Q2 2021 Dolby Laboratories Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Dolby Laboratories Conference call discussing fiscal second quarter results. During the presentation. All participants will be in a listen only mode. After the warrant you'll be invited to participate and the question and answer session at that time. If you have the question you'll meet the press star one.
On the telephone as a reminder, this call is being recorded Tuesday need for 2020, one I would now like to turn the conference over to Jason The senior director of Finance and Investor Relations for Dolby Laboratories. Please go ahead Jason.
Yeah.
Good afternoon welcome.
Welcome to Dolby laboratories second quarter, 2021 earnings conference call.
Joining me today are Kevin Yeaman.
Dolby laboratories, President and CEO, and Lewis Chew Executive Vice President and Chief Financial Officer.
As a reminder, today's discussion will include forward looking statements, including our third quarter and second half fiscal 2020, one outlook and our assumptions underlying that outlook.
These statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today.
In particular, the extent of the continued impact of COVID-19 on our business remains uncertain at this time.
Discussion of these and additional risks and uncertainties can be found and the earnings press release that we issued today under the section caption forward looking statements.
As well as in the risk factors section of our most recent quarterly report on form 10-Q.
Dolby assumes no obligation and does not intend to update any forward looking statements made during this call as a result of new information or future events.
During today's call, we will discuss GAAP and.
And non-GAAP financial measures.
A reconciliation between the two is available and the earnings press release, and and the Dolby Laboratories Investor Relations data sheet on the Investor Relations section of our website.
As for the content of today's call, Kevin we'll start with the discussion of the business.
And Kevin will follow with the recap of Dolby financial results and provider of third quarter, and second half fiscal 2020 one out of them.
So with that introduction of behind US I will now turn the call over to Kevin.
Thank you, Jason and good afternoon, everyone.
With another strong performance and licensing revenues. This quarter, we are off to a solid start to our fiscal year.
Our first half fiscal 2021 revenues have grown about 10 per cent compared to the first half of fiscal 2020 and earnings have grown and an even higher rate.
Our financial results reflect the strength of Dolby and business model and the broad adoption of Dolby technologies across the devices and services the consumers are seeking to enjoy their content.
Before and Louis takes you through the numbers I wanted to highlight some of the areas of our progress and the recent examples of al Dolby is enabling a broader range of content.
With the growing number of content experiences, becoming Dolby experiences, we add to our value proposition for deeper adoption and existing device categories.
And we addressed the use cases for adoption and new device categories, which together drive our opportunities for growth.
With Dolby Atmos for music, we are enabling a significant step forward and how people can enjoy their favorite songs, which is creating new opportunities to expand the adoption of Dolby atmos to a broader range of devices and services.
Lucid motors announced that they will be bringing the first automobile to market that will include Dolby Atmos.
The lucid air will enable the Dolby Atmos for music experience for the car and is the first example of a significant opportunity to address the primary entertainment use case within automotive.
Lucid is just one example of how we are creating more ways for consumers to enjoy of growing library of music and Dolby Atmos we.
We have strong engagement with top artists around the world as more of songs and albums are being made available in Dolby Atmos include.
Including many recent Grammy nominated artists like Taylor, Swift Lady Gaga and begun the stallion.
This quarter from Gama, They taught music streaming service and India began supporting Dolby Atmos.
They joined title Amazon music and origami, who are currently streaming music and Dolby Atmos.
As we continue to build on the momentum for Dolby Atmos for music, we see opportunities for more services to adopt Dolby Atmos and to deepen our adoption across mobile Pcs Automotives and headphones.
Gaming is another area, where we see much of the opportunity ahead of us to bring Dolby vision and Dolby Atmos to a growing number of experiences.
Microsoft Xbox will be the first gaming console to support the combined Dolby experience for games.
Xbox gamers will have more ways to enjoy the Dolby experience with new gaming headsets released this quarter from Microsoft and Bang and all of a sudden that's the highlight support for Dolby Atmos.
Lenovo recently launched a new mobile phone and designed to support gaming content. The Legion zone dual too that highlight support for Dolby Atmos.
We also saw the first esports event and Dolby vision Dolby Atmos this quarter.
As part of Blizzard entertainments Blizzcon line, we enabled the event that showcased overwatch matches to be viewed and the combined Dolby experience through P CS and gaming consoles.
Esports gives us unique opportunities to engage gamers by bringing Dolby vision and Dolby Atmos for the experiences that they are passionate about.
As we grow the number of Dolby experiences within games, we add to our existing value proposition and drive more reasons for adoption on gaming consoles Pcs and mobile phones.
Okay.
By expanding our presence and music and gaming we addressed two of the primary use cases on the mobile device.
At the same time, we see more ways for Dolby to enable the highest quality experiences across more of the content enjoyed on mobile devices.
Over the past few quarters, we've highlighted how we are enabling new experiences and mobile like being able to record and Dolby vision with the iPhone 12, or being able to enjoy live sports content in Dolby Atmos through a mobile app.
This quarter ear shot of leading podcast service and India became the first podcast app to support Dolby Atmos.
They will be making Dolby atmos content available across different genre of podcasts and in multiple languages.
And we continue to expand the relevance of Dolby vision Dolby Atmos across the broader range of content, we address more of the use cases for mobile devices driving the reasons for deeper adoption with our partners.
This quarter Xiaomi launched their first mobile phone that support Dolby vision and Dolby Atmos.
This adds to the growing number of partners that support the Dolby experience within mobile.
Which is highlighted by the Apple iPhone and 12 lineup that features the combined Dolby vision Dolby Atmos experience.
In addition, Samsung oboe and Sony continue to highlight Dolby Atmos with the recent launch of their latest flagship models.
All of this progress adds to our strong position, where the movie and TV on the pet which continues to drive more device adoption within the living room.
This quarter and Samsung released their Q, seven and sound bar highlighting support for Dolby Atmos.
Within the Tvs are partners around the world, including Xiaomi, Shanghai Tang and Skyward released the new models that support the combined experience.
In addition to supporting Dolby Atmos, Tcl and high sense also highlighted support for Dolby vision IQ within their recent TV launches.
With this momentum we still see a significant opportunity ahead to reach higher levels of adoption with Dolby vision, and Dolby Atmos and the living room similar to the broad presence of our core audio technologies.
The adoption of Dolby vision, and Dolby Atmos on devices is driven by a consistent flow of new titles that are being enabled and the combined Dolby experience.
Our streaming partners like Netflix Disney plus Apple TV, plus and HBO Max.
<unk> to make a broad range of titles available in Dolby and the combined experience is consistently highlighted with the release of their latest tent pole titles.
Let me shift to the cinema.
And as consumers begin to return to the movies. They are seeking out premium experiences and Dolby cinema is the best way to enjoy a movie.
We now have about 90% of our Dolby cinemas opened globally to certain capacity restrictions.
Our engagement with the exhibitor partners remained strong as we recently added a new Dolby cinema and partner in China, and we also had for new Dolby cinema locations open during the quarter.
We also see initial signs of strong box office performance from titles like Godzilla vs Com and successful local content and China, including Detective Chinatown, three and hi, mom that we're all available in Dolby cinema.
We look ahead to anticipated titles later this year, including top gun Maverick, a quiet place two and black widow debt.
We'll all be available and Dolby cinema.
During the last year, we have started to bring the Dolby magic that powers, the best movie television and music experiences to a much broader range of content and interactions with Dolby Dot I O our developer platform.
Our focus is on deepening our engagement with the developer community growing the number of developers on the platform and building their engagement with our Apis.
Just last week, we completed and integration with box Dot com and Dolby the I O.
Companies that use box can now enable their users to easily improve the quality of their audio directly from where their files are stored within box powered by Dolby media a P eyes.
We are excited to bring unique solutions the boxes broad range of customers and the opportunity to drive more people to engage with Dolby to I O.
Our interactivity API and are supporting a wide range of the use cases, and we see new customers across multiple industries from online learning to enabling the influencers to conduct with fans.
Or even in one case supporting and application that enables live streaming for medical teams.
As we look ahead, we also see opportunities where real time interaction come together with record of media and we can uniquely provide comprehensive solutions by embedding both our interactivity and media Api's.
With a growing number of new experiences the enabled being enabled by Dolby the Io.
We are learning from our engagement with developers and evolving our offerings to best support the use cases, where we see significant opportunities to bring higher quality media and best in class real time interactions.
So to wrap up we are growing momentum and enabling Dolby vision, Dolby Atmos experiences and more forms of content like music and gaming.
As we enable our technologies to address a broader range of content, we build upon our strong position with the movies and television and create more reasons for adoption across devices and services.
With Dolby Dot I O. Our technologies are beginning to address a much larger world of content and experiences and interactions.
All of this gives us confidence and our ability to drive revenue and earnings growth into the future.
And with that I'm going to hand, it over to Louis to take us through the financials.
Okay. Thank you Kevin good afternoon, everybody and of course may the fourth be with you and.
And as Kevin said, our financial results were very solid this quarter revenue and earnings both coming in and higher than we previously guided so let me go through a few details for everyone SEC.
Second quarter revenue of $320 million was above our guidance range of 280 million to $310 million as the.
The volumes and we had were higher than expected and several of our end markets and then we also benefited from a true up of about $15 million and the quarter for Q1 shipments reported that were above our estimate.
On the year over year basis second quarter revenue was down from last year's $352 million due to lower recoveries and lower revenue from cinema related business, partially offset by higher adoption of Dolby technologies, and higher market volume and areas like P C and T D.
On a sequential basis total revenue was down from Q1 due to lower recoveries and lower seasonality and both of these were anticipated when we gave our guidance at the beginning of the quarter.
So the Q2 revenue was comprised of $304 million and licensing and $16 million and products and services. So let's go through the trends and licensing revenue by end market starting with broadcast.
Broadcast represented about 35% of total licensing in the second quarter broadcast revenues decreased by about 19% year over year and that was driven by lower recoveries offset partially by higher market volume along with higher adoption of Dolby.
On a sequential basis broadcast decreased by about 25% due primarily to lower seasonality along with lower recoveries.
Mobile represented approximately 22% of total licensing in Q2.
Mobile decreased by about 12% from last year and that was due to a shift and timing of certain contracts and that was offset partially by higher adoption of our technologies.
On a sequential basis mobile was down about 38% due primarily to lower recoveries and timing of revenue under contracts.
PC represented about 17% of total licensing and the second quarter PC was higher than last year by about 12% due to higher market volume along with increased adoption of Dolby vision of Dolby Atmos and that was offset partially by declining asps because of mix of our disc versus non disc units.
Sequentially PC was up by about 56% driven by timing of revenue under contracts, along with seasonally higher activity from patent programs.
Consumer electronics represented about 16% of total licensing in Q2.
On a year over year basis.
Consumer electronics was lower by about 2% due to a shift and timing of certain contracts offset partially by higher volume and devices like sound bars, and <unk> as well as higher adoption of Dolby vision Dolby Atmos.
On a sequential basis CE decreased by about 7% due mainly to lower seasonality and timing of revenue under contracts.
Other markets represented about 10% of total licensing and the second quarter the.
They were up about 14% year over year, driven by higher revenue from gaming and automotive and that was offset partially by lower Dolby cinema revenues.
On a sequential basis other markets decreased by about 22% driven by lower seasonality and gaming and lower admin fees from beer.
Beyond licensing our products and services revenue was $16 million and Q2 compared to $16 9 million and Q1 and $23 million in last year's Q2, and the year over year decrease was attributable to lower demand and the cinema industry because of the pandemic.
Yes.
So now I'd like to discuss Q2 margins and operating expenses.
Total gross margin and the second quarter was 89, 9% on a GAAP basis, and 95% on a non-GAAP basis.
Products and services gross margin products and services gross margin on a GAAP basis was minus $345000 and Q2 compared to minus $5 $5 million and the first quarter.
Alex and services gross margin on a non-GAAP basis was a positive $1 $1 billion and Q2 compared to a negative $3 9 million of ours in the first quarter.
As I mentioned when I gave guidance, we took steps to reduce the cost structure and manufacturing and that's helping our product gross margins returned to positive territory.
Operating expenses and the second quarter on a GAAP basis were $204 million compared to $189 $8 million and Q1 the.
The annual salary increases for our for our employee base went into effect at the beginning of Q2 and also Q1 operating expenses benefited from a gain on sale of our facility in Brisbane.
Operating expenses and the second quarter on a non-GAAP basis were $178 $4 million compared to $167 1 million in the first quarter non.
Non-GAAP operating expenses were pretty much in line with the guidance that we gave.
And.
Operating income and the second quarter was $83 $2 million on a GAAP basis, or 26% of revenue compared to $105 $9 million or 31% of revenue in Q2 of last year.
Operating income and the second quarter on a non-GAAP basis was $110 9 million or 34, 7% of revenue.
Per to $129 million or 36, 7% of revenue in Q2 of last year.
Income tax and Q2 was 10, 6% on a GAAP basis, and 16% on a non-GAAP basis.
Net income on a GAAP basis in the second quarter was $76 $2 million or 73 cents per diluted share and that compares to $88 $5 million or 86 cents per diluted share and last year's Q2.
And net income on a non-GAAP basis, and the second quarter was $94 $8 million or 91 cents per diluted share that compares to $106 $6 million or a dollar and four cents per diluted share in Q2 of last year.
Yeah.
For both GAAP and non-GAAP.
Net income in the second quarter was above the guidance that we gave and that was due to the revenue coming in higher than what we added and expected.
During the second quarter, we generated about $83 million and cash from operations, which compares to the $66 million generated in last year's second quarter and we ended the second quarter of this year with about $1 $2 billion and cash and investments.
During the second quarter, we bought back about 760000 shares of our common stock and ended the quarter with about $76 million of stock repurchase authorization still available.
We also announced today a cash dividend of 22 cents per share the dividend will be payable on may 25th 2021 to shareholders of record on May 17th 2021.
So now let's talk about the forward outlook three.
The three months ago, when I went through the outlook for Q2, I said, then based on a variety of factors and assumptions that we could see a scenario for second half revenues in the mid to high five hundreds.
And now with Q2 behind US our updated scenario is for second half revenue ranging from $560 million to $600 million.
And if I focus more specifically on Q3, we anticipate that third quarter total revenue could range from $260 million to $290 million.
Within that licensing could range from $250 million to $275 million, while products and services revenue could range from $13 million to $18 million.
In terms of the assumptions, we've made about market conditions industry analyst reports indicate that PC Tam in the second half could be higher on a year over year basis.
However for Tvs and other consumer devices industry reports continue to indicate the Tam could be down in the second half because of an uptick in demand that happened last year in the middle of the pandemic, but not might not repeat this year.
At the same time, we are expecting organic growth and the second half and that's on the year over year basis, driven by broader adoption of our Dolby technologies broadly across various markets.
And we also anticipate higher revenue from our cinema related businesses and the second half as that industry starts to recover compare to where it was last year.
So let me move on to the rest of the P&L outlook for Q3 Q3 gross margin on the GAAP basis is estimated to range from 88% to 89% and the non-GAAP gross margin is estimated to range from 89% to 90%.
And within that products and services gross margin is estimated to range from about breakeven to a million dollars positive on a GAAP basis and from $1 million of $2 million positive on the non-GAAP basis.
Operating expenses in Q3 on a GAAP basis are estimated to range from $210 million to $220 million.
And operating expenses in Q3 on a non-GAAP basis, our estimated range from $185 million to $195 million.
Now the increase in operating expenses from Q2 to Q3 is being driven mainly by our marketing programs that from a timing standpoint have more of their activities taking place in the second half this year.
Which also means that at this point Q4 expenses could be at least as much as what we spend in Q3, but I'd like to point out that for the year as a whole of the marketing expenses at the high end of our Opex range would be similar to what they were last year just time differently. We.
We will give you an update of this when we report our Q3 results. So let's finish up the Q3 outlook.
Other income is projected to range from $1 million to $2 million for the third quarter, and that's 1 million to $2 million for the third quarter and our effective tax rate for Q3 is projected to range from 20% of 21% of both the GAAP and non-GAAP basis.
Based on a combination of the factors I just covered we estimate the Q3 diluted earnings per share could range from 15 cents. The 30 cents on a GAAP basis and.
And from 37 cents to <unk> 52 cents on the non-GAAP basis, so with that I'll kick it back over to Mr. Gaiman.
Alright, Thank you Louis.
I promise you I would wait until you got through the remarks to acknowledge our other news for the day. Thank you for doing that.
As a as I'm sure most of you or all of you saw.
We also announced today that Louis has made a decision to retire later this year.
And I want to acknowledge the impact of those has had.
Over the last nine years Lewis has played an integral role and.
Building on our strong financial position navigating new business models, and just overall supporting the expansion of Dolby experiences.
I can't thank Louis enough for everything he's done for Dolby.
And built a very strong team.
He has mentored and countless employees, both within and beyond the finance organization.
And Lewis is going to be working closely with me to ensure a smooth transition as we work to identify our next CFO.
So we've still got Louis we're going to enjoy that for now.
And.
And then we'll be happy to lose a lot more time to focus on his family and of course, Louis We will wish you all of the best.
Yeah.
So and Kevin This is true that when I first told you you said good riddance.
And I think you might have misinterpreted that.
[laughter] well alright, yeah, it's the whistle moment, but thank you. Thank you to to yourself and the board.
The investors for.
Most of all for putting up with my bad humor, I can't believe now that they actually have books out there called dad jokes, because I think all of my all my jokes probably fit into that category, but it has definitely been a privilege to serve as the company's CFO and lot of great memories and since we're all about the experience I can definitely say that ive had my own unique.
Dolby experience here, so I look forward to a smooth transition as we move on to the next phase of companies ingratiate, great shape, great promise ahead, so I will happily watch from the sidelines.
Alright, well Lewis.
And I haven't heard anyone disagree with you get when you talk about the quality of the humor.
And we are the make.
And make sure and get the most out of your remaining transition time and with that I'm sure of your audience is eager to get the questions. We've covered a lot of ground and so.
So, let's turn it over to Q&A.
Alright.
Thank you, ladies and gentlemen, if you wish the register a question for todays question and answer session. You may do so by pressing star one if you'd like to withdraw your question press the pound key.
On the Speakerphone, please pick up your handset before entering like best please be sure to identify yourself and your firm at the outset can be for it to all participants we ask that you limit yourself to one question and the follow up question until all participants have had a chance and the first round. If time allows me and I'll then come back to answer any of the.
And question one moment please for the first question.
Your first question comes from the lineup Ralph Schuchardt with William Blair. Your line is open.
And good afternoon, and thanks for taking the question a couple if I could just first on the Dolby Io Kevin I know you get this question often but just now that you've got another quarter to work with the.
Work with or just any sense of kind of framing the opportunity for our investors and then.
Maybe also two just in terms of the price obviously of some pricing and on the website just curious sort of what the receptivity has been on that sort of pricing plan of if it's priced effectively and efficiently and just kind of maybe what are some of the hurdles from I guess getting more use cases and customers going forward.
Yeah.
Sure Ralph and thanks.
Thanks for the question.
Well look in terms of the opportunity.
We continue to be excited we think there's a significant opportunity and the things to focus on really as it relates to our opportunity is.
And the increasing demand for real time interactivity and.
And doing that and a high quality way and we feel like we bring a lot of expertise to bear.
And addressing that as.
And as well as just the amount of media content that is being created and consumed every day and the cloud.
And we think we can do a lot to help people.
Net.
Create great content, great great quality of content out of that.
We are.
I'm excited about our announcement with with box or a partnership with box I should say inside the partner with them.
This is going to enable AR.
There are customers that enable the Dolby integration to have their users able to improve their content.
Easily right, where they sort of their content and.
We've seen a lot of interest and the media and entertainment space box.
Box is the very large presence and media and entertainment so.
This is going to allow them to improve their audio much more.
Much more easily.
And with a broad range of content. So we're.
We're excited about that and injure and and across the board. We're focused on continuing to get more developers signing up more developers are engaged with our a pea eyes.
And.
Yes, the pricing as you point out is on the website and yeah. So far I would say things are going going well as far as as far as that goes.
Great and then just in terms of Citi.
Cities and states are talking about a reopening and capacity construct construction of the constraints ease and just curious what what youre seeing on the cinema side or hearing from exhibitors and what's contemplated in the the guide for for cinema for the balance of fiscal 'twenty one.
Mhm, Yeah, So we'll see.
Art with the high level of Louis one of you might want to.
China and more specifically on the guidance, but.
Relative still is I mean, as you pointed out it's still city by city country by country.
But in general we've seen.
The continued certainly signs of opening up here and the U S.
I think Europe is beginning to get right back and in the right direction and Asia, they've been that they're more open.
What we've seen is that there have there been some very successful releases I mentioned, a few of them and my prepared remarks, but what I would also say is debt the.
The box office.
Has skewed more heavily toward the premium experiences and so we continue to believe that.
When people do go back to the movies.
They're going to want to experience and the best possible way. So we think the premium experiences is where the is where the action is going to be and and that's where and and that's where of course, we're always focused on.
So yes.
Yes, we do expect.
Obviously, there's with all of the appropriate qualifications around uncertainty and we do think we do see things.
The wait and see it right now we see things continuing to to improve.
Throughout the rest of this year, although of course of the pace of somewhat uncertain.
Great and just last of Louis just one of wish you congratulations on retirement and it's called certainly won't be the same without you on it and the hopefully you've reserved of lucid to enjoy in the retirement.
Yeah, you know I would the.
With the pandemic thing Ralph I I wish I could.
See the demo why she sees the demo it's almost ironic because really here of the demo, but see the car and the demo because from the people who I've heard who have experience and I've heard it's nothing short of phenomenal and I believe that there is no reason for them. The blow smoke up my you know what so yeah, I think it'll be nice going forward to see some of these cool things evolve and anyway. Thank you.
And.
That's gone and.
That's all the questions. Thank you.
Yep. Thanks.
Your next question comes from the line of Steven Frankel, and where the Colliers. Your line is open.
Good afternoon.
Louis in the back half are there any material.
Changes in timing shifts between Q3, and Q4 versus last year I know, we had a couple of those and the front of house.
Yes. This year I think the back half is a little bit more comps I would say is the high level answer no I think we had more of that.
More of that complexity and the first half of this year I think we know that we've given you guidance for Q3 and I'd give you a fairly tight framework for revenue and in Q4, and we don't have as much of that noise between the two quarters. This year.
Okay and then.
And and Kevin.
Look for and looking for a little more detail on the on the box relationship.
Is this like.
Okay.
Are you the integrated directly and box or so that I can just kind of check the box.
And get the product or do I have the separately come the Dolby and sign up and once I sign up it's easy to use within box.
Yeah. Thanks, Steve.
And you sign up with box so what happens is if.
The box will has included us as one of their partner integrations.
And any it administrator can sign up with box or work directly with box to enable their users too.
To access the the Dolby.
And the Dolby audio enhancement Apis and and at that point then the so the.
So the the users the the payments running through the the enterprise.
And at that point.
Pretty much as simple as selecting the file and pressing the Dolby button and and it comes back with the Dolby announced the audio content.
Okay, that's pretty good.
What have you found is the most effective channel for recruiting developers so far with IL.
Well I think that I would say the.
First of all it's the events, which of course for this for for the.
Since we launched Dolby the I O we've been.
We've been and virtual mode, but we have been participating and an increasing number of events, whether that south by southwest or University, hackathons and getting people engaged.
And then looking for that to spread bye bye.
And by word of mouth amongst developers.
Obviously, some of our wins of drawn attention, which brings more people and to explore.
And I think as we look forward I think there are there will be increased opportunities to you know based on the other great things that are going on around Dolby to find ways to authentically connect with developers and get more people coming to learn what we can do for them because and they said.
Earlier there.
And there is.
A massive amount of content.
Content and increasing the number of minutes of interactivity and what we're confident about is that we can we can improve the quality of those like nobody else.
Great and then on vision and any update on progress and.
With live content being broadcast and vision.
Im pausing, Steve because I've I'm I'm.
And I don't know that I'm as current on on that but we continue to be engaged across the number of opportunities to get larger scale to date, it's largely been.
Many.
And then specific kind of broadcast but.
Especially now that we're starting to come out the other side of the pandemic. So that you get more.
The live event, which is often the <unk>.
First kind of port of call for for that kind of thing.
And some of the structure of the restrictions being lifted is one of the one of the dynamics around both Atmos and vision and.
And new events.
And just that in the beginning it requires a few more people and everybody wanted to minimize the number of people. So so we've continued to have a number of.
The private and public kind of.
Event streaming and envision and <unk> Atmos.
And we definitely see some of that activity beginning to pick up again.
Great. Thank you and I'll Echo Ralphs comments.
Gross congratulations and enjoy your retirement.
Thank you Steve been great working with you.
Same here.
Yeah.
Your next question comes from the line of Paul Chung with Jpmorgan. Your line is open.
Hi, Thanks for taking my questions. So.
Just another follow up on box.
So how do we size the opportunity here just taking.
The audio file base and the growth rate and so you're seeing or the uploads were up 50%.
You know what if we assume kind of a 100% usage of the Dolby kind of media processing API and how big is that and how to size that and then what about on the video side and see vision mentioned there are any.
Potential for vision, there as well.
So as it relates to the first part of your question.
Looking at it it's early days, where we're just out of the gate here with the box integration, but again we're.
And we're very excited about it because.
Because of the opportunity to work with box and there are substantial presence in.
Media and entertainment I mean, we've we've.
We've had a lot of interest in that space to.
To give you some hypothetical examples of how someone might want to employ our immediate API and that world. As you can imagine a production company that has people doing voice overs around the world with varying degrees of quality that could all be run through our API is to get a.
High level of quality.
It could be podcasts or newscasters are doing you know.
Interviews using their phone and the outside.
You could employ Dolby to clean that up and there are endless examples because it can apply to a lot of different content.
But we're we're right out of the gate so.
We're gonna be partnering closely with Fox to.
And to show their customers, what we can do so that they could begin enabling that and getting usage.
And I think I'm, sorry can you remind me the second part of your question video Oh vision, but yeah. So yeah right now the.
The interactivity is of course audio and video are immediate Apis are focused on audio enhancement that you can.
You can be sure of that across our portfolio of AP is as.
And as we look at our roadmap, we see opportunities to bring our vision and imaging expertise to that platform.
Okay, great and the use case makes great sense and.
The other use cases can you share that that would fit well with this business or is there a use case for gaming apps and time spent there or where even you know of live streaming audio or video or not even lives.
In the broadest and so I'm going to say, yes, and yes as it relates to potential applications to give you a couple of examples we had an announcement recently that it was last week or rather a customer of ours had an announcement.
Display and social media company, which allows their creative community to share and the revenue from advertising and they have taken advantage of Dolby Dot I O to enable those creators to interact directly with their fans and so that's kind of a very social alive.
Example of of what can what can be done.
We're also looking at all forms of virtual events of working with the company by the name of home Jam, which.
And also connects.
Artists with fans for for live virtual concerts, and also kind of special experiences. So those are some of the more examples of what we're doing but again, it's where people are looking to have greater real time interactivity and high quality.
And improve the quality of their video content across the board.
Gotcha, and then last question for Louis and I will Miss the dad jokes.
But I'll give you a free cash flow question. So you had a pretty strong performance from the first half.
Kind of relative to previous years.
Should we expect kind of the second half to be kind of higher than the first half similar to how you've seen over the past couple of years, where how do we think about kind of seasonality.
And given you know revenue guide is slightly lower and the second half versus first half.
Yeah, probably the the space since I didn't give a projection for cash flow because probably the biggest swing factors things like collection of receivables I suppose of the core business I would say that your question is spot on and sense of now that we've lapped 606, and and left that for sure and a rearview mirror you can see that our cash flows are now much.
And more highly correlated to our earnings so I'd say going forward without Paul and necessarily picking on any one quarter and.
And as our revenue and earnings grow I firmly believe that youll see that translated into equivalent amount of cash flow as well because we are now all normalize on the whole six of them six extra corner of of balance sheet on there because of the estimated revenue and all of that so that's why you're starting to see these quarters, where the cash flow to the cash flow.
And from operations is highly linked to what the pattern and our net income.
Okay, great. Thank you.
Thanks.
Your next question comes from the line of Jim Collins of the Barrington Research. Your line is open.
Thanks.
Dolby is traditionally.
But in terms of maybe of several of your.
Lead time from the technology introduction to when it begins to contribute meaningfully and I think over the past couple of years, we've seen.
Atmos and vision do that and I O. The the cash.
Current version of that or are there other things in mind like music debt.
You think of and those terms and then the related basis with the.
And I O.
The the pricing is obviously going to be of different type of pricing than the traditional royalties. You have do you think of it in terms of creating contributions and a different way that might match up with the type of pricing you've had or might it be even better when it and one of the usage.
No it gets more robust.
And how would you you know.
Your question about frame and framing up the opportunity and like.
To know a little bit more about debt as well.
Sure. So thanks, Jim to take your your last question first and again the way to think about it is what we're looking to do is hours many minutes of interactivity as possible and to improve as the enhanced the quality of his many media the minutes of content.
And as possible because of the way we earn revenue is on a per minute process basis. So.
So this is really.
These are the the this all starts from our long held belief that the decades of experience that we have.
Doing the best and audio video quality of the IP that we have and the Knowhow that we have can be applied beyond the realms of premium entertainment movies and television gaming music and apply to.
All of the the ways all the apps and services that we're using every day so our.
That's that's what we see as the opportunity.
And to your point on kind of cycle times, yeah, bringing up an ecosystem like bringing Dolby vision to life for the first time of Dolby Atmos for life for the first time, you've you've experienced a couple of times with us the kind of length of time. It takes to bring up the first content partner of the first device partner and build from there.
I would say that.
The the subsequent cycles.
And might be somewhat shorter than that initial cycle and in other words applying it to a realm of newer almost content.
But in.
In the world of Dolby Dot I owe that holds the promise of being a much.
Kind of faster.
The experiment and learn and cycle time so.
And it enables us to put new capabilities on the develop of our platform with the goal of learning quickly how developers of responding to it what more they like to see and how we can apply.
Our knowhow our experience and in some cases of IP that we already have and some cases it'll spawned the renovation to serve that world.
Okay, and one and one other area and the Dolby cinema.
AMC has been your primary partner in the United States.
It's had the number of the issues. It's focused on recently I was wondering if there's room for another partner and the U S or if you're pretty much tied to that AMC being the.
One of the only.
The partner in terms of Dolby cinema here, and then and markets outside the U S and the other way you can grow is to develop new partners.
And those markets as well and I Wonder if you could give any update on that sort of process.
Yeah.
Clearly this has been a difficult we've come through a pretty difficult time for the industry. So first and foremost they've been.
<unk> focused on.
Keeping up with the implications of the pandemic, but at the same time, we have remaining.
Remained very much engaged with our partners.
And I mentioned in my prepared remarks that we did out of partner in China.
And we.
We added about for new screens, and obviously that was tempered by the pandemic, but there's still like I said I think that when people come back we're already seeing that the the box office.
Has been skewing pretty notably more toward premium experiences and pre pandemic and and that's consistent with our thesis that when people do come back they're going to want to experience it and the best possible way.
Okay, and and been aside from the one in China, that's pretty much.
Where you are at this stage, but that could be another opportunity.
Yeah. That's the that's the only partner we added this quarter all the way of multiple as you know we have multiple partners in China that are that are up and running.
Okay and.
Lewis I would also agree I hope I wish you well and whatever your next venture is.
Thanks, Jim I appreciate it.
Thank you.
A very and no further questions at this time I would like to turn the conference back over to Kevin Hammons for any closing remarks.
Great well. Thank you everybody for joining us we very much appreciate the questions.
And of course, we are we look forward to keeping you updated on our progress.
Yeah.
This concludes today's conference call you may now disconnect.
And.
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