Dolby Labs' CEO Discusses F1Q12 Results - Earnings Call Transcript

Dolby Laboratories, Inc. (DLB)

F1Q12 Earnings Call

January 31, 2011 5:00 p.m. EST

Executives

Alex Hughes – IR Senior Director

Murray Demo – CFO, EVP

Kevin Yeaman – President and CEO

Ramsey Heidemann – EVP, Sales and Marketing

Analysts

Steve Frankel – Dougherty & Co.

Ralph Schackart – William Blair & Co.

Paul Coster – J.P. Morgan

John Vinh – Collins Stewart

Andy Hargreaves – Pacific Crest Securities

Daniel Ernst – Hudson Square Research

Jim Goss – Barrington Research

Presentation

Operator

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Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories conference call discussing fourth -- I'm sorry, first quarter fiscal year 2012 financial results.

(Operator Instructions). As a reminder, this call is being recorded Tuesday, January 31, 2012.

I would now like to turn the conference over to Mr. Alex Hughes, Senior Director of Investor Relations for Dolby Laboratories. Please go ahead, Mr. Hughes.

Alex Hughes

Thank you, [Tom]. Good afternoon and welcome to Dolby Laboratories first quarter fiscal 2012 earnings conference call.

Joining me today are Kevin Yeaman, Dolby Laboratories President and Chief Executive Officer; Murray Demo, Executive Vice President and Chief Financial Officer; and Ramsey Heidemann, Executive Vice President of Sales and Marketing.

On this conference call we will be making forward-looking statements that include projections of future operating results for our fiscal year ending September 28, 2012; market trends and developments for the industries in which we compete, and our expectations and beliefs concerning how these trends and developments will affect our operating results; the capabilities and market acceptance of our products and technologies; and our strategic and operational plans and objectives. These statements are based on management's current expectations and assumptions that are subject to risks and uncertainties. Actual results may differ materially from those set forth in such statements. Important factors such as general economy, PC, broadcast, consumer electronics or cinema market conditions could cause actual results to differ materially from those set forth in our forward-looking statements.

These factors are addressed in the earnings press release that we issued today under the section captioned Risk Factors and elsewhere in our most recent annual report on Form 10-K available at www.sec.gov or on our website at www.dolby.com under the Investor Relations section. Dolby disclaims any obligation to update information containing these forward-looking statements whether as a result of new information, future events or otherwise.

During this call we will discuss GAAP and non-GAAP financial measures. A reconciliation between the two is available on our earnings release and the Dolby Laboratories investor relations data sheet on our Investor Relations section of our website.

Call participants are advised that the audio of this conference call is being broadcast live over the Internet. It is also being recorded for playback purposes. An archive of the call will be made available on our website for approximately one year and is the property of Dolby.

As for the structure of this call, Murray will begin with a recap of Dolby's financial results and provide our fiscal 2012 outlook. Kevin will finish with a discussion of the business.

So with that introduction behind us, I will now turn the call over to Murray.

Murray Demo

Thanks, Alex. Good afternoon and thank you for joining the call. I'd like to discuss Dolby's fiscal Q1 financial performance and our outlook for fiscal 2012.

Total revenue for the first quarter was $233.4 million, down 4% year over year and sequentially. Licensing revenue for the first quarter was $199.6 million, up 6% year over year and down 3% sequentially. The year-over-year increase was driven by our Broadcast market and our Other Markets category. The sequential decline was driven by our Other Markets category and Broadcast.

Looking at licensing revenue by market. First quarter PC revenue was flat year over year as growth from Windows 7 and other PC-related revenue offset a decline from ISV. Sequentially, PC revenue increased 4%, primarily on growth from Windows 7. First quarter Broadcast revenue grew 20% year over year and declined 7% sequential. The year-over-year increase was driven primarily by higher revenue from set-top box and TV. The sequential decline was driven primarily from lower revenue from TV and set-top box.

First quarter revenue from our Consumer Electronics market declined 15% year over year, primarily from lower DVD revenue. Sequentially, revenue increased 13%, driven by a number of Consumer Electronics categories. First quarter revenue from our Other Markets category, which includes Mobile, Gaming, Automotive and Via increased 26% year over year and declined 18% sequentially. The year-over-year increase was led by growth in Mobile. The sequential decline resulted from the Q4 fiscal 2011 settlement with Research In Motion discussed last quarter.

First quarter product revenues were $26.4 million, down 43% year over year and 14% sequentially. The year-over-year and sequential declines were driven primarily by lower shipments of our 3D and Digital Cinema systems. First quarter Services revenue was $7.4 million, down 14% year over year and up 2% sequentially.

Turning to margins, GAAP gross margin in the first quarter was 91.3% and 92.1% on a non-GAAP basis. Our Licensing gross margin was 98.3% in the first quarter on a GAAP basis and 99% on a non-GAAP basis. GAAP product gross margin was 47.4% in the first quarter and 49.8% on a non-GAAP basis. GAAP Services gross margin was 56.6% and non-GAAP Services gross margin was 57.3% in the first quarter.

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