies related to digital entertainment delivery, by acquiring and successfully integrating businesses or technologies; and other risks detailed in Dolby’s Securities and Exchange Commission 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 the global leader in technologies that are essential elements in the best entertainment experiences. Founded in 1965 and best known for high-quality audio and surround sound, Dolby creates innovations that enrich entertainment at the movies, at home, or on the go. For more information about Dolby Laboratories or Dolby technologies, please visit www.dolby.com.

Dolby and the double-D symbol are registered trademarks of Dolby Laboratories. HBO Go is a registered trademark of Home Box Office, Inc. Blu-ray Disc is a trademark of Blu-ray Disc Association. S12/25293 DLB-F

   
DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
Fiscal Quarter Ended
December 31,

2010

  December 30,

2011

(unaudited)
(in thousands, except per share amounts)

Revenue:
Licensing $ 188,176 $ 199,624
Products 46,027 26,400
Services   8,509     7,354  
Total revenue   242,712     233,378  
 
Cost of revenue:
Cost of licensing 3,961 3,328
Cost of products 22,198 13,888
Cost of services   2,980     3,194  
Total cost of revenue   29,139     20,410  
Gross margin   213,573     212,968  
Operating expenses:
Research and development 28,327 32,826
Sales and marketing 38,217 43,016
General and administrative 37,042 35,465
Restructuring charges, net   785     368  
Total operating expenses   104,371     111,675  
Operating income 109,202 101,293
Other income, net   1,864     1,911  
Income before provision for income taxes 111,066 103,204
Provision for income taxes   (24,301 )   (29,838 )
Net income including controlling interest 86,765 73,366
Less: net (income) / loss attributable to controlling interest   (378 )   (207 )
 
Net income attributable to Dolby Laboratories, Inc. $ 86,387   $ 73,159  
 
Basic earnings per share $ 0.77 $ 0.67
Diluted earnings per share $ 0.76 $ 0.67
 
Weighted-average shares outstanding (basic) 112,035 108,884
Weighted-average shares outstanding (diluted) 113,713 109,443

   
DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 

September 30,
2011

 

December 30,
2011

(unaudited)
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 551,512 $ 654,414
Short-term investments 391,281 367,412
Accounts receivable, net 61,815 54,211
Inventories 26,244 33,515
Deferred taxes 90,869 92,582
Prepaid expenses and other current assets   36,877   26,916
Total current assets 1,158,598 1,229,050
Long-term investments 272,797 247,273
Property, plant and equipment, net 117,107 123,536
Intangible assets, net 51,573 47,922
Goodwill 263,260 263,780
Deferred taxes 14,779 20,390
Other non-current assets   6,273   7,169
Total assets $ 1,884,387 $ 1,939,120
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 127,922 $ 106,558
Income taxes payable 4,762 18,662
Deferred revenue   26,701   24,412
Total current liabilities 159,385 149,632
Long-term deferred revenue 15,526 17,124
Deferred taxes 671 639
Other non-current liabilities   23,455   27,637
Total liabilities 199,037 195,032
Stockholders' equity:
Class A common stock 52 52
Class B common stock 58 57
Additional paid-in capital 210,681 196,545
Retained earnings 1,445,189 1,518,348
Accumulated other comprehensive income   7,533   7,108
Total stockholders' equity - Dolby Laboratories, Inc. 1,663,513 1,722,110
Controlling interest   21,837   21,978
Total stockholders' equity   1,685,350   1,744,088
Total liabilities and stockholders' equity $ 1,884,387 $ 1,939,120

   
DOLBY LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Fiscal Quarter Ended

December 31,
2010

 

December 30,
2011

(unaudited)
(in thousands)
Operating activities:
Net income including controlling interest $ 86,765 $ 73,366
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 9,539 9,929
Stock-based compensation expense 11,260 11,439
Amortization of premium on investments 3,235 4,920
Excess tax benefit from exercise of stock options (9,386 ) (57 )
Provision for doubtful accounts 333 (52 )
Deferred taxes (6,640 ) (7,643 )
Other non-cash items affecting net income (476 ) 1,227
Changes in operating assets and liabilities:
Accounts receivable (14,789 ) 7,531
Inventories 536 (7,271 )
Prepaid expenses and other assets (1,450 ) 1,101
Accounts payable and accrued liabilities (27,815 ) (22,860 )
Income taxes, net 20,510 24,431
Deferred revenues (843 ) (661 )
Other non-current liabilities   (127 )   392  
Net cash provided by operating activities   70,652     95,792  
Investing activities:
Purchases of available-for-sale securities (309,660 ) (54,726 )
Proceeds from sales and maturities of available-for-sale securities 159,825 99,133
Purchases of property, plant and equipment (9,646 ) (12,566 )
Acquisitions, net of cash acquired (3,350 ) (575 )
Proceeds from sales of property, plant and equipment and assets held for sale   621     335  
Net cash provided by/(used in) investing activities   (162,210 )   31,601  
Financing activities:
Proceeds from issuance of common stock, net of shares withheld for taxes 15,749 1,783
Repurchase of common stock (45,966 ) (26,068 )
Excess tax benefit from exercise of stock options   9,386     57  
Net cash used in financing activities   (20,831 )   (24,228 )
Effect of foreign exchange rate changes on cash and cash equivalents   166     (263 )
Net increase/(decrease) in cash and cash equivalents (112,223 ) 102,902
Cash and cash equivalents at beginning of period   545,861     551,512  
Cash and cash equivalents at end of period $ 433,638   $ 654,414  

 
GAAP to Non-GAAP Reconciliations
(In millions, except per share data)
   
The following tables show the Company’s first quarter of fiscal years 2011 and 2012 GAAP financial measures reconciled to non-GAAP financial measures included in this release:
 
Net income:

Fiscal Quarter
Ended

Fiscal Quarter
Ended

December 31, 2010 December 30, 2011
 
GAAP net income $ 86.4 $ 73.2
Stock-based compensation 11.3 11.4
Amortization of acquired intangibles 2.9 2.7
Restructuring charges, net 0.8 0.4
Income tax adjustments   (16.4 )   (4.6 )
Non-GAAP net income $ 85.0   $ 83.1  
 
Diluted earnings per share:

Fiscal Quarter
Ended

Fiscal Quarter
Ended

December 31, 2010 December 30, 2011
 
GAAP diluted earnings per share $ 0.76 $ 0.67
Stock-based compensation 0.10 0.10
Amortization of acquired intangibles 0.02 0.03
Restructuring charges, net 0.01 -
Income tax adjustments   (0.14 )   (0.04 )
Non-GAAP diluted earnings per share $ 0.75   $ 0.76  
 
Shares used in computing diluted earnings per share 114 109
 
The following tables show the Company’s fiscal year 2012 GAAP financial targets reconciled to non-GAAP financial targets included in this release (numbers are approximate):
 
Gross margin:
Fiscal Year 2012
GAAP gross margin 90 %
Stock-based compensation 0 %
Amortization of acquired intangibles   1 %
Non-GAAP gross margin   91 %
 
Product gross margin: Fiscal Year 2012
Low High
GAAP products gross margin 37 % 39 %
Stock-based compensation 1 % 1 %
Amortization of acquired intangibles   2 %   2 %
Non-GAAP products gross margin   40 %   42 %
 
Operating expenses: Fiscal Year 2012
Low High
GAAP operating expenses $ 465 $ 475
Stock-based compensation (50 ) (50 )
Amortization of acquired intangibles (3 ) (3 )
Restructuring charges, net   (2 )   (2 )
Non-GAAP operating expenses $ 410   $ 420  
 
Diluted earnings per share: Fiscal Year 2012
Low High
GAAP diluted earnings per share $ 2.31 $ 2.61
Stock-based compensation 0.46 0.46
Amortization of acquired intangibles 0.09 0.09
Restructuring charges, net 0.02 0.02
Income tax adjustments   (0.17 )   (0.16 )
Non-GAAP diluted earnings per share $ 2.71   $ 3.02  
 
Shares used in computing diluted earnings per share 110 110

Contacts

Dolby Laboratories
Investor Contact:
Alex Hughes, 415-645-4572
investor@dolby.com
Media Contact:
Sean Durkin, 415-645-5000
Dolby Laboratories
news@dolby.com

Release Summary

Dolby Laboratories, Inc. today announced the Company's financial results for its first quarter of fiscal 2012.

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Contacts

Dolby Laboratories
Investor Contact:
Alex Hughes, 415-645-4572
investor@dolby.com
Media Contact:
Sean Durkin, 415-645-5000
Dolby Laboratories
news@dolby.com