San Francisco, CA (May 5, 2020) – Dolby Laboratories, Inc. (NYSE:DLB) today announced the company’s financial results for the second quarter of fiscal 2020. For the second quarter, Dolby reported total revenue of $351.8 million, compared to $338.3 million for the second quarter of fiscal 2019.
“We are well positioned to navigate these challenging times with the strength of our people, our value proposition, and our financial position,” said Kevin Yeaman, President and CEO, Dolby Laboratories. “Consumers want and need immersive entertainment and communications now more than ever, and Dolby is well positioned to bring these experiences across our entire portfolio of businesses.”
Second quarter GAAP net income was $88.5 million, or $0.86 per diluted share, compared to GAAP net income of $73.4 million, or $0.70 per diluted share for the second quarter of fiscal 2019. On a non-GAAP basis, second quarter net income was $106.6 million, or $1.04 per diluted share, compared to non-GAAP net income of $109.0 million, or $1.04 per diluted share for the second quarter of fiscal 2019. Second quarter cash flows from operations was $65.7 million, compared to $48.9 million for the second quarter of fiscal 2019. A complete listing of Dolby’s non-GAAP measures are described and reconciled to the corresponding GAAP measures at the end of this release.
Dolby continues to monitor the evolving situation of the COVID-19 pandemic on all aspects of our company. Our priorities continue to be the safety and well-being of our employees and supporting our communities. Since the initial outbreak of COVID-19, our revenues have been and we expect will continue to be impacted across various markets within licensing and products and services. The implications of COVID-19 on our future results of operations remain uncertain as the situation continues to develop globally.
We expect continued significant uncertainty in global financial markets. Dolby’s financial results for the second quarter of fiscal 2020 rely on estimates of royalty-based revenue that take into consideration the macroeconomic effect of global events, including the COVID-19 pandemic, which may impact supply chain activities and demand for shipments. For more information, see the section captioned “Critical Accounting Policies and Estimates” in our Quarterly Report on Form 10-Q for the second quarter of fiscal 2020, filed on the date hereof.
Today, Dolby announced a cash dividend of $0.22 per share of Class A and Class B common stock, payable on May 27, 2020, to stockholders of record as of the close of business on May 18, 2020.
Financial Outlook – Third Quarter Fiscal 2020
The circumstances relating to the COVID-19 pandemic continue to evolve and are difficult to predict. As a result, we are providing third quarter fiscal 2020 estimates that incorporate certain assumptions about the potential impact of COVID-19, based upon a consideration of external and internal data and information. We are unable to provide an estimate for our fourth quarter fiscal 2020 because of a lack of visibility. Therefore, our full year financial outlook as previously stated in our first quarter fiscal 2020 earnings release and related conference call is withdrawn.
Our actual results could differ materially from the estimates we are providing due to the challenging economic environment and highly uncertain effects of COVID-19. For more information, see “Forward-Looking Statements” in this press release for a description of certain risks that we face, and the section captioned “Risk Factors” in our Quarterly Report on Form 10-Q for the second quarter of fiscal 2020, filed on the date hereof.
Dolby is providing the following estimates for its third quarter of fiscal 2020:
- Total Revenue is estimated to range from $225 million to $250 million with the following assumptions incorporated
- A vast majority of global cinema sites are currently closed and most are unlikely to reopen before the end of June
- Unit volume shipments, aggregated across various end markets and devices, could be lower by 15% to 25% relative to what we had previously been modeling
- Gross margin percentages are anticipated to range from 86% to 87% on a GAAP basis and from 87% to 88% on a non-GAAP basis
- Operating expenses are anticipated to range from $191 million to $201 million on a GAAP basis and from $170 million to $180 million on a non-GAAP basis
- Effective tax rate is anticipated to range from 19% to 21% on both a GAAP basis and non-GAAP basis
- Diluted earnings per share is anticipated to range from $0.01 to $0.18 on a GAAP basis and from $0.18 to $0.35 on a non-GAAP basis
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 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 restructuring plans and primarily relate to costs associated with exit or disposal activities, 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 investor relations website, http://investor.dolby.com.
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 Audio, and Dolby Voice – revolutionize entertainment and communications at the cinema, on the go, in the home, and at work.
Dolby, Dolby Cinema, Dolby Vision, Dolby Atmos, Dolby Audio, 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.