Q1 2021 Dolby Laboratories Inc Earnings Call
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Once again, ladies and gentlemen, you're hoping for today's Dolby Laboratories conference discussing for the fiscal first quarter results.
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Please standby we're about to begin.
Ladies and gentlemen, thank you for standing by and welcome to the Dolby Laboratories conference call discussing the first quarter results.
During the presentation, all participants will be in a listen only mode. Afterwards, you will be invited to participate in the question answer session at that time. If you have a question you will need the press star one on your telephone.
As a reminder of this call is being recorded Thursday January of 'twenty eight 'twenty 'twenty one.
I'd like to turn the conference over to Jason DEA Director of Investor Relations for Dolby Laboratories. Please go ahead Jason.
Good afternoon.
Welcome to Dolby Laboratories, first quarter 2021 earnings conference call.
Joining me today are Kevin Yeaman, Dolby laboratories, President and CEO.
The issue Executive Vice President and Chief Financial Officer.
As a reminder, today's discussion will include all.
Forward looking statements, including our second quarter fiscal 2021 outlook and our assumptions underlying that.
These statements are.
Are subject to risks and uncertainties that may cause actual results to differ materially from the statements made to debt.
In particular its debt.
Of the continued impacts of COVID-19.
For the business remains uncertain at this point.
The discussion of these and additional risks and uncertainties can be found in the earnings press release issued today under the section captioned forward looking statements as well as in the <unk> section of our most recent annual report on form 10-K.
Dolby assumes no obligation does not intend to update any forward looking statements made during this call as a result of the information for free.
For you guys.
During today's call, we will discuss GAAP and non-GAAP financial measures.
Affiliation between the two the available in the earnings press release and in the Dolby Laboratories Investor Relations data sheet on the Investor Relations section of our website.
Actually the culture of today's call.
To begin with the recap of Dolby financial results and provide of second quarter 2021 out of.
Kevin will finish with the discussion of the business.
So with that introduction behind Us I will now turn the.
All of us.
Okay. Thank you Jason.
Good afternoon, everybody. Thanks for joining the call I think I'll jump right into the numbers first quarter revenue was $390 million, which was above the guidance range of $330 million the $360 million.
He was also above the 271 billion, we saw in Q4, and the 292 million of Q1 of last year.
Revenues were better than what we guided as we had a true up in the quarter of about $20 million that relates to Q4 shipments and we also had some recoveries in Q1 that came in sooner of the year than we thought so that's more of a shift in timing within the fiscal year.
Q1 also benefited from higher estimated market pans.
In terms of the sequential growth from Q for Q1 benefited from timing of revenue under contracts and higher recoveries, along with higher adoption and this was consistent with what I highlighted at the beginning of the quarter.
And in addition sequential growth was helped by holiday seasonality, which is sort of a typical factor.
You have the year over year comparison, all of our Cinemark related revenue streams were down significantly from last year's Q1, and that's because of Covid, but then more than offsetting that were higher revenues from timing under contracts higher recoveries and greater adoption of Dolby.
So the Q1 revenue of 390 billion was composed of 373 million of licensing and 17 million of products and services. So let me discuss the trends of licensing revenue by end market starting with broadcast.
Okay.
Broadcast represented about 37% with total licensing in the first quarter.
<unk> cash revenues increased by about 36% year over year that was driven by higher recoveries higher adoption of Dolby, including our patent programs.
The higher truck, which relates to the Q4 shipments and this was offset partially by lower market volume in set top boxes.
On a sequential basis broadcast was up by about 16% driven by holiday seasonality for Tvs higher recoveries on higher adoption offset partially by the lower set top box activity.
Mobile represented approximately 28 percentage of total licensing in Q1.
Mobile increased by a little over 200% from last year and about 170% from last quarter due primarily the timing of revenue under customer contracts and also helped by higher customer adoption.
Consumer electronics represented about 14% of total licensing in the first quarter.
On the year over year basis, CE licensing was up by about 6%, mainly due to higher adoption of Dolby, including our patent programs.
On a sequential basis <unk> increased by about 52% driven by higher seasonality higher adoption of our patent programs and timing of revenue under contracts.
PC represented about nine percentage of total licensing in Q1.
<unk> was higher than last year by about 3% due to increased adoption of Dolby premium technologies like Dolby Atmos and Dolby vision and this was offset partially by declining asps that comes from mix of disk versus non disc units.
Sequentially PC was up by about 5% driven by higher adoption of those.
Premium Dolby technologies.
Other markets represented about 12% of total licensing in the first quarter.
They were up by about 8% year over year, driven by higher gaming from new console releases and the whole also from higher via admin fees is the patent pool program that we administer and that was offset partially by significantly lower Dolby cinema box office share because of Covid.
On a sequential basis other markets was up by about 33% driven by higher revenue from gaming and from the via admin fees.
Beyond licensing our products and services revenue was $16 $9 million in Q1 compared to $14 3 million of Q4, and $34 2 million in last year's Q1.
We had anticipated the large year over year decrease in our guidance because most of this revenue comes from equipment that sold the cinema exhibitors of these customers continue to be negatively impacted by the pandemic.
The Q1 total was slightly above guidance and that was mostly attributable to exhibitors in China.
Now I'd like to discuss Q1 margins of the operating expenses.
Total gross margin in the first quarter was 99% on a GAAP basis, and 91, 5% of that on a non-GAAP basis.
Products and services gross margin on a GAAP basis was minus $5 $5 million in Q1 compared to minus $15 $5 million in the fourth quarter and the fourth quarter included large excess on obsolete inventory charges because of our decision to exit the conferencing hardware arena.
We are taking steps to reduce the cost structure of manufacturing and we should start to see some.
Impact of this by the end of this quarter this quarter, meaning Q2.
Products and services gross margin on the non-GAAP basis was minus $3 $9 million in Q1 compared to minus $14 $1 million in the fourth quarter and I would apply the same comments here as I did in the GAAP section.
Operating expenses operating expenses in the first quarter on a GAAP basis were $189 $8 million compared to $198 $7 million in Q4.
The Q1 total includes $13 $9 million of gain from sale of assets as we completed the disposition of our former Brisbane manufacturing site during the quarter, but it also includes $10 million of restructuring expense, primarily for severance and the related benefits consistent with the comments on.
I've made at the beginning of the quarter when I provided guidance.
Operating expenses in the first quarter on a non-GAAP basis for $167 $1 million compared to $176 $5 million in the fourth quarter.
Non-GAAP operating expenses were below what we guided primarily due to various marketing programs that shifted out of timing as well as lower bad debt expense than we had projected.
Operating income in the first quarter was $164 $7 million on the GAAP basis, or 42, three percentage of revenue compared to $48 $6 million or 16, 6% of revenue in Q1 of last year.
Operating income in the first quarter on a non-GAAP basis was $189 $7 million or 48, 7% of revenue compared to $74 $1 million or 25, four percentage of revenue in Q1 of last year.
Income tax in Q1 was 14, 5% on the GAAP basis of 19, 9% on a non-GAAP basis.
Net income on a GAAP basis in the first quarter was $135 $2 million or of $1 30 per diluted share compared to $48 $8 million or 47 per diluted share in last year's Q1.
Net income on a non-GAAP basis in the first quarter was $153 $3 million or a dollar of 48 per diluted share compared to $65 $5 million or 64 cents per diluted share in Q1 of last year.
For both GAAP and non-GAAP net income in the first quarter was above guidance due to revenue higher than what we projected combined with operating expenses lower than what we had estimated.
During the first quarter, we generated about $82 million in cash from operations, which compares to about $31 million generated from operations in last year's first quarter.
And we ended the first quarter of this year with about $1 $2 billion in cash and investments.
During the first quarter, we bought back about 500000 shares of our common stock and ended the quarter with about $147 million of stock repurchase authorization still available to us.
We also announced the day, a cash dividend of 22 per share.
The dividend will be payable on February 19th 2021 for shareholders of record on February 9th of 2021.
Now, let's discuss the forward outlook.
As a reminder, the approach we took at the beginning of the fiscal year, what's the give specific guidance for Q1 looked like normal and then give a scenario of a revenue range for Q2, and then give some qualitative comments on the second half of the year, we took that approach because of the uncertainties from COVID-19, which was causing varied.
Limited forward visibility.
Now nearly three months later, it's fair to say the visibility remains very limited not surprising given the ongoing disruption we're seeing around the world from the pandemic. So today, we'll take a similar approach to what we did before I will discuss full P&L guidance for Q2, and then provide some color on the second.
Half of the year, but not detailed guidance.
Let me start by reminding you of a couple of comments I made last quarter debt remain true today.
At that time, I said that for the first half of FY 'twenty. One we were anticipating year over year of growth in licensing revenue from higher adoption of Dolby technologies, but we're also expecting year over year decline in products and services revenue because of the COVID-19 impact on the sentiment of industry.
Let's talk more specifically now then about the Q2 revenue outlook.
Last quarter I provided the Q2 revenue scenario of 270 million the 300 million for the quarter.
Today, our scenario is that Q2 revenue could range from $280 million the $310 million.
The Tam data for Q2 has risen modestly compared to what we were seeing a few months ago and we have factored that into this latest scenario.
And to reinforce something I said last quarter. The transition from Q1 to Q2. This year reflects higher revenue of Q1 from timing under customer contracts and also recoveries.
Last year in FY 'twenty that order was reversed in the sense of Q2 was the quarter the benefited more from the timing and recoveries.
So if I combine the Q2 actual that we just reported with the Q2 outlook I've mentioned as I can go that would put our first half revenue outlook range at 670 million the $700 million compared to our previous outlook range of 600 million the $660 million. So that's the first half.
Now, let's talk about revenue in the second half of FY 'twenty one.
Theres for main factors that I'd like to highlight cams.
The pace of recovery in cinema space.
Timing of revenue and higher adoption of Dolby let.
Let me explain a bit more.
First of all of the industry Tam data that we're currently seeing from analysts.
<unk> is the indicate the pans are projected projected to be lower than our second half on a year over year basis.
Mainly because of an uptick in shipment volume of certain devices like Tvs and Pcs that happened in the second half of FY 'twenty, but is not projected to repeat in the same timeframe of the FY 'twenty one.
Second in the center of the space the recovery that people might of been expecting seems to be pushing out in time, and that's judging by trends in content like big titles and screen openings or closings.
Third as I alluded to earlier some of the upside in our Q1 revenue of the quarter. We just reported came from deals closing sooner than we thought in other words moving from second half into the first half.
And fourth we would anticipate the higher adoption of Dolby technologies will drive year over year growth.
And then from a sequential perspective I E transitioning from first half 'twenty one to the second half 'twenty. One we had said before we continue to say that we anticipate second half revenue would be below first half because of a combination of lower seasonality in consumer device shipments.
And lower revenue from timing of their contracts and from recoveries.
So considering the various factors we could see a scenario for second half revenue in the bid the high five hundreds.
But as I said earlier, we'll stop short of providing detailed guidance because of the limited visibility right now and of course, we plan to provide you all with an update in three months when we publish our Q2 actual results.
So let me quickly finish off by providing an outlook on the rest of of the P&L for Q2 I already highlighted the revenue range of 280 million to 310 million of total of which licensing would comprise 270 million to $295 million, while products and services would comprise 10.
The $15 million.
Q2 gross margin on the GAAP basis is estimated to range from 88% for 89% and the non-GAAP gross margin is estimated to range from 89% to 90 per cent.
Within that product and services gross margin is estimated to range from minus $3 million of minus $4 million on the GAAP basis and for minus $2 million to mine the $3 million on the non-GAAP basis.
Operating expenses in Q2 on the GAAP basis are estimated to range from $200 million of $210 million.
In Q2, our annual salary increases for all of the employees go into effect and we also anticipate more activity of marketing programs as well as R&D project.
Operating expenses in Q2 on a non-GAAP basis are estimated to range from $175 million, the $185 million and the projected increase from Q1 is driven by the same comments I made about the GAAP operating expenses.
Other income is projected to range from $1 million to $2 million for the quarter and our effective tax rate for Q2 is projected to range from 20% to 21% on both the GAAP and non-GAAP basis. So based on the combination of the factors I just covered we estimate the Q2 diluted earnings per share could range.
From 36 to 51 cents on the GAAP basis.
And for 57 cents to.
The 72 cents on the non-GAAP basis.
That's all I have over to you Kevin.
Thank you Louis and good afternoon, everyone.
Our fiscal year is off to a great start and we continue to enable Dolby experiences the more people around the world.
Dolby vision and Dolby Atmos are increasingly available across the broad range of new devices and services and we are enabling more dolby experiences in music and gaming, which is adding to our value proposition for broader adoption in areas such as mobile and PC.
On top of that we are excited about bringing Dolby to address every day virtual experiences and interactions through Dolby Io.
All of this adds to our confidence in the significant growth opportunities that we see ahead of us.
As consumer spend and increase the amount of time enjoying content within their homes. It is clear that the quality of these experiences matter and Dolby vision and Dolby Atmos are consistently highlighted among the devices and services that enable the best way for people to enjoy their content.
The combined Dolby experience was highlighted at CES throughout the latest TV lineups from our partners, including LG, Sony and Panasonic.
Tcl on Sky Worth also announced they are adding support for Dolby vision, IQ, which optimizes the picture on your TV to the surrounding white and the content being viewed.
Earlier this quarter.
<unk> launched their first Tvs, which include support for the combined Dolby vision and Dolby Atmos experience.
Dolby Atmos continues to be highlighted among the top sound bars in the market, including the latest products announced at CES. So on LG JBL and T C L.
As we move beyond the living room or partners are increasing the ways in which consumers can enjoy dolby experience, including new adoption in headphones.
Apple is supporting Dolby, Atmos, and Airpods, Max adding to the ways that consumers can enjoy the Dolby experience the cros Apple devices and services.
Samsung recently announced that their galaxy buds pro supports Dolby Atmos and includes Dolby head tracking technology, which enables consumers to have a realistic and immersive sound experience as they physically move in relation to where the content is being played.
Within PC, we continue to see growing momentum for broader adoption of Dolby technologies.
Lenovo announced that they will be bringing the first Pcs with Dolby voice to market.
Dolby voice for Pcs will optimize the communications experience to create clear and more natural meeting experiences.
This is another example of how we are bringing new value to our partners by addressing a primary use case for how consumers interact with their Pcs on an everyday basis.
Lenovo also continues to support Dolby vision, and Dolby Atmos across their latest PC lineups.
Additionally, Dell continues to release, new Pcs that support Dolby vision.
And in India, we saw new Nokia Pcs from flip cart come to market with the combined experience.
Okay.
With a broad range of OEM partners and devices that support Dolby vision, and Dolby Atmos, it is becoming easier for consumers to discover content available in Dolby.
HBO Max became the latest major streaming service to support the combined Dolby vision and Dolby Atmos experience, starting with the release of Wonder woman 1984.
They joined top streaming services around the world like Netflix Disney plus Apple TV, plus 10 set rocket tenant and more that are enabling content and the combined experience.
In addition, Amazon Prime video began to stream live English Premier League matches in Dolby Atmos and can help blues is now supporting Dolby Atmos within their on demand services in Poland.
So while we're on the topic of movie and TV content, let me spend a moment on Dolby cinema.
As Louis said the environment remains challenging across the industry.
At the same time in certain regions, where consumers have been able to return to the cinema and there's strong local content. We have seen the consumers will seek out a premium experience.
As the industry continues to evolve we are confident the Dolby cinema enables the best way to enjoy the movie and our partners remain deeply engaged.
12 day of Dolby cinema locations around the World were opened this quarter, including our first site in Taiwan.
So as we continue building on our strong presence within movie and TV content, we see significant opportunities to enable more dolby experiences in areas like music and gaming.
The music and Dolby experience continues to explain expand globally across artist services and devices.
Several new artists around the World released music in Dolby Atmos for the first time this quarter.
On Donnie one of the largest of music streaming services in the Middle East announced that they will enable there'll be enabling support for Dolby Atmos music within there on gummy plus service.
Title continues to expand the number of devices within the home that enable the Dolby Atmos music experience with their title connect feature.
The music and Dolby experience adds to our value proposition for deeper adoption within mobile and creates new opportunities in new device categories like automotive, where we see strong initial engagement from potential partners.
Moving on to gaming the Xbox series X series S will be the first console to support the combined Dolby vision and Dolby Atmos experience for gaming content with updates scheduled for later this year.
New gaming titles like call of duty Cold War and of Mortal Phoenix Rising were released this quarter with support for Dolby Atmos.
As we grow the amount of gaming content in Dolby, we increase the reasons for broader adoption in mobile and PC devices.
Lenovo and as soon as recently announced new gaming Pcs that will support Dolby experiences.
And this quarter QQ speed mobile by Tencent became the first mobile game with Dolby Atmos.
Tencent games in the Gummy plus are examples of the growing momentum we have in enabling more dolby experiences in gaming and music that address more of the content. The consumers are most engaged with on their mobile devices.
With the release of iPhone 12 at the beginning of the quarter consumers can now record share and enjoy the videos in Dolby vision.
The T is now streaming live sports in Dolby Atmos to mobile devices via their BT sports App.
And Billy Billy one of the largest video sharing sites in China began supporting content in Dolby Atmos.
As we continue to increase the amount of relevant content, we are adding to our value proposition for deeper and broader adoption of Dolby within mobile devices.
We also continue to deepen our engagement within the developer community with Dolby Io.
Having been in market now for about eight months now let me highlight a couple of the opportunities that we're focused on.
First there is an increasing demand for high quality real time interactions across a broad range of apps and services, including social media light performance and online education.
This is the use case for our interactivity Apis with Dolby voice.
For example, kit on a digital platform for online education is expanding their usage to include our full suite of interactivity AP is including Dolby voice to improve the quality of the communications experience between teachers and students.
Second we see an opportunity to bring higher quality to record of media content starting with audio.
Video platforms are embedding army, the Apis to enable higher quality audio experiences ranging from social media and podcasts to product videos and even footage used for news broadcasts.
While we are still on the early days, we are learning from our engagement with developers continue to continue to evolve our offer if all of our offering increased usage and broaden the number of use cases that we can address.
So to wrap up the combined Dolby vision and Dolby Atmos experience is consistently highlighted among the best ways to enjoy movie and TV content.
We are seeing the Dolby experience expand across new forms of content for music and gaining the user generated content all of which build upon our value proposition for broader adoption across devices and services.
The engagement with our developer platform continues to grow bringing Dolby to a broader world of content experiences of interactions on.
All of this gives us confidence in our ability to drive revenue and earnings growth into the future.
And with that I will turn it over to Q&A.
Well, thank you, ladies and gentlemen, if you wish.
Rest of register for a question for todays question and answer session. You may do so by pressing star one if you would like to withdraw your question Press Star two if you're on Speakerphone. Please pick up your handset before entering the request for.
The share to identify yourself and your firm at the outset today's that appetite.
We ask that you limit yourself to one question.
All participants have had a chance in the first round. If time allows you will then come back to answer any remaining questions.
And one of them the police for our first question.
Yeah.
We will take our first question on <unk>.
Frank on with Colliers.
Good afternoon, so Kevin just picking up on this theme of the combined Atmos vision experience, especially in the TV market, maybe give us a feel for how much do you think that combine the experiences increased for the.
On the 'twenty and 'twenty, one Tvs versus 'twenty 'twenty. So.
Do you have any number of she'd like to share with us or any comments along those lines.
Well thanks, Steve.
So first of all as you know we.
We've said that we were on about 10% of for K T V's, which without the house side of the TV market in 19 of knee grew to kind of the mid to high teens in 'twenty.
And even throughout 'twenty increasingly.
We're seeing the combination of vision and Atmos on those Tvs.
And I don't have any specific numbers in terms of attach rate for you, but I can say that we're pleased at CES with.
On the presence of Dolby vision, Dolby Atmos of increasing presence across the TV lineups that were announced.
And also the additional partners for Dolby Vision IQ so.
So at the end of the day, we continue to see a significant opportunity to broaden both Dolby vision and Dolby Atmos in the living room, whether that's on T V or Sam on bars.
And.
As well as progress in other devices and then of course, we think debt. The the work we've done to expand into the new experiences game and music and the beginnings of.
User generated of mobile first content really expands the opportunity in PC mobile and beyond.
And then picking up on the on the music Ah maybe an update on the device side and how many types of new devices might we expect in 2021 and when do you think we'll start seeing aftermarket core.
The devices with the with the.
The mouse.
So.
Ultimately, Steve we would envision that any of these devices that were winning with Dolby Atmos will.
On a be able to ultimately support the Dolby Atmos music experiencing right now that's just a matter of of.
The pace at which are the are screened.
Streaming service partners.
On the support for those for those devices in the market and what I would say is the big focus for us is continuing to.
Create more outlets for Dolby Atmos music and so certainly adding streaming services is a big focus of ours and I think that's what will stimulate the.
The more demand for Dolby Atmos on specifically for music on devices that may not have yet been compelled to have it.
Including all of them.
Great and then one last one picking up on your cinema comments and I know of IMAX has talked about how the gain market share for the plain vanilla theatrical experience in China as the markets recovered.
Can you share any data on on how your business ex fare post recovery in China.
Yeah. So first of all clearly China is.
Far ahead of the U S in terms of coming out the other side of the Covid there.
There had been some they've had some great box office titles scripts, which have led the great weekends and great weeks at a time.
I can say that we.
We have seen a from our perspective, a higher percentage of that box office.
Is is and.
Dolby cinema.
And I think that just.
The is consistent with our hypothesis, which is debt.
When are the type of big titles come back people are going to want to see big titles on the cinema and the they're going to want to see them in the best possible way.
[laughter].
Great and one of them stick them on last one so on on Io.
How should we judge this business over the next few quarters should be around the number of events youre running for developers or the number of new designs.
How should we think about the business and sugar.
Yeah.
Yeah, clearly, it's you know we've.
The market now for about eight months as you know so it's early days.
What we're most focused on is getting people to the platform getting developers using the API and then of course getting more of them putting them into production and.
And because they get paid the big customer for those Apis and as we do that we're learning a lot about where the best opportunities for us lie on that better informs our roadmap to keep the evolving it on a on a regular basis. So.
So so yes, it's about how many developers are engaging with us and how many people ultimately Ah Ah.
Using our API is in the context of of their of their services and operations.
Okay. Thank you.
Next I'll move on to Paul Channel with J P. Morgan.
Hi, Thanks for taking my question. So just another follow up on the on the Io business.
I know, it's early days, but.
Can you help us kind of frame the potential there and then I know you have some pricing info on the website, but how do margins kind of shake out over time, and then any kind of meaningful anchor clients, who want to call out across any of the verticals.
Yeah.
Sure so.
I guess I'll, let me start with the with the market and again. This is early days. So we're we're excited about we're excited about the opportunity and as we see it I highlighted a couple of those opportunities is that I think that we're seeing.
And increasing demand for applications and services of all types to enable AR.
The interactivity in their applications.
And that's exactly what that's exactly what we're aiming to do.
There is also as you know an increasing amount of our.
The media content in the cloud created by.
All of Us and we see a significant opportunity to.
Provide.
You know every creator with the capability to improve the quality of that content and specifically today, we're beginning with the ability to cleanup recorded audio.
Some of our earlier kind of early customers on the recorded audio side we.
We have.
A a platform of.
The dot I O, which people use to prepare and post.
Post content to social media and other channels.
Have a customer by the name of it now which is a digital platform for the automotive industry and one of the features of that is that you can do seller of videos.
And we are they are using us to improve the audio quality across all of the seller of videos.
Which is we've seen interest from other people, who do similar kind of activities on.
And on the interactivity side I highlighted in my remarks kit on the or excited about that we think online education is in that sweet spot of of the you know the need for real time communication combined with our high quality media on.
I guess I would say.
So have the interesting test for other than he would talk spirit, which is.
The online collaboration platform, which is using our full suite of Apis. So.
Those are a couple of the the highlights for now and or like I said, we're focused on continuing.
Continuing to get more developers engaged and.
We look forward to share more with you as we go forward.
Okay, Great. Thanks, and then my follow up is on you know if I think about fiscal year 'twenty one.
Keep the second half revenues in line with your guidance.
You know the mixed shift of licensing benefit kind of slower pace of Opex, maybe implies maybe a 35% operating margin for the full year, and then maybe possibly free cash flow well above 300 million is this kind of a fair assessment of it is this kind of the new normal for the business.
At least until you know cinemark comes back maybe the next calendar year of the EMI.
You know way on costs and margins.
Thank you Paul just Louis how are you doing.
A lot of as usual.
One of the detail that we didnt provide but that's okay. I think it's a fair question, but I think to be fair. We purposefully tried to give all of you on the call here today some color for what we're seeing in the revenue scenario.
<unk> revenue of such a big driver of activities, we didn't give any flavor for opex, because we're managing that a little bit more quarter to quarter right. Now on you saw the this quarter. We came in below target because we pushed out some of the marketing initiatives that from the timing standpoint, only so I think it would be best for me not to comment off the cuff on debt.
The 50 of your numbers for now other than to say that as a business. We have historically been a very strong both margin and cash flow producing company and once we get over the hump of Covid I don't see any reason why we weren't returned to that same structure, but right. Now we start we still are in the know of Covid and we should not pretend that we.
Haven't been affected by Covid, because before Covid hit all of our revenues were running out of higher rates setting aside the quarter that we just reported which had its own goodness is in there. So how about if down the road as we get closer to the end of the tunnel for the Covid will get more specifically into forecasting of the margins looking further out overtime for now all I can do.
The point you towards the guidance that I provided today for Q2, which does have margin information in it and then indicate that at right now of the all the most of our comfortable saying is that we see a scenario of revenue in the second half in the mid to high five hundreds.
Thanks, Thanks, guys.
Yep.
Just a reminder to the audience, Taiwan, if you had a question or comment that starwood almost.
Well move next to Jim Goss with Barrington Research.
Thank you.
I'm like you if you would the getting together a little more granular on the debt the tremendous game on mobile revenues in terms of percentage change in share.
Is it broad based or are there specific providers I know apples than the.
That's pretty important partner for you.
What can you talk about in terms of debt how much was pulled forward and what what range do you expect in the coming quarters.
Hey, Jim This is Lewis I, probably went over it fairly quickly in my script, so I apologize for that but the the vast majority.
Majority of the benefit we saw that caused the the mobile numbers to look so impressive this quarter relative to us, let's say of normalized number is revenue that from a timing standpoint landed in this quarter. We have historically not attributed to debt to any specific customers because that is not our practice to do that but I point out the.
The last year, we had some timing of revenues that would have landed maybe in the second quarter of so I tried to highlight that the very clearly the.
On the bump that we saw in mobile revenue. This quarter came from revenues that was disproportionately landing in Q1 versus the rest of the year, which is not uncommon for us of the company, we have a variety of different structures or transactions with customers that caused that to happen, that's that's pretty normal but beyond that.
We really can't comment on any specific customers no matter what letter of the alphabet they start with.
Okay.
And the and the number of times in the past you of the reported is much better than expected quarter and then it seems a lot of it was pulled forward from.
The next quarter or two it doesn't assume that that's the case. This time given your second quarter guidance of since it's pretty consistent with the loose where we've been expecting for the quarter. So is that of signs that your overall level of business. Despite the COVID-19 is a little better than.
The elevated levels relative to such matter of hope for.
Hey, Jim Lewis again.
There was a portion of our goodness in Q1 that was a shift in timing I would say that anytime we head into a new year, especially in this environment with Covid, we we model as best as we can not only which deals. We think we will be able to to realize that when they might land.
What degree of how much and there was some of that revenue of the landed in Q1 that we might of mentally been modeling more for the second half of the year I would say less so Q2 I wouldn't call. It a pull forward of just that please understand it into the big wide range of customers of we have it's not a pure science when something will occur it felt like putting.
Something on the manufacturing line and modeling out when it's going to come out and we have a lot of things.
Things that go into a transaction not the least of which is negotiating for a variety of the terms. So there is some revenue in Q1 that we believe would normally we would of thought of would have landed in the second half of the year. If I had the size that it's probably in that sort of $15 million to $20 million worth, but obviously the quarter.
For the very strong anyway, but I wouldn't say that a large part of that came out of Q2. The primary reason I highlighted in my prepared comments about Q2 was I made some comments last quarter about how we saw Q2 shaping up and then since that time the market Tam sort of bumped up modestly. So that's why the Q2 bumped up but it wasn't affected as much.
By the comment you're asking me about the timing shift from revenue we thought could have landed in another quarter that was more for the second half of the year moving into Q1.
Okay and the one other follow up would be.
I'm wondering with the advent of the multiple services.
Most of them the vision in particular.
Could you talk about royalty rate trends in terms of the it may be getting multiple bites at the Apple in certain of the devices are written versus the one of the motor has in the past and is that helping some of this the disparity in the improved margins you've highlighted they didn't want to get into that much but in terms.
Of the.
The affecting the top line is that the part of what's going on.
Hey, Jim I'll I'll take the first cut of different or if there's any color that Kevin wants to add but I think at a very high level. The primary thing that is driving our improved margins at the highest level is really the mix of our revenue because of Covid has disproportionately impacted our products and services revenue of driven those.
Down disproportionately to our licensing we're licensing continues to grow the licensing revenue of just naturally carries a much higher margin than the products piece of the equation. So therefore that that's that's what would benefit the total company margins as more of a mix between that as opposed to some sort of price.
The leverage we have of licensing more products for the licensing just as the general comment inherently carries a very high margin within our business construct.
Yeah.
I think he was just covered the margin the margin part of the question and of course, when we when we come in higher as we did in Q1 because of that margin structure. It.
It has a it has the strong benefit to operating margins.
In terms of your ASP question.
Clearly getting a debt more adoption of AR.
For instance, like Dolby vision Dolby Atmos on top of the license that may already have Dolby digital plus or other of our technologies certainly the that takes the form of of a higher ASP, which is a big part of what contributes to our organic growth it's about getting on more devices. It's about.
Broadening the the value proposition on those devices and so that's that's what we're that's what we're focused on every day, we're pretty pleased with the progress this quarter.
Okay. That's terrific. Thank you.
Yeah.
But the one that does conclude our question and answer session. At this time I'd like to turn it back to Kevin Yeaman for any closing remarks.
Great. Thank you everybody for joining us today, and we look forward to speaking with you again soon.
This concludes today's conference we do thank you all for your participation you may now disconnect.
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