Dolby Laboratories(DLB) - 2019 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2019, total revenue was $299 million, compared to $302 million in Q3 and $241 million in Q4 2018, indicating a year-over-year increase of 24% [8] - Licensing revenue for the quarter was $265 million, while products and services revenue was $34 million, both in line with guidance [8] - Total gross margin in Q4 was 84.6% on a GAAP basis and 85.4% on a non-GAAP basis, slightly lower than projected due to higher costs of sales in licensing [16] - Operating income in Q4 was $51.2 million on a GAAP basis, or 17.1% of revenue, compared to $12.6 million or 5.2% of revenue in Q4 of the previous year [20] - Net income on a GAAP basis was $43.9 million or $0.43 per diluted share, compared to $26.7 million or $0.25 per diluted share in Q4 of last year [22] Business Line Data and Key Metrics Changes - Broadcast represented about 44% of total licensing in Q4, with revenues up 14% year-over-year but down 12% sequentially [9] - Mobile devices accounted for approximately 17% of total licensing, with year-over-year comparisons difficult due to accounting changes, but showing wider adoption of Dolby technologies [10] - Consumer electronics represented about 14% of total licensing, down 8% year-over-year but up 30% sequentially due to higher adoption in sound bars and DMAs [12] - PC licensing was about 9% of total licensing, down 5% year-over-year due to lower ASPs, but roughly flat sequentially [13] - Other markets represented about 16% of total licensing, down 8% year-over-year but up 8% sequentially, driven by higher revenues in gaming [14] Market Data and Key Metrics Changes - The company anticipates growth in Broadcast revenues from increased adoption of Dolby Atmos and Dolby Vision, but projects lower recoveries for the year [29] - In mobile, revenues are expected to grow above the company average, driven by branded technologies and innovative patent licensing programs [30] - Consumer electronics growth is projected primarily from DMAs, sound bars, and smart speakers [30] - In PC licensing, continued downward pressure from ASPs is expected, but offset by adoption of newer technologies [30] - Dolby Cinema is expected to grow, with plans to add a similar number of new screens in FY 2020 as in FY 2019 [31] Company Strategy and Development Direction - The company is focused on broadening the reach of its technologies to drive higher growth, particularly through Dolby Vision and Dolby Atmos [37] - There is a strong emphasis on expanding Dolby Cinema globally, with new locations opened in various countries [46] - The company aims to increase the adoption of Dolby technologies in mobile and PC markets, which are still in early stages [50] - Continued investment in making Dolby experiences available in sports, gaming, and user-generated content is a priority [52] - The company is looking for ways to extend the Dolby experience beyond premium entertainment, enhancing media experiences across various aspects of life [56] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining revenue and earnings growth, with expectations for double-digit growth in the future [47] - The company noted that the adoption cycle for Dolby Vision and Dolby Atmos is still in early stages, with significant opportunities ahead [48] - Management highlighted the importance of increasing compelling content to drive growth and adoption of Dolby technologies [51] - The outlook for FY 2020 includes total revenue projected to range from $1,300 million to $1,350 million, with licensing revenue between $1,160 million and $1,200 million [28] - The effective income tax rate for FY 2020 is expected to range from 18% to 21% on both GAAP and non-GAAP basis [33] Other Important Information - The company generated about $130 million in cash from operations in Q4 and ended the quarter with over $1 billion in cash and investments [24] - A quarterly cash dividend was raised by $0.03 per share, from $0.19 to $0.22, payable on December 4, 2019 [25] - Operating expenses in Q4 were $201.6 million on a GAAP basis, down from $228.2 million in Q3, reflecting restructuring expenses [19] Q&A Session Summary Question: Timeline for Accelerating Growth - Management believes that growth could accelerate as the year progresses, driven by increased content availability and partnerships [62] Question: Comparability of 2020 to 2019 - Fiscal 2020 guidance is considered a fair comparison to fiscal 2019, as both years are accounted under the same standards [65] Question: Q1 Revenue Guidance - The lower Q1 guidance is attributed to seasonal patterns rather than specific headwinds, with expectations for a revenue spike in Q2 [66][70] Question: Growth in New Products - Management indicated that Dolby Vision and Dolby Cinema are no longer new, and growth opportunities will be discussed in the context of each market [72] Question: Free Cash Flow and Working Capital - Cash flow from operations is expected to normalize in FY 2020, with projections for free cash flow to exceed $300 million [109] Question: Dolby Cinema Economic Model - The majority of Dolby Cinema locations operate under a revenue-sharing model, with some exceptions based on market characteristics [115]