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Dolby Laboratories Reports Second Quarter Fiscal 2016 Financial Results

The following excerpt is from the company's SEC filing.

SAN FRANCISCO--(BUSINESS WIRE)--April 27, 2016--Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for the second quarter (Q2) of fiscal year 2016. For the second quarter, Dolby reported total revenue of $274.3 million, compared to $271.9 million for the second quarter of fiscal year 2015.

Second quarter GAAP net income was $67.4 million, or $0.66 per diluted share, compared to $58.0 million, or $0.56 per diluted share, for the second quarter of fiscal 2015. On a non-GAAP basis, second quarter net income was $83.5 million, or $0.82 per diluted share, compared to $74.9 million, or $0.72 per diluted share, for the second quarter of fiscal 2015. Dolby's non-GAAP measures are described and reconciled to the corresponding GAAP measures at the end of this release.

“It was a solid quarter and we gained momentum in mobile with the inclusion of Dolby Audio in iOS,” said Kevin Yeaman, President and CEO, Dolby Laboratories. “We’ve also expanded the number of Dolby Vision TVs in market and the amount of Dolby Vision content, while continuing to roll out Dolby Cinema locations around the world.”

Dividend

Today, Dolby announced a cash dividend of $0.12 per share of Class A and Class B common stock, payable on May 18, 2016, to stockholders of record as of the close of business on May 9, 2016.

Financial Outlook

Q3 2016

Dolby estimates that total revenue for the third quarter (Q3) of fiscal 2016 will range from $260 million to $275 million. Gross margin percentages are projected to range between approximately 89 percent and 90 percent on a GAAP basis and between 90 percent and 91 percent on a non-GAAP basis.

Dolby anticipates that operating expenses will be between $172 million and $175 million on a GAAP basis and between $154 million and $157 million on a non-GAAP basis.

Dolby estimates that diluted earnings per share will be between $0.47 and $0.53 on a GAAP basis and between $0.62 and $0.68 on a non-GAAP basis.

Dolby estimates that its fiscal Q3 2016 effective tax rate will be approximately 26 percent on both a GAAP and non-GAAP basis.

Fiscal Year 2016

Dolby anticipates that total revenue will range from $1 billion to $1.03 billion.

Dolby anticipates that operating expenses will be between $685 million and $690 million on a GAAP basis and between $610 million and $615 million 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 2016 financial results for Dolby Laboratories at 2:00 p.m. PT (5:00 p.m. ET) on Wednesday, April 27, 2016. Access to the teleconference will be available over the Internet from

http://investor.dolby.com/events.cfm

or by dialing 1-800-753-9057. International callers can access the conference call at 1-913-312-0654.

A replay of the call will be available from 5:00 p.m. PT on Wednesday, April 27, 2016, until 9:00 p.m. PT on Wednesday, May 4, 2016, by dialing 1-877-870-5176 (international callers can access the replay by dialing 1-858-384-5517) and entering the confirmation code 7546497. An archived version of the teleconference will also be available on the Dolby Laboratories website,

Non-GAAP Financial Information

To supplement Dolby's financial statements presented on a GAAP basis, Dolby provides certain non-GAAP financial measures. 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 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 Dolby's investor relations website at

Forward-Looking Statements

Certain statements in this press release, including, but not limited to, statements relating to Dolby's expected financial results for Q3 2016 and fiscal 2016, our ability to advance our long-term objectives, and future quarterly 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 personal computer, DVD, and Blu-ray Disc, broadcast, consumer electronics, gaming, mobile, and automobile 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 8 and Windows 10 devices and the rate of consumer adoption of Windows and other 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; timing of revenue recognition under licensing agreements and other contractual arrangements; 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; 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; 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) creates audio, video, and voice technologies that transform entertainment and communications in mobile devices, at the cinema, at home, and at work. For more than 50 years, sight and sound experiences have become more vibrant, clear, and powerful in Dolby. For more information, please visit

www.dolby.com

Dolby 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)

Fiscal Quarter Ended

Fiscal Year-To-Date Ended

April 1,

March 27,

Revenue:

(unaudited)

Licensing

249,336

243,333

460,465

459,931

Products

20,063

22,985

44,872

36,248

Services

4,941

5,632

9,817

10,009

Total revenue

274,340

271,950

515,154

506,188

Cost of revenue:

Cost of licensing

6,698

3,787

13,231

7,268

Cost of products

13,978

18,237

33,016

30,821

Cost of services

3,697

3,125

7,892

6,470

Total cost of revenue

24,373

25,149

54,139

44,559

249,967

246,801

461,015

461,629

Operating expenses:

Research and development

52,088

56,601

105,416

105,195

Sales and marketing

71,815

65,940

146,269

133,958

General and administrative

42,482

45,653

86,560

90,369

Restructuring charges/(credits)

1,255

(39

Total operating expenses

167,640

168,194

339,500

329,483

Operating income

82,327

78,607

121,515

132,146

Other income/expense:

Interest income

1,250

1,091

2,547

1,991

Interest expense

(33

(31

(62

(46

Other income/(expense), net

279

218

(693

110

Total other income

1,496

1,278

1,792

2,055

Income before income taxes

83,823

79,885

123,307

134,201

Provision for income taxes

(16,278

(21,353

(24,751

(33,732

Net income including controlling interest

67,545

58,532

98,556

100,469

Less: net (income) attributable to controlling interest

(147

(558

(257

(1,138

Net income attributable to Dolby Laboratories, Inc.

67,398

57,974

98,299

99,331

Net Income Per Share:

Basic

0.67

0.57

0.98

0.97

Diluted

0.66

0.56

0.95

Weighted-Average Shares Outstanding:

100,456

102,509

100,600

102,406

101,555

103,904

101,716

104,097

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

September 25,

ASSETS

Current assets:

Cash and cash equivalents

521,202

531,926

Restricted cash

5,278

2,936

Short-term investments

104,267

138,901

Accounts receivable, net

102,083

101,563

Inventories

17,259

13,872

Prepaid expenses and other current assets

36,198

32,031

Total current assets

786,287

821,229

Long-term investments

268,091

321,015

Property, plant and equipment, net

416,254

403,091

Intangible assets, net

216,082

127,507

Goodwill

309,880

307,708

Deferred taxes

149,272

143,279

Other non-current assets

12,985

9,464

Total assets

2,158,851

2,133,293

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

17,632

20,710

Accrued liabilities

158,534

169,307

Income taxes payable

754

Deferred revenue

22,321

18,910

Total current liabilities

198,487

209,681

Long-term deferred revenue

35,652

30,581

Other non-current liabilities

70,664

77,024

Total liabilities

304,803

317,286

Stockholders’ equity:

Class A common stock

54

51

Class B common stock

47

Additional paid-in capital

17,571

Retained earnings

1,853,602

1,800,857

Accumulated other comprehensive (loss)

(8,342

(11,462

Total stockholders’ equity – Dolby Laboratories, Inc.

1,845,361

1,807,068

Controlling interest

8,687

8,939

Total stockholders’ equity

1,854,048

1,816,007

Total liabilities and stockholders’ equity

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

42,917

33,578

Stock-based compensation

35,466

34,509

Amortization of premium on investments

2,661

4,811

Excess tax benefit from exercise of stock options

(338

(2,095

Provision for doubtful accounts

1,228

(487

Deferred income taxes

(5,709

(7,681

Other non-cash items affecting net income

498

1,252

Changes in operating assets and liabilities:

Accounts receivable

(1,727

(3,457

(3,533

1,397

Prepaid expenses and other assets

(6,979

(6,045

Accounts payable and other liabilities

(5,939

3,223

Income taxes, net

(8,752

12,064

8,495

5,486

22

916

Net cash provided by operating activities

156,866

177,940

Investing activities:

Purchase of investments

(200,944

(194,613

Proceeds from sales of investment securities

227,094

120,074

Proceeds from maturities of investment securities

59,053

Purchases of PP&E

(48,984

(78,488

Payments for business acquisitions, net of cash acquired

(93,516

Purchase of intangible assets

(105,270

(6,416

Change in restricted cash

(2,342

(14

Net cash used in investing activities

(71,393

(173,088

Financing activities:

Proceeds from issuance of common stock

14,575

12,638

Repurchase of common stock

(76,856

(32,364

Payment of cash dividend

(24,200

(20,470

Distribution to controlling interest

(214

(5,628

Excess tax benefit from the exercise of stock options

338

2,095

Shares repurchased for tax withholdings on vesting of restricted stock

(10,742

(11,809

Net cash used in financing activities

(97,099

(55,538

Effect of foreign exchange rate changes on cash and cash equivalents

902

(3,792

Net decrease in cash and cash equivalents

(10,724

(54,478

Cash and cash equivalents at beginning of period

568,472

Cash and cash equivalents at end of period

513,994

GAAP to Non-GAAP Reconciliations

(in millions, except per share data)

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 2016 and second quarter of fiscal 2015:

Net income:

GAAP net income

67.4

58.0

16.1

16.6

RSU dividend equivalent

0.3

0.6

Amortization of acquired intangibles

3.8

4.9

Restructuring charges, net

1.3

Income tax adjustments

(5.4

(5.2

Non-GAAP net income

83.5

74.9

Diluted earnings per share:

GAAP diluted earnings per share

0.16

0.01

0.04

0.05

(0.05

(0.06

Non-GAAP diluted earnings per share

0.82

0.72

Shares used in computing diluted earnings per share (in millions)

102

104

The following tables present a reconciliation between GAAP and non-GAAP versions of the estimated financial amounts for the third quarter of fiscal 2016 and fiscal year 2016 included in this release:

Gross margin:

GAAP gross margin (low - high end of range)

89% - 90%

0.2

0.8

Non-GAAP gross margin (low - high end of range)

90% - 91%

Fiscal 2016

GAAP operating expenses (low - high end of range)

$172 - $175

$685 - $690

(16.0

(68.0

(1.0

(2.0

(6.0

Non-GAAP operating expenses (low - high end of range)

$154 - $157

$610 - $615

0.47

0.53

0.17

0.03

0.62

0.68

101

CONTACT:

Investor Contact:

Elena Carr, +1-415-645-5583

investor@dolby.com

Media Contacts:

Jennifer Bowcock, +1-415-558-0140

Jennifer.bowcock@dolby.com

Joy Nestor, +1-415-558-0164

joy.nestor@dolby.com

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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