Q4 2020 Dolby Laboratories Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to the Dolby Laboratories conference call disgusting.
This call fourth quarter and the school 2020 results during.
During the presentation, all participants will be any listen only mode. After.
The words, you will be invited to participate in a question and answer session.
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As reminder, this call is being recorded.
First day November 12, 2020, I would now like to turn the conference call over to Jason Beach Director of Investor Relations for Dolby Laboratories. Please go ahead Jason.
Good afternoon.
Welcome to Dolby Laboratories' fourth quarter 2020, <unk> earnings conference call.
Joining me today.
Good morning.
Jones, President and CEO.
That's true executive Vice President and Chief Financial Officer.
I don't like her stage discussion will include forward looking statements, including.
Our first quarter and second quarter fiscal 2021 outlook you know.
But I wonder why.
These statements are subject to risks and uncertainties.
Cause actual results to differ materially.
Statements made today.
In particular.
That's the continued impact of Kobe <unk> orthopedics remains uncertain at this time.
Discussion of these and additional risks and uncertainties can be found.
The press release issued today or the section captioned forward looking statements as well as.
The risk factor section of our most recent quarterly report on form 10-Q.
Dolby assumes no obligation and does not intend.
Update any forward looking statements made during this call as a result of new condition or future events.
During today's call, we'll discuss GAAP and non-GAAP financial measures.
Relation between the two is available in our earnings press release.
And the Dolby laboratories investor relation.
Data sheet.
On the Investor Relations section.
Hello.
As for the content of today's call.
We'll begin with a recap of goods financial results.
Right of first and second quarter 2021 out.
Kevin will finish with a discussion.
So without interruption the hardest I went out to the cold.
Yes.
Alright, Thank you, Jason and congratulations in advance for the impending arrival of your second child.
Well good afternoon, everyone I hope everyone is doing well our Q4 revenue was above our guidance, but was still down on a year over year basis and that reflects the ongoing impact of the pandemic.
So let's go through the numbers.
Fourth quarter revenue was $271 million compared to 247 million in Q3, and 299 million in Q4 of last year.
Our revenue guidance coming into the fourth quarter was a range of 225 million to 255 million so compare.
The guidance revenues were better than what we projected as we had a true up of about $25 million in the quarter related to Q3 shipments, which was about 15 million higher than the true up that we had last quarter and with most of that improvement coming from Tvs and set top boxes and Pcs.
Total company revenue in Q4.
Increased sequentially by $24 million compared to Q3, as we benefited from higher unit volumes and Tvs set top boxes, DNA and Pcs along with the higher true up that I just discussed and all this was partially offset by lower revenue from mobile due to timing of the contracts and I'll discuss that in a second.
Looking at Q4 on a year over year basis total company revenue was down by $28 million from last years Q4, and we can't attribute that mainly to COVID-19, especially in products and services, which were down by about $20 million or nearly 60% below last year.
The composition of Q4 revenue was.
$457 million in licensing and $14 million in products and services. So let's break down licensing revenue by end markets starting with broadcast.
Broadcast represented about 47% of total licensing in the fourth quarter brought.
Broadcast revenues increased by about 2% year over year helped by the higher.
True up related to the Q3 shipments, but also driven by higher adoption in TV set top boxes and that this was that offset partially by lower recoveries in the quarter.
On a sequential basis broadcast was up by about 35% due to higher volume and Tvs and set top boxes, along with higher recoveries and the higher true.
Mobile mobile represented approximately 15% of total licensing in Q4.
Overall was down by about 13% over last year due to lower recoveries, but partially offset by higher adoption of Dolby technologies.
For the sequential comparison I should point out that last quarter Q3 mobile.
It was about 33% for licensing which was higher than normal and that was due to timing of revenue under customer contracts. So we came into Q4 expecting mobile revenue to decline this quarter and returned to more normalized percentage of revenue, which is what to do and so accordingly mobile revenue was down sequentially by about 50% and that was primarily due.
Timing of revenue under customer contracts.
Consumer electronics represented about 13% of total licensing in the fourth quarter on a year over year basis, CE licensing was down by about 8%, mainly due to lower recoveries.
On a sequential basis see he was about 68% higher than Q3.
And as a reminder, Q3 was lower than usual at only 9% of licensing because of timing under contracts and so the sequential increase from Q3 to Q4 was mostly a return to a more normal level.
TC represented about 12% of total licensing in Q4, PC was higher than last year by about.
26% helped by the higher true up and also because the increased adoption of Dolby technologies.
And sequentially PC was up by about 32% that's for similar reasons.
Other markets represented about 13% of total licensing in the fourth quarter and they were down by about 19% year over year.
Due to significantly lower Dolby cinema box office share and that's because of the cold with restrictions and lack of big titles and also because of lower revenues from gaming due to console lifecycles and lower recoveries in automotive.
On a sequential basis other markers was up by about 32% driven by higher revenue from gaming and.
Via admin fees, that's the talent pool that we administer.
Excuse me.
Beyond licensing our products and services revenue was $14.3 million in Q4 compared to $11.8 million in Q3 and $34 million in last years Q4.
Our guidance I'd anticipate.
Paid to the large year over year decrease because most of this revenue comes from equipment that we sell to cinema exhibitors and these customers continued to be negatively affected by the pandemic.
And speaking of products and services revenue going forward into Q1, we're winding down and exiting comp.
Conferencing hardware sales as we will now be fully focused on expanding the availability of the Dolby voice experience through software solutions, such as interactivity Apia eyes on our developer platform.
The later on when I cover the outlook for every 21 my comments on products and services revenue and gross margin.
Reflect the fact that we are exiting the conferencing hardware arena.
Now I'd like to discuss Q4 margins and operating expenses.
Total gross margin in the fourth quarter was 84.3% on a GAAP basis, and 85.1% on a non-GAAP basis.
Products and services gross margin on a GAAP basis was minus $15.5 million into fourth quarter and a large portion of that consisted of charges for excess and obsolete inventory associated with conferencing hardware and that relates back to what I, just said a minute ago about our plans in that space.
Going forward into Q.
One we anticipate their products and services margin will still be negative, but more along the lines of around minus $3 million or minus $4 million I'll cover. This again in the outlook section in a few minutes.
Products and services gross margin on a non-GAAP basis was minus $14.1 million in the fourth quarter and my comment.
Here are similar to what I, just said for GAAP gross margins.
Operating expenses in the fourth quarter on a GAAP basis were slightly above the high end of the range that we had guided coming in at $198.7 million compared to $182.9 million in Q3, I remember that Q3 was particularly.
Low for US is that was the first full quarter of reacting to COVID-19, and lots of our activities had been temporarily halted or pushed out.
Operating expenses in the fourth quarter on a non-GAAP basis were $176.5 million, which is within our range and sales compared to $159.2 million in the third.
Obama order and basically the same comments that I made and GAAP apply here as well.
Operating income in the fourth quarter was $30.1 million on a GAAP basis, or 11.1% of revenue compare to $51.2 million or 17.1% of revenue in Q4 of last.
Last year.
Operating income in the fourth quarter on a non-GAAP basis was $54.3 million or 20% of revenue compared to $77.6 million or 26% of revenue in Q4 of last year.
Income tax in Q4 was 21.8.
Accent on both a GAAP and non-GAAP basis.
The effective tax rate was slightly higher than guidance and that was due mainly to the mix of our income between different tax jurisdictions.
Net income on a GAAP basis in the fourth quarter was $26.8 million or 26 cents per diluted share compared to $43.9 million.
Plus or 43 cents per diluted share in last year's Q4.
Net income on a non-GAAP basis in the fourth quarter was $45.8 million or 45 cents per diluted share compared to $67.6 million or 66 cents per diluted share in Q4 of last year.
Both GAAP and non-GAAP net income in Q4 was above the guidance that we gave at the beginning of the quarter and that was primarily due to revenue being above the high end of our range offset partially by the lower product and services gross margins that I mentioned a minute ago.
During the fourth quarter, we generated about $113 million.
I was in cash from operations, which compares to about $130 million generated in last years fourth quarter.
We ended the fourth quarter with nearly $1.2 billion in cash and investments.
During Q4, we bought back about 640000 shares of our common stock and ended the quarter with about 187.
Finally in dollars the stock repurchase authorization still available to us.
We also announced today a cash dividend of 22 cents per share the dividend will be payable on December 4th 2020 to shareholders of record on November 24 2020.
So before I go into the.
Outlook for F Y 21, let's summarize the results for the full year F Y 20.
Total revenue and F Y 20 was $1.162 billion.
That compares to a 1.241 billion in the prior year with.
With the year over year decline due to the impact from Cove in 19.
Within total revenue licensing was 1.079 billion, which was down about $28 million from last year due to lower consumer activity because of the pandemic while.
While products and services revenue was $83 million for the year down about $51 million from last year due mainly to lower demand from the cinema industry.
Because of restrictions brought on also by the pandemic.
Operating income for the full year fly 20 was $219 million on a GAAP basis or about 19% of revenue and operating income on a non-GAAP basis was $318 million or about 27% of revenue.
Net income on a GAAP basis was $231 million or two to $2.25 per diluted share and net income on a non-GAAP basis was $305 million or $2 or 97 cents per diluted share.
Cash flow from operations for the full year was 344 million.
Million dollars and that's slightly up from the previous year, where cash flow from operations was $328 million.
So now let's discuss the full year outlook.
First let me say that will be finished will be facing some interesting dynamics in that fight 21 with our year over year comparisons.
Correct.
As we have a September year end. The first two quarters of F. Y 20 were mostly unaffected by COVID-19, while the last two quarters to verify Tony we're fully effected by Covis.
And as we head into F Y 21, Cobiz continues to persist and visibility is very limited even more so the further out you try to look.
Today, I'm going to provide an outlook scenario for the first half of the first half of the year, including our perspective on what Q1 and Q2 revenue could be and for the second half the year because visibility is limited we're not providing guidance at this time, but I will provide some color on some of the factors that could affect the second half.
So let's discuss the first half.
In the first half of that slide 21, we currently anticipate year over year growth in licensing revenue and that could be offset by year over year decline in products and services revenue.
The anticipated growth that we could get in licensing would come mainly from higher adoption of our.
Technologies as industry analysts currently are predicting market tends to be flat to slightly down in the first half.
And also we anticipate Dolby cinema licensing revenue to be significantly down year over year in our first half because of that coated versus pre cobot factor.
Of comparison in the cinema industry and.
And then for that same reason, we are anticipating similar product sales to be down year over year.
Now within the first half of the year based on what we currently see here's the scenario were assuming for Q1 and then Q2.
In the.
Theres quarter of F. Y 21, we anticipate the total revenue could range from $330 million to $360 million.
Within that we estimate that licensing could range from $320 million to $345 million, while products and services is projected to range from.
$7 million to $15 million.
At the midpoint of the range, we anticipate growth in light seem to be driven by higher adoption of our technologies across a range of devices.
In addition, the Q1 licensing outlook is benefiting from timing of revenue under customer contracts as well as potentially higher.
Deliveries.
Now, we're not anticipating as much revenue from these items, namely the timing or the recoveries in our second quarter and by the way last year. It was Q2 now Q1 benefited more from timing of recoveries.
So with that in mind and based on what we currently see and having just gone over the Q1 revenue outlook.
We currently see our Q2 revenue scenario looking like a range of about $270 million to $300 million.
And doing the math for you on the first half of <unk> 521 by combining the Q1 and Q2 figures I just went over our current outlook scenario assumes a first half fly 21.
Our new range of 600 million to $660 million, we will plan to update you on how this picture has evolved after Q1 is completed.
As for the second half like I said, we're not giving guidance for the second half, but here are some points to consider.
On a sequential basis in our life.
The revenue, we typically see second half revenues lower than the first half because of lower seasonality in consumer device shipments and also because of timing of revenue under customer contracts.
On a year over year basis, while we do expect to see continuing benefit from increased adoption of Dolby technologies. It's.
Noting that with respect to market Tams current industry analysts reports are projecting markets like PC and TV tends to be down on a year over year basis in the second half and Thats because of an uptick in unit shipments that happened in the latter part of the Fytwenty that might not repeat in that same timeframe next year. So.
So of course, it's much too early to know that will be true, but thats what the current reports currently suggest.
And as for Dolby cinema incentive or products the year over year comparisons should be favorable in the second half, but we don't know to what extent are at what pace.
So those are a few things to think about for the second half and we thought it was worth provide.
For that color.
So let me now finish up by providing the outlook on the rest of the PML for Q1 already highlighted the revenue range scenario of $330 million to $360 million. So Q1 gross margin on a GAAP basis is estimated to range from 90% to 91% and the non-GAAP gross.
The margin is estimated to range from 91% to 92%.
Within that products and services gross margin is estimated to range from minus $3 million to minus $4 million on a GAAP basis and from minus $2 million to minus $3 million on a non-GAAP basis.
As I.
Rose to an earlier, we are winding down and exiting the confidence conferencing hardware space and the demand for cinema products continued to be weak because the industry conditions and as a result, we are reducing certain resources and manufacturing as well as other areas that were connected with conferencing hardware and cinema products.
We anticipate that it will take.
Made several months to complete various activities to smoothly transition, our conferencing hardware partners and end customers.
With respect to the impact on our products and services gross margin, we estimate that we could start to see savings in our cost of goods sold by around the end of fiscal Q2 and Thats because of these transitioning activities that we have.
Operating expenses in Q1 on a GAAP basis, our estimated range from 207 million to 219 million included in this range is approximately $7 million to $9 million of restructuring charges for severances and related benefits that are being provided to employees that are impacted by the action.
Hey, guys I, just mentioned a minute ago.
Operating expenses in Q1 on a non-GAAP basis are estimated to range from $175 million to $185 million and this range excludes the estimated restructuring charge.
Other income is projected to range from $1 million to $2 million for the quarter.
And.
Our effective tax rate for Q1 is projected to range from 20% to 21% on both a GAAP and non-GAAP basis.
But based on a combination of the factors I just covered we estimate that Q1 diluted earnings per share could range from 70 cents to 85 cents on a GAAP basis and from 97 cents.
And the $1.12 on a non-GAAP basis, so thats it for me over to you Kevin.
Thank you Lewis and.
Thank you everybody for joining us today.
I want to focus my comments on three main areas today I will start by highlighting our continued progress increasing the number of Dolby vision and Dolby Atmos.
His experiences around the world.
Ill then spend a few minutes on the changes we have made in our cinema in converting hardware business to adjust to the evolving conditions in certain markets.
And then I will share some thoughts on the exciting opportunity to Dolby to address a new world of content through our development platform and related initiatives.
Before we move on I do want to take a moment to thank our employees for their dedication and creativity.
In a year, where we all faced challenges and disruptions. They have continued to bring more dolby experiences to more people around the world and they are the driving force behind the Dolby Magic.
So let me start with the Dolby vision and Dolby Atmos.
System that continues to grow.
With the launch of the iPhone 12 consumers are now able to see the benefits of Dolby vision, when they record video and share it.
We are excited about the opportunity to support this ecosystem. So the Dolby vision content can be enjoyed on social media video sharing.
Sites and more.
This will vastly expand the content that can be enjoyed in Dolby vision, adding more reasons for devices and services to adopt our technologies and creating new opportunities for Dolby.
During 2020, we continue to grow the presence of Dolby vision and Dolby Atmos.
Most across the many ways that people enjoy movie and TV content.
At the beginning of the year, we saw the launches of Disney plus an Apple TV plus with the combined Dolby experience.
Google play Showtime and CBS all began streaming in Dolby is in this year.
And next quarter Watcher, a streaming service in Korea began supporting content in Dolby vision and Dolby Atmos.
And the momentum the momentum of Dolby vision, and Dolby Atmos within movie and TV content continues to drive an expanding lineup of devices within the home.
The adoption of Dolby vision and.
Nodes within Fourq pay TV shipments grew significantly year over year.
Our partners like PCL, Sony Panasonic, and Skyworth added support for the Dolby vision, and Dolby Atmos experience deeper within their TV lineups and I've also broadened the global reach of their offerings, including this.
Silver into India.
Jami launched their first TV that supports Dolby vision and Dolby Atmos just this year.
And we continue to bring new innovations to market like Dolby vision, I, Q, which optimizes the picture on your TV by adjusting to the surrounding light ends and the type of content be viewed.
Our continued innovation bring new value to our partners and consumers and adds to the reasons for deeper adoption.
Dolby vision and Dolby Atmos continues to grow across a broader range of devices.
Apple recently began enabling support for Dolby Atmos to the home pod.
Earlier this year.
Some of those launched its first Dolby Atmos product with the Santos arc.
And Roku began supporting Dolby vision, and Dolby Atmos with the road crew ultra.
We're also beginning to see increasing adoption of the combined experience within set top boxes, including the latest offerings from pre in France and Deutsche Telekom.
Tom in Germany.
Within mobile and PC Apple highlights the adoption of the Dolby vision, and Dolby Atmos playback with support throughout their iPad macro and iPhone lineups.
We also have strong initial adoption of Dolby Atmos within the latest flagship mobile phones from Samsung.
Calico and Sony.
Lenovo launched several new Pcs that support the combined experience and Dell began shipping Dolby vision enabled Pcs earlier this year.
We see significant growth opportunities within both mobile and PC as we gain new wins drive deeper adoption within our partners device.
And ups and expand the types of content that can enjoy with Dolby vision and Dolby Atmos.
In the same way that Dolby vision, and Dolby Atmos enabled great movie and TV content.
We see a significant opportunity to create immersive experiences within music and gaming.
These are important forms.
Forms of entertainment that expand our current value proposition and grow the number of devices that can benefit from Adobe experience.
Let me start with music.
A year ago, we launched Dolby Atmos for music with Amazon music, HD and the Amazon Echo studio.
The music and Dolby experience has been met with deep.
And passionate engagement from artists for example, those that we highlighted in the stories from live, though most Malone Coldplay and Jay Baldwin.
Title became the second streaming service and support Dolby Atmos music, enabling millions of Dolby Atmos devices within mobile and in the home.
Our.
Reaching present in music will create opportunities to grow adoption in mobile automotive smart speakers and headphones.
In gaming.
Microsoft announced new XR and be the first gaming console to support the combined Dolby vision and Dolby Atmos experience for gaming.
We are also seeing a growing number of gaming Pcs adopted Dolby experience, including new products from Lenovo and assumes this year.
As we grow the presence of Dolby vision, and Dolby Atmos within gaming content, we add to the value proposition for broader adoption within Pcs gaming consoles and mobile phones.
Our momentum for Dolby vision, and Dolby Atmos comp across content services and devices is strong and at the same time, we still see much of the opportunity ahead of US we continue to grow our presence throughout devices within the home and related even earlier stages of adoption within mobile and PC.
We are focused on accelerating that adoption.
And by increasing the amount of content and by broadening our presence in categories like music and gaming.
Let me shift now to talk about the areas, where we have made some changes to adjust to the evolving conditions in certain markets.
Incentive environment remains challenging as the time of recovery is uncertain and the landscape is.
Evolving.
As new as discussed we have made some adjustments to operations and manufacturing here to reflect a lower outlook for demand.
At the same time, we remain confident that studios will continue to create great content that audiences will continue to want to experience. These movies in the cinema and that they will seek out the best success.
Option audiences.
Let me spend a few months just a few moments on Dolby voice.
We entered the communication space with the goal of enabling higher quality and more natural meeting experiences.
Our value proposition of enabling higher quality interactions remains a strong and relevant as ever and we see significant.
The opportunities to broaden the reach of our technologies.
As we move forward, we are winding down the sales at our conferencing hardware to focus all of our efforts on the larger opportunity to enable the Dolby voice experience through our enterprise partners and our developer platform.
And that brings me to the opportunity to bring the gold.
Experience to the vast and growing amount of content that are part of our everyday lives from user generated content to social media and casual entertainment to everyday virtual interactions.
Today developers can access our technology through Dolby Dot Io to improve media and interactivity within their applications.
We have seen growing engagement from developers across a variety of industries and use cases that are improving audio quality and podcasts media production and online marketplace videos to enabling interactivity in online education, social media and live streaming applications.
This quarter, we began partner.
Holding with sound cloud to enable artists to improve the quality of their tracks using our mastering npis and have seen nearly 200000 tracks mastered Wheeler AG eyes in the few months since March.
We are also working to integrate our media npis onto the box platform this quarter to enable their customer.
Summers to enhance content with our media ATM side right within the box experience.
Additionally, we recently enabled our interactivity API to include the benefits of Dolby voice and was drawn strong engagement from developers since its release.
As we look ahead, we will continue to expand our offerings.
No address more audio and video features for.
For example, now that consumers can create and Dolby vision with the iPhone 12, we see opportunities to support content platform seeking to make the most of this expanding world of Dolby vision content.
While we are just at the beginning of these new opportunities. We are learning quickly from our early engagement with development.
Tours and evolving our offering to bring the Dolby experience to everyday applications and services.
So to wrap up.
Momentum of Dolby vision, and Dolby Atmos in movies and TV content is strong as our partners continue to bring new devices and services to market.
Our opportunity remains ahead of us and we are enabling.
More content experiences in music and gaming that can accelerate the adoption across device categories.
Consumers can now capture and edit and Dolby vision for the first time, expanding the Dolby experiences into the growing world of user generated content.
And we are excited by the opportunity to bring the Dolby experience.
The new use cases and industries through our developer platform.
All of this gives us confidence in our ability to drive revenue and earnings growth into the future.
I look forward to updating you next quarter with that I will turn it over to Dave.
Thank you ladies and gentlemen.
If you wish to register a question for todays question and answer session. You may do so by pressing star one if youd like to withdraw. Your question question Press Star. Two if you are on a speakerphone. Please pick up your handset before entering your request please.
To be sure to identify yourselves and your firm at the outset to be fair.
To all participants we ask that you limit yourself to one question and a follow up question on to all participants have had a chance in the first round. If time allows we will then come back to an answer any remaining questions. One moment. Please for the first question.
Your first question comes from Steven Frankel with Colliers.
Hi, good afternoon, thanks for the opportunity.
Kevin.
To talk a little bit about the Dolby audio opportunity, maybe tell us a little bit about the go to market approach and specifically around voice revenue.
Voice, which has so much promise if you get it into some higher volume application.
It's where we can make a difference to the.
The consumer.
Yes.
Sure. Thanks, Steve.
Yeah. We're we're really excited about the opportunity to improve so many different types of experiences, including with Dolby voice and in terms of celebrate the market.
We are.
First focused on.
Our engagement with developers Weve you know abroad.
A lot of people on board, who have a lot of experience doing that we're marrying them. What the teams that we have that understand how to apply our technology and expertise to improve.
Media and interaction experiences so it really is.
About reaching out to developers growing that community, bringing them to our platform make it easy for them to understand how they can employ these technologies and then also learning from them to then evolve.
Our offerings and bring to bear more of our expertise and more of our IP portfolio to solve.
New challenges.
Of course.
Over the last six months, our product teams have had the opportunity to engage with a lot of potential developers and customers its roads to deploying these technologies.
As it relates to Dolby voice, it's about the interactivity that we experience at our apps and services every day. So that's.
Rugs across Hello, Hello, Hello, Hello.
Online education.
We see opportunities in that where entertainment leads communication needs to work in areas.
Alright.
In the future, we're talking to people about areas like.
Social media or live streaming platforms, where people want to introduce interactivity. These are all areas that we see opportunities to bring.
Dolby voice to like fee building out the platform.
And your existing partners.
There's like Blue jeans.
Should we expect them to adopt the software approach as well so even without your hard work to get that same experience.
They do that today, Steve So blue jeans has the Dolby voice service integrated into their full platform. So you do not required.
Dolby.
Hardware to get that experience and we continue to work with Blue jeans and end consumers Bluejeans customers will continue to enjoy the Dolby voice experience when they're participating over their mobile devices on their Pcs like so many of US are doing for so many hours a day.
Great.
And.
You Didnt mention anything about gaming given there are two new platforms, just hitting the market both of which are sold out having seen that in the numbers in the September quarter was that coming.
In the December quarter.
Coming we are about to go through.
Refresh cycle I Didnt I did touch on it briefly steep but as I'm sure you're aware.
X. box is supporting Dolby vision, and Dolby Atmos for.
Gaming and we're really excited about that.
So yes of course were the the refresh cycle some.
And that is likely to benefit us in.
In the coming these couple of quarters.
Gaming is a big area of focus for us across the board certainly we're focused on making that x. box experience and successful and that sort of an ecosystem of content as possible but.
But beyond that we.
I think that.
We can't value in a you know mobile gaming and other areas.
And then just one last one.
Where do you think your market share is today in Dolby vision, and 40, Eightv given that what you're talking about the phenomenon immediately.
Lose them and more models.
And.
Yes, the so first of all Steve will save the date is still coming in on that because of course, you know we will get our Q4 reports in the coming weeks and the industry analysts to or not.
Quite.
Not quite.
It is possible that fully adapted to this.
Uncertain environment. So the numbers are still coming in.
But we're we're confident that we are going to end up somewhere between 15 and 20%.
Dolby vision.
Two four kg leave them at 40, Eightv, either probably coming in just this last fiscal year for us it at somewhere just over 50.
If you turn to the market.
All right. Thank you Kevin.
Mhm.
Well take our next question from.
Well take our next question from Ralph Schackart with William Blair.
Hi, Good evening first question on the other two.
True up that you called out in the quarter rose to 24 months, a little bit larger than the normal I think you're talking about maybe 15 higher than expected any more color on that as you know six or six are affecting the.
The true up this quarter.
Sure and you know we've been very transparent about this thing before we launched six I think said we were going to have this first of all I'll reassuring.
I appreciate that our processing is very solid applied very consistently and the biggest piece of that bump and true up was new data that we got in on some of the key tams in the market to work on were higher than what had been published of the Tam for at the time, we did the estimate and that was across several different categories of course, the slowdown right through that.
A fixed number of units that our customers are real.
For it because I think I've talked about this in the past that our technique uses interpolation, where we use multiple data points customer imports market share data points and offer Pam beta and sort of the biggest thing driving that uptick in the true up was an uptick in the Tam.
Sure Universe of what we had when we did the estimate for Q.
Okay, and then you.
We need a lot of questions on the opportunity fire. There's obviously a lot of excitement around it sounds like you're making great progress in the quarter anyway to sort of give us a sense of how to frame this opportunity and put some numbers around that range. If not just very wide enough not just sort of back maybe the building.
Blocks how to think.
Potential size on it.
Yeah, obviously wealth like really backup, but where we do think there is a big opportunity and and you there for a very long time and like I said that we believe we can improve the audio visual experience and.
This.
This is is what gives us the opportunity to expand that Dolby experience far beyond our traditional rounds.
We're about six months in and so right now what we're focused on is engagement with developers as I think you know we have a number and a growing number of initial.
Initial.
Mr nerves that are out there using the platform and.
Definitely look forward to providing more data as we as the as we go forward here, but.
We're excited about the the customers that we're engaged with things that are coming on right now.
Hi, good morning.
Just what it is until you start backing it.
Envision that post over the world, but hopefully you know we get to sooner rather than later, maybe just some updated thoughts on your kind of long term goal to March back to double digit growth you know your sort of confidence around that prior statement that you've talked about before.
Yeah.
Well I feel.
I'm really pleased with our portfolio of growth opportunities and I think that.
Oh on the on the Dolby vision and Dolby Atmos portfolios, you talked about we probably have the strongest progress in the living room for movies and TV.
It was talked about that puts us at about 15% to 20% attach to four k. GDV reiterated even earlier stage with.
Pcs and mobile devices, and we and we do believe that this focus on additional forms of content gaming music now are.
Are the key to really opening up those opportunities for us.
And I think that with the with with Apple embracing the ability to capture share added content.
In Dolby vision I think that just is the is the best.
As Testament to how.
The Dolby experience can apply far beyond even those.
More tradition.
Traditional forms of content.
So thats a big growth area and then as we've talked about we.
Just talking about Dolby die out so we were really excited about the ability to.
Surveys.
Nu Mark.
It's a new industries unlocking the creativity of developers with the decades of experience in technology, we have been making for the best high quality media in interactions and so we.
We do see that was another significant growth opportunity.
Great Thanks kind of principles.
Yep.
Our next question comes from Paul Chung with Jpmorgan.
Hi, guys. Thanks for taking my question. So just on your guidance as you know the timing of contracts with one of your largest customers just shifting into F. One two from.
Two q. so are we.
Are going to see better relative performance in Pcs and mobile and when can you.
Well I stop short of giving a breakdown by market because those tend to move around but yes. This year. We do we do see more of that timing of contract issue affecting us in Q1 versus last years in Q2.
But for the first half as a whole it tends to be relatively similar I should remind you too that as we roll on on that as each year goes while we do get additional customers get more penetration. So it's not necessarily the same items every year. It's just something we have to live with now under six effects, but yes to your question Paul clearly this year, we see.
Little bit more of that benefit from the timing of contracts issues falling into Q1 versus Q2 than it did last year with fell more into Q2 versus Q1.
Okay and then.
Can you talk about the Dolby vision recording capability on the on the iPhone.
No you got a lot of good air.
Airtime during the event, which was great exposure there so is there a.
Incremental revenue associated with this feature and are you getting interest from other prominent Oems kind of looking at this.
Yeah. So again, we couldn't be more thrilled to have.
Apple embrace Dolby vision for capture and sharing.
Content and obviously.
Obviously, we're not going to get into the specific economics of our relationship with Apple, but I think it does a couple of things for US one it again today and Amazing example of how Dolby.
You can't apply far beyond movies, TV and even get into the music. Secondly, yes, we do think it opens up over time the opportunity to bring that experience.
To a broader.
Audience and.
And then third we think in a way.
World of a large.
And growing ecosystem of Dolby vision content in these new areas.
But there could be some interesting opportunities in some of our newer initiatives to help people get the.
The most out of that content.
Great Thanks, guys per job.
Hi, Paul.
Well take our next question from Erik will ultimately it B. Riley Securities.
Thank you good afternoon, guys couple.
A couple of questions just follow up on kind of always been conversation around Dolby Io I know its early six months then.
You're not going to talking about guidance is there is there would have.
Yeah, maybe frame kind of what the average deal size or user size could look like.
Anything on what the best way to think about the revenue ramp and you didn't penetration or is it going to be just.
So many smaller.
On the users revenue flows there she has got the right way to think about it.
Well.
It's it's or as you said, it's early but I think we can already see that they'll be a pretty broad distribution right. There will be customers that are you.
It's certainly in the historical Dolby standards or our might be lower per customer, but I think there's also.
Well in opportunities to have some some really large customers and it's all going to be about their scale and their use case. So you know right now what we're seeing.
Early adoption or in areas like improving.
Recorded audio.
In a number of use cases like Soundcloud podcasts and they should example is a is a online platform for the automobile industry for those that can be digitized. So people do videos of the car their salary and recruiting at that either for them. So for those.
Yes, I think there's a value proposition is a better quality experience in some cases saving them time and money on what they were doing to clean it up and so the revenue potential is very much a function of the field services and the same is true on the interactivity side and many of our customers are just kind of.
They're getting there.
Ramped up and have the potential to grow quite a lot more for that today.
Okay and then.
Last question there.
Obviously of course, you get all the time with a billion two in cash and no debt and seemingly very strong.
Free cash flow trends.
Tends to continue.
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And what point.
Does that or does it never need to put that used to bring owner to talk in more trouble pointed that kind of need to be put to use in some manner. Obviously your youre buying back stock because the Korea a limit there to agree with you.
The acquisitions come more into play or.
Orange, there's just nothing really of size that can really.
Make a dent Matt.
Well first of all the.
The regular review our capital allocation as you point out we have also return cash by buybacks and and the recurring dividend.
I would say that we're always.
Looking for potential acquisitions that could accelerate our business historically that tend to be.
What you might think of as technology tuck ins.
And I think as we go into new areas, where might that will also open up new opportunities.
Plus to consider but we'll make those decisions based on where we see opportunities to accelerate and expand the opportunities that were and pursue that.
Got it thank you guys.
Okay. Thanks.
Our next question comes from Jim Goss with Barrington.
Research.
Thanks, a couple of more things on the I phone calls that her capability with the vision care for another are you thinking the that capability is sufficient for the device to use more for professional content.
In that you know maybe it's not.
Well to some extent for.
Regular consumers.
And also to the extent that there.
Yes.
You are pretty important to us potentially to their control sales do you think.
Apple has been in use.
Dolby vision as one of the marketing capabilities.
That's kind of the push on given given what they did do on their own show.
Thank you run an AD Kevin Yeah. Thanks, James So yes.
Yes, one of the ads Apple has been running at the sites Lewis and I've seen it on sports.
Does impact highlight.
The ability to take professional quality video in Dolby vision and to answer your question.
It's both I mean, there are.
Are there many of the many themes that you've seen in movies actually have been living in shot with an iPhone.
So so.
It's on is a both a professional device and a consumer device and the Dolby vision and Dolby vision.
Brings out the best for both.
It's also a great way to capture and content I mean, we've been trying it and it's amazing and it makes it you know it looks more like what you experience.
So today you can and.
So at a minimum you can that you can use it in the photos app you can use it and I know these clips. So we just look forward to supporting building out the ecosystem of apps and services that can support it both for professional use.
And for consumers.
Okay, and I think Atlas is included on.
Loans also can headphones speed.
Hooked up to them and.
Take advantage of the Atmos capabilities everywhere.
Or do they have to be a special especially produced excellent.
Well for Atmos playback.
Are you.
So it's both I phone playback service the airport pro.
The.
If you ask about capture we don't yet have.
Capture but but.
Is there's always more to do.
Yeah, we're one of.
Hi, the phone.
On the Dolby cinema installations, China has actually recover.
Recovered a lot more quickly because of the lockdown capabilities. They had are you seeing any pick up in the potential for.
Installations to go on there.
Versus other areas for which are behind in this regard.
Yeah, well, we certainly had more discussion engagement.
In China recently that in many other parts of the many other parts of the world.
Because they just say.
They are open and they've actually had some really good a weeks with big local titles.
So.
I would say of the parts of the World, where you would still see some near term activity in that regard, yes, China would be a may not.
Yes, but you know overall, certainly we expect a lower pace of deployment for Dolby cinema screens and equipment to that yet until we get to the other side of this recovery, but but yet China is definitely.
One of the markets that stands out as being better than the others.
Deserves.
The vaccine news family.
Create any.
Higher degree of conversation was with ER.
The parties, you're dealing with for either of us or Europe or elsewhere.
But it does create that led me out of the tunnel, where you can see.
Start talking again.
Well look we as I talk to partners in all all of the markets that I think none of us know when are you.
You know when the industry is going to recover I mean, obviously.
Most of our screens are actually opened.
And of course.
Attendance was affected by the attendance restrictions and you're trying to the title so.
Yeah, I think that.
Any any news that can help with Oh I see that light at the end of the tunnel. Obviously is is great, but I think most of all.
The we do believe that studio that keep creating great movies and that.
Their audiences that are going to want to see them and if they do they're going to want to see the best experiences.
We just cant right now to get any better than anybody else.
Then looking at it.
There is going to come.
Okay. Thank you.
Thanks, Jim.
And well take our next question from Ivan I find Sakhalin Tigris financial partners.
Ivan you're either you're on mute.
Sorry, Thank you for taking my call and congratulations on the great results in a difficult time.
We when did you start to work with Apple early on for the design of the iPhone 12 to cooperate Dolby vision and is there some things that are unique to the iPhone 12 that allow us to begin or would you be able to.
Work with other phone manufacturers as well see this and some other brands.
Well, we have a long and as you know we have a long standing.
Relationship with with Apple and and.
They support Dolby vision, and Dolby Atmos played actually out there all ecosystem.
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And so.
Yeah, we've been working with them for some time to bring this experience.
Hello.
And.
Our first focus is on making it successful ecosystem anyone does of course that.
Is is to an Apple is that they have all of the apps in material.
Services into devices, an entire ecosystem.
Your brain.
Next day guidance to life at scale, so job number one for US is to help them make that as successful as it could possibly be into open up that ecosystem to others.
Asset services.
And then from there yes overtime.
Timing certainly see an opportunity for this to be something that.
Opens up new opportunities for us.
With with other phone manufacturers as well.
Right.
Also in your decision to get out of our conference or you mean, just a conference in hardware, you're still going to focus on.
Implementing Dolby voice into other combination products.
That's right, we're still supporting our enterprise Communications partners, who are winding down at the sale of the physical hardware for copper terms.
And.
What's the cash you have when you think about acquisition.
And is there any specific direction you envision like that you could extend.
Your brands and content.
So yeah.
Yeah, I think what we've been.
The Dorothy.
The day and there has been.
In addition to expanding the presence of.
30 vision Dolby Atmos across our existing categories, we see opportunities in new forms of content in gaming in music, but with Adobe Dot Io really extending into all the ways in which we enjoy a meal.
In in their activity experiences.
So when we think.
About acquisitions.
It's the islands, where are there opportunities that could accelerate or expand our opportunity.
We don't look at it like we have this capital so we need to go to acquisition.
And that's something that we're always were.
We're obviously like any company.
Always.
Uh huh.
Looking at the opportunities that come our way.
Hi, Thank you very much and good luck going forward.
Thank you.
It appears we have no further questions I'd like to turn the conference back to Kevin you came in for any additional or closing remarks.
Great well. Thank you everybody for joining us today. Thanks for the question is and we look forward to updating you on our progress.
Good day.
And that does conclude today's conference. We thank you for your participation you may now disconnect.
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