Dolby Laboratories Reports Second Quarter Fiscal 2013 Financial Results

SAN FRANCISCO--()--Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company’s financial results for the second quarter of fiscal year (FY) 2013. Dolby reported total revenue of $249.3 million for the second quarter of FY 2013, compared to $262.8 million for the second quarter of FY 2012.

Second quarter FY 2013 GAAP net income was $61.9 million, or $0.60 per diluted share, compared to $88.1 million, or $0.81 per diluted share, for the second quarter of FY 2012. On a non-GAAP basis, second quarter FY 2013 net income was $76.4 million, or $0.74 per diluted share, compared to $99.2 million, or $0.91 per diluted share, for the second quarter of FY 2012. Dolby’s non-GAAP measures are described and reconciled to the corresponding GAAP measures at the end of this release.

“In the second quarter, we continued to grow our presence in the broadcast and mobile markets,” said Kevin Yeaman, President and Chief Executive Officer, Dolby Laboratories. “In addition, key partners endorsed our newest technologies. BT unveiled the first business conferencing service with Dolby Voice, and James Cameron and Vince Pace’s Cameron Pace Group is backing our Dolby glasses-free 3D format.”

Financial Outlook

Q3 FISCAL 2013

Dolby anticipates total revenue to range from $205 million to $215 million. Gross margin percentages are projected to be approximately 89% on a GAAP basis and 90% on a non-GAAP basis.

Dolby anticipates that operating expenses will be approximately $145 million on a GAAP basis and $125 million on a non-GAAP basis.

The Company estimates that its fiscal Q3 2013 effective tax rate will range from 27 percent to 28 percent.

Dolby expects diluted earnings per share to be between $0.26 and $0.32 on a GAAP basis and between $0.42 and $0.49 on a non-GAAP basis.

FISCAL YEAR 2013

Dolby now anticipates that total revenue will range from $910 million to $940 million.

Dolby now anticipates that operating expenses will be approximately $572 million on a GAAP basis and approximately $500 million or less on a non-GAAP basis.

The Company’s Conference Call Information

Members of Dolby management will lead a conference call open to all interested parties to discuss Dolby Laboratories’ second quarter fiscal 2013 financial results at 2:00 p.m. PT (5:00 p.m. ET) on Thursday, April 25, 2013.

Access to the teleconference will be available over the Internet from http://investor.dolby.com/medialist.cfm or by dialing 1-888-296-4217. International callers can access the conference call at 1-719-325-2209.

A replay of the call will be available from 5:00 p.m. PT on Thursday, April 25, 2013, until 9:00 p.m. PT on Thursday, May 2, 2013 by dialing 1-877-870-5176 (international callers can access the replay by dialing 1-858-384-5517) and entering the confirmation code 3736618. 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 net income, gross margin, operating expense, and diluted earnings per share. These measures are adjusted to exclude amounts related to stock-based compensation, expense associated with dividend equivalents paid on restricted stock units, the amortization of intangibles from business combinations, restructuring charges, and the related tax impact of these items. Dolby presents 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 both GAAP and non-GAAP measures 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 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 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, but not limited to, statements relating to Dolby’s expected financial results for Q3 2013 and full year fiscal 2013 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 personal computer, DVD, and Blu-ray Disc™, broadcast, consumer electronics, gaming, mobile, and automobile markets; pricing pressures; risks associated with the rate at which OEMs include optical disc playback in Windows® 8 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; risks relating to the expiration of patents; the timing of Dolby’s receipt of royalty reports and 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 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 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 from the cinema to the living room to mobile devices, 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. Dolby Voice is a trademark of Dolby Laboratories. Blu-ray Disc is a trademark of the Blu-ray Disc Association. Windows is a registered trademark of Microsoft Corporation. S13/26888 DLB-F

 
DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

 
      Fiscal Quarter Ended     Fiscal Year-to-Date Ended
March 29,     March 30,     March 29,     March 30,
2013     2012     2013     2012
Revenue:
Licensing $ 226,455 $ 227,849 $ 431,331 $ 428,273
Products 17,726 27,228 43,224 53,628
Services 5,165       7,682       11,393       15,036  
Total revenue 249,346       262,759       485,948       496,937  
Cost of revenue:
Cost of licensing 6,409 3,303 9,489 6,631
Cost of products 13,206 17,635 31,695 31,523
Cost of services 3,668       2,654       7,704       5,848  
Total cost of revenue 23,283       23,592       48,888       44,002  
Gross margin 226,063       239,167       437,060       452,935  
Operating expenses:
Research and development 41,948 34,236 84,384 67,062
Sales and marketing 58,130 45,694 116,551 89,510
General and administrative 41,803 37,281 84,911 72,746
Restructuring charges, net       910             1,278  
Total operating expenses 141,881       118,121       285,846       230,596  
Operating income 84,182 121,046 151,214 222,339
Interest income 904 1,414 2,243 3,151
Interest expense (402 ) (5 ) (427 ) (31

)

Other income, net 188       60       901       260  
Income before income taxes 84,872 122,515 153,931 225,719
Provision for income taxes (22,633 )     (34,198 )     (40,215 )     (64,036 )
Net income including controlling interest 62,239 88,317 113,716 161,683
Less: net income attributable to controlling interest (328 )     (197 )     (456 )     (404 )
Net income attributable to Dolby Laboratories, Inc. $ 61,911       $ 88,120       $ 113,260       $ 161,279  
Net income per share:
Basic $ 0.61 $ 0.81 $ 1.11 $ 1.48
Diluted $ 0.60 $ 0.81 $ 1.10 $ 1.48
Weighted-average shares outstanding:
Basic 101,638 108,415 102,000 108,650
Diluted 102,680 109,170 102,980 109,242
 

 
DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 
      March 29,     September 28,
2013     2012
ASSETS
Current assets:
Cash and cash equivalents $ 328,508 $ 492,600
Short-term investments 124,415 302,693
Accounts receivable 91,201 43,495
Inventories 19,487 16,700
Deferred taxes 84,038 80,966
Prepaid expenses and other current assets 29,432       33,832
Total current assets 677,081 970,286
Long-term investments 327,946 361,614
Property, plant and equipment, net 249,017 254,676
Intangible assets, net 48,489 56,526
Goodwill 280,979 281,375
Deferred taxes 30,988 22,634
Other non-current assets 12,005       13,687
Total assets $ 1,626,505       $ 1,960,798
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 6,673 $ 14,831
Accrued liabilities 119,638 116,092
Income taxes payable 5,516 2,424
Deferred revenue 20,547       23,493
Total current liabilities 152,374 156,840
Long-term deferred revenue 19,167 18,192
Deferred taxes 2,691 2,696
Other non-current liabilities 43,740       39,837
Total liabilities 217,972 217,565
Stockholders’ equity:
Class A common stock 47 46
Class B common stock 55 57
Additional paid-in capital 3,425
Retained earnings 1,378,371 1,709,479
Accumulated other comprehensive income 8,772       10,687
Total stockholders’ equity – Dolby Laboratories, Inc. 1,390,670 1,720,269
Controlling interest 17,863       22,964
Total stockholders’ equity 1,408,533       1,743,233
Total liabilities and stockholders’ equity $ 1,626,505       $ 1,960,798
 

 
DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 
      Fiscal Quarter Ended     Fiscal Year-to-Date Ended
March 29,     March 30,     March 29,     March 30,
2013     2012     2013     2012
Operating activities:              
Net income including controlling interest $ 62,239 $ 88,317 $ 113,716 $ 161,683
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 13,291 10,174 26,420 20,103
Stock-based compensation 14,945 12,063 32,649 23,502
Amortization of premium on investments 2,159 4,386 5,953 9,306
Excess tax benefit from exercise of stock options (180 ) (368 ) (649 ) (425 )
Provision for doubtful accounts 449 184 270 132
Deferred income taxes (7,950 ) (2,387 ) (10,577 ) (10,030 )
Other non-cash items affecting net income (181 ) 1,010 (872 ) 2,237
Changes in operating assets and liabilities:
Accounts receivable (39,884 ) (3,428 ) (47,948 ) 4,103
Inventories 5,419 8,147 (754 ) 876
Prepaid expenses and other assets (5,724 ) (2,229 ) 2,901 (1,128 )
Accounts payable and other liabilities 17,756 10,139 (2,142 ) (12,721 )
Income taxes, net (5,090 ) (10,323 ) 4,422 14,108
Deferred revenue (1,846 ) 1,497 (1,989 ) 836
Other non-current liabilities 416       1,695       1,428       2,087  
Net cash provided by operating activities 55,819       118,877       122,828       214,669  
Investing activities:
Purchases of available-for-sale securities (118,862 ) (67,523 ) (322,997 ) (122,249 )
Proceeds from sales of available-for-sale securities 78,037 53,966 467,105 105,454
Proceeds from maturities of available-for-sale securities 13,625 63,870 64,950 111,515
Purchases of property, plant and equipment (5,447 ) (17,884 ) (12,164 ) (30,450 )
Acquisitions, net of cash acquired (575 )
Other investments (3,000 )
Purchases of intangible assets (2 ) (4,050 )
Proceeds from sales of property, plant and equipment and assets held for sale 357       380       376       715  
Net cash provided by (used in) investing activities (32,292 )     32,809       190,220       64,410  
Financing activities:
Proceeds from issuance of common stock 2,700 5,818 7,202 6,631
Repurchase of common stock (11,477 ) (60,081 ) (65,433 ) (86,149 )
Payment of cash dividend (408,206 )
Distribution to controlling interest (5,039 )
Excess tax benefit from the exercise of stock options 180 368 649 425
Shares repurchased for tax withholdings on vesting of restricted stock (1,496 )     (4,077 )     (5,132 )     (3,107 )
Net cash used in financing activities (10,093 )     (57,972 )     (475,959 )     (82,200 )
Effect of foreign exchange rate changes on cash and cash equivalents (1,119 )     (140 )     (1,181 )     (403 )

Net increase/(decrease) in cash and cash equivalents

12,315 93,574 (164,092 ) 196,476
Cash and cash equivalents at beginning of period 316,193       654,414       492,600       551,512  
Cash and cash equivalents at end of period $ 328,508       $ 747,988       $ 328,508       $ 747,988  
 

 
GAAP to Non-GAAP Reconciliations
(In millions, except per share data)
         
The following tables present the Company’s GAAP financial measures reconciled to the non-GAAP financial measures included in this release for the second fiscal quarter of 2013 and 2012:
 
Net income: Fiscal Quarter Ended
March 29, March 30,
2013     2012
GAAP net income $ 61.9 $ 88.1
Stock-based compensation 14.9 12.1
RSU dividend equivalent 2.2
Amortization of acquired intangibles 3.4 2.7
Restructuring charges, net 0.9
Income tax adjustments (6.0 )     (4.6 )
Non-GAAP net income $ 76.4       $ 99.2  
 
Diluted earnings per share: Fiscal Quarter Ended
March 29, March 30,
2013     2012
GAAP diluted earnings per share $ 0.60 $ 0.81
Stock-based compensation 0.15 0.11
RSU dividend equivalent 0.02
Amortization of acquired intangibles 0.03 0.02
Restructuring charges, net 0.01
Income tax adjustments (0.06 )     (0.04 )
Non-GAAP diluted earnings per share $ 0.74       $ 0.91  
 
Shares used in computing diluted earnings per share (in millions) 103 109
 

The following tables present a reconciliation between GAAP and non-GAAP versions of the estimated financial amounts for the third fiscal quarter of 2013 and fiscal year 2013 included in this release.

 
Gross margin: Q3 2013
GAAP gross margin 89 %
Stock-based compensation %
RSU dividend equivalent %
Amortization of acquired intangibles 1 %
Non-GAAP gross margin 90 %
 
Operating expenses: Q3 2013     Fiscal Year 2013
GAAP operating expenses $ 145 $ 572
Stock-based compensation (15 ) (60 )
RSU dividend equivalent (2 ) (6 )
Amortization of acquired intangibles (1 ) (4 )
Restructuring charges, net (2 )     (2 )
Non-GAAP operating expenses $ 125       $ 500  
 
Diluted earnings per share: Q3 2013
Low     High
GAAP diluted earnings per share $ 0.26 $ 0.32
Stock-based compensation 0.15 0.16
RSU dividend equivalent 0.02 0.02
Amortization of acquired intangibles 0.03 0.03
Restructuring charges, net 0.02 0.02
Income tax adjustments (0.06 )     (0.06 )
Non-GAAP diluted earnings per share $ 0.42       $ 0.49  
 
Shares used in computing diluted earnings per share (in millions) 103 103
 

Contacts

Investor Contact:
Dolby Laboratories
Alex Hughes, 415-645-4572
investor@dolby.com
or
Media Contact:
Dolby Laboratories
Sean Durkin, 415-645-5176
news@dolby.com

Contacts

Investor Contact:
Dolby Laboratories
Alex Hughes, 415-645-4572
investor@dolby.com
or
Media Contact:
Dolby Laboratories
Sean Durkin, 415-645-5176
news@dolby.com