Dolby Laboratories, Inc. (NYSE:DLB) Q4 2019 Earnings Conference Call - Final Transcript

Nov 14, 2019 • 05:00 pm ET

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Dolby Laboratories, Inc. (NYSE:DLB) Q4 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
Lewis Chew

make a meaningful year-over-year comparisons in the Mobile space because, the 606 recast caused last year's Q4 Mobile to be about 1% of licensing, which is obviously not reflective of the organic business we have in that space. But I can say that Dolby technologies are more widely adopted into mobile devices now than they were a year ago and that's a key contributor to our growth in this space. On a sequential basis, Mobile was down by about 4% and that was due mainly to timing of revenue under contracts.

Consumer electronics represented about 14% of total licensing in the fourth quarter. CE licensing was down about 8% year-over-year due mostly to lower recoveries and on a sequential basis CE increased by about 30%, driven by higher adoption across several of the consumer device categories including sound bars and DMAs.

PC represented about 9% of total licensing in the fourth quarter. On a year-over-year basis, PC was down by about 5% due mainly to lower mix of ASPs, but on a sequential basis, PC revenue was roughly flat.

Other markets represented about 16% of total licensing in the fourth quarter. They were down by about 8% year-over-year due to lower recoveries that was offset partially by higher revenues from Dolby Cinema and from Gaming. On a sequential basis other licensing was up about 8% compared to Q3 driven by higher revenues in Gaming.

Products and services revenue was $34 million in Q4 compared to $30.3 million in Q3 and $25.9 million in last year's Q4. Growth in this area was driven by higher sales of our newer offerings in the Cinema products group.

Let me now review margins and operating expenses. Total gross margin in the fourth quarter was 84.6% on a GAAP basis and 85.4% on a non-GAAP basis. Gross margin percentage was a bit lower than I had guided as we had some higher cost of sales in licensing in Q4 that we don't anticipate to recur in Q1 and going forward. Products and services gross margin on a GAAP basis was 14.2% in the fourth quarter compared to 12.8% in Q3. Q4 product gross margin was also a little below what we had projected and that was due to some inventory write downs, or items that we decided to discontinue. Looking forward into Q1, we do anticipate the product gross margins should bounce back up to more typical levels.

Products and services gross margin on a non-GAAP basis was 18.9% in the fourth quarter compared to 16.3% in Q3, and the same comments apply here is what I said about GAAP product gross margins.

Operating expenses in the fourth quarter on the GAAP basis were $201.6 million, which includes $6 million of restructuring expenses, and that compares to total operating expenses in the third quarter of $228.2 million which included $30 million of restructuring expenses and the vast majority of these were related to lease facilities in San Francisco, which we decided to exit.

Operating expenses