Q4 2021 Dolby Laboratories Inc Earnings Call
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Ladies and gentlemen, thank you for standing by.
Welcome to the Dolby Laboratories conference call discussing fiscal fourth quarter.
During the presentation, all participants will be in a listen only mode.
You will be invited to participate in a question and answer session.
At that time, if you have a question you will need to press star one or your telephone.
As a reminder, this call is being recorded Tuesday November 16 2021.
I would now like to turn the conference call over to your host Ashley showing that one senior manager Investor Relations for Dolby luxury. Please go ahead Ashley.
Good afternoon, welcome to Dolby Laboratories' fourth quarter 2021 earnings Conference call. Joining me today are Kevin Yeaman, Dolby Laboratories', CEO and Robert Park CFO.
As a reminder, today's discussion will include forward looking statements, including our first quarter and fiscal 2022 outlook and our assumptions underlying that outlook.
Statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today, including among other things the extent of the continuing impact of COVID-19 on our business.
Got an obese and additional risks and uncertainties can be found in the earnings press release that we issued today under the section captioned forward looking statements as.
As well as in the risk factors section of our most recent annual report on Form 10-K.
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 non-GAAP financial measures a reconciliation between the two is available in our earnings press release and in the Dolby Laboratories' Investor Relations data sheet on the Investor Relations section of our website.
As for the content of today's call Kevin will start with a discussion of the business and Robert will follow with a recap of Adobe's financial results and provide our first quarter and fiscal 2022 outlook.
So with that introduction behind Us I will now turn the call over to Kevin.
Thank you Ashley and good afternoon, everyone.
Our Q4 EPS came in above our midpoint, while revenue came in toward the low end of our guidance range.
Going to the full year, we had a strong fiscal 2021 with 10% revenue growth and our highest operating margins in fiscal 2014.
And we created considerable momentum across many of our growth initiatives that will allow more people to the interface by premiums Dolby experiences.
Consumers can now easily record edit and share their videos and Dolby vision with their Apple iPhone.
Music and Dolby is being enjoyed by significantly larger audience with the launch of Dolby Atmos on Apple music and we have the first partners, who will who will enable the Dolby Atmos music experience in the car with Mercedes Benz diluted loaders.
And gamers can now play some of their favorite titles in Dolby vision for the first time on the latest Xbox.
During FY 'twenty, one our revenues benefited from robust increases in consumer device shipments combined with increased adoption of Dolby Atmos and Dolby vision.
Partially offset by a decrease in cinema related revenues.
As we enter FY 'twenty two we are expecting revenue growth in the mid to high single digits as we anticipate a shift in those factors with accelerating growth of Dolby Atmos, and Dolby vision and a partial recovery in cinema related revenues offset by a macro slowdown and consumer device shipments.
It has been a dynamic environment before Robert takes you through the numbers in more detail, including a discussion on our licensing and markets.
Want to walk you through some of the most important factors as we think about long term revenue growth.
Our foundational audio technologies, Inc.
The increased adoption of Dolby Atmos and Dolby vision.
And our opportunity to expand our addressable market with initiatives like Dolby Atmos.
Let's start with our foundational audio technologies, which include Dolby Digital plus 84 band our audio patent licensing.
These foundational technologies made up roughly three quarters of our licensing business in FY 'twenty, one and have high attach rates across a diverse set of devices and end markets.
In FY 'twenty, one our foundational audio technologies grew about 11% year over year.
Due largely to robust global shipments of <unk> and higher television volumes, particularly in North America and Europe.
We also benefited from higher than normal true ups coming into the year.
As we look ahead to FY 'twenty two industry analysts reports indicate that we will not see the level of market growth. We saw in the previous year, noting uncertainties around global supply constraints and consumer spending.
So of course, we partner with Oems across multiple device categories across all geographies and each of them is impacted differently.
When we take all of this into account, we expect a decrease in the low single digits for our foundational audio revenues.
Over the long term, we expect our foundation of licensing revenue to generally reflect market trends in device shipments driven by our strong presence across a wide set of consumer devices in markets with opportunities to increase adoption in certain areas like mobile and automotive.
The remainder of our licensing revenue includes Dolby Atmos, Dolby vision, and our imaging patent technologies, where growth is being driven primarily by new adoption of new licensees.
This portion of our licensing revenue also includes Dolby cinema, where we expect strong year over year growth as box office recovers from low attendance throughout FY 'twenty, one driven by the pandemic.
In total this portion is approaching one quarter of our licensing revenue and grew nearly 20% in FY 'twenty one.
We see this growth accelerating to over 35% in FY 'twenty two.
Our continued momentum with Dolby vision, and Dolby Atmos is a key driver here and I'd like to take a few minutes to highlight our progress in these areas.
Let me start with Dolby Atmos music.
The response from artists and consumers is clear.
Dolby Atmos creates a whole new way to enjoy music.
The engagement continues to build with some of the world's most popular music artists like Justin Bieber and the weekend, describing the Dolby Atmos music experience as game changing in an immersive world, where you can feel every detail.
We also recently launched a new value Dolby live at Park MGM, We're concert attendees will be able to enjoy their favorite artists with the ultimate Dolby Atmos music experience and then seek the experience then all the ways to enjoy music.
Amazon Music recently announced that they are making Dolby Atmos music experiences more broadly available to their subscribers.
The music and Dolby experience significantly increases the value of that Dolby brings across a wide range of devices, including mobile PC and speaker products.
Our growing presence in music has created a new value proposition for Dolby in the automotive space.
Mercedes Benz announced last month, but they are adopting the Dolby Atmos music experience in two of their top luxury cars.
The Mercedes Maybach and the Mercedes Benz S class.
And just yesterday Chinese electric car maker, MEO announced they are including Dolby Atmos and their ETE seven model.
We are excited that these new partnerships and add to our early momentum within automotive that started with lucid air earlier this year, which is now on the road in the U S.
We're just at the beginning of the significant opportunity we see ahead in this space.
This quarter the launch of the iPhone 13 lineup again highlighted the capability to enable consumers to record and share their videos in Dolby vision.
With a significant increase to the amount of Dolby vision content being created through the iPhone. We are seeing a range of content platforms now enabling support for Dolby vision for the first time.
This quarter, Billy Billy one of China's largest social video sites began to support the upload and sharing of user generated Dolby vision content.
More recently Vimeo became the first all in one platform to support playback.
With more content platform supporting Dolby vision content to broader audiences and use cases.
We look to drive increased adoption of Dolby vision playback and capture across more devices.
Particularly in mobile and PC.
We are also building momentum to enable more live broadcast events in Dolby.
Comcast alerts in Dolby vision on Fox Sports.
Thursday night football games will be available in Dolby vision through Fox.
And NBC will be delivering select college football games in Dolby vision.
Growing the number of Dolby content experiences, especially live content with dedicated followings provides more impetus for greater adoption of Dolby vision Dolby Atmos.
Gaming and Dolby vision is now available on the Xbox series X and S. Marking the first time gamers can enjoy playing in the combined Dolby experience.
Microsoft also expanded their support of the combined experience by adding Dolby vision to their surface devices.
In the living room, we see our partners like Amazon will mean, Tcl and Sky highlight the combined Dolby vision Dolby Atmos experience in their latest TV launches.
And we continue to garner support from streaming services with Hulu, adding Dolby vision this quarter.
The newest sound bar products from LG, and Sony notes showcase support for Dolby Atmos and in mobile we saw new Android.
Pre phones and tablets this quarter from Samsung Xiaomi and really with Dolby technologies.
With a solid foundation and increasing adoption of Dolby Atmos and Dolby vision, we are able to broadly address the world of premium content experiences like movies, TV and music and are confident in our ability to drive continued growth.
With Dolby Io our developer first API platform, we see an opportunity to greatly expand our addressable market by focusing on use cases that benefit from Dolby has unique experience in media and communications.
While our platform has broad applicability across online and hybrid events social audio premium education.
As of minutes annually and collectively we estimate the addressable market to be about $5 billion.
And growing.
With the breadth and depth of our expertise, we are enabling higher quality capture processing available in the market.
Last quarter, we released earnings.
It's in a position to address more of our potential customers needs by making our Apis more competitive on the number of concurrent.
Our users we can support.
As we focus on our target use cases and learned from our engagement with developers, we continue to introduce new and improved the overall developer experience.
With these recent improvements we are beginning to see increased self service activity and with our new leadership in place we are focused on increasing awareness and building the pipeline.
This quarter, we saw a number of new music distribution services, including United Masters, integrating our music mastering API and enabling their users to create high quality music tracks.
Also cloud.
<unk> recently launched an integration of Dolby audio enhanced Apis with their media flows product, allowing their customers to easily improve the audio quality of their videos.
While we are still in the early days of Dolby Io, we're excited about the significant opportunity ahead.
Before I wrap up let me spend a minute on our operating model.
We significantly increased operating margins in FY 'twenty one due.
Due to a combination of gross margin improvements and reduced spending levels due to COVID-19.
We anticipate a partial return of some of these operating expenses in FY 'twenty, two like travel and events as well as a few specific items like our same time on the strength of our operating model, including our improved gross margins, we will continue to generate higher operating margins as compared to our pre pandemic levels, while investing in our growth areas.
So in summary, we had a strong foundation in fiscal 2021 was highlighted by significant wins like Dolby Atmos on Apple music. The first cars that will support Dolby Atmos and enabling Dolby vision across a wider range of content for live events to gaming to the user generated content.
We see much of the opportunity ahead, as we drive broader adoption across more content.
This gives us confidence in our ability to.
So as long term revenue and earnings growth.
As we look to FY 'twenty, two and beyond.
So for the financials I would like to welcome our New Chief Financial Officer, Robert Park Robert.
Or is an experienced leader with a track record of guiding companies through growth, while delivering operational excellence and accountability.
Robertson on board for about four weeks now we are excited to have his expertise as we work towards Dolby next phase of growth and with that.
Good afternoon, everybody I am very excited.
I hope to in the near term I get a chance to meet you all if not in person at least virtually.
So let's go through the numbers for Q4 and full year 2021, and then ill take you through our outlook for fiscal year 'twenty two.
Total revenue in the fourth quarter with.
And the total revenue guidance range, we provided and also included a favorable true up of about $3 million for Q3 shipments reported that were above the original estimate.
Revenue landed towards the low end of our guidance range due to the timing of the deal that pushed out of the quarter and is now anticipated to result in revenue in fiscal year.
With our Q4 results full year 2021 revenues were 128 billion compared to $1 6 billion.
Fiscal year, 2020, generating 10% year over year growth within that licensing revenue was $67 million.
On a year over year basis fourth quarter revenue was about $14 million about last year's Q4, as we benefited from greater adoption of Dolby vision and Dolby Atmos.
And higher cinema landed revenues, partially offset by lower true ups.
Q4 revenue was comprised of $266 million in licensing and 19, nine and products and services.
Okay.
And year over year quarterly trends in licensing revenue by end market and I will also highlight the key factors as we look ahead to fiscal 'twenty two.
Presented about 39% of total licensing in fiscal year 2021.
Our full year revenues grew by 36.
98% on a year over year basis, driven by higher adoption of Dolby vision, and Dolby Atmos in Tvs and set top boxes. We also saw higher foundational audio revenue due to increased TV shipments in North America, and Europe compared to fiscal 2020 and.
In Q4, we saw broadcast revenues declined from prior year's Q4, as we saw lower true ups are foundational audio revenues on a year over year basis, partially offset by higher revenue from Dolby vision and Dolby Atmos.
As we look at the fiscal 'twenty two we currently anticipate broadcast revenues to grow in the low single digits from fiscal 'twenty, one driven by higher adoption of Dolby vision, Dolby Atmos and growth and our imaging patent program.
These growth factors are projected to be partially offset by lower foundation of audio revenues as we see lower recoveries and lower true ups on a year over year basis and industry analysts are projecting TV shipments to be flat to down low single digits.
Mobile represented approximately 22% of total licensing in fiscal 2021 mobile revenue increased by $34 million or 15%.
I think compared to fiscal 2020, as our foundational audio revenues benefited from timing of revenues and we saw higher Dolby vision revenues from increased adoption.
Our Q4 mobile revenues were up about 2%.
Driven by increasing adoption of Dolby vision.
And Dolby Atmos as long as growth and our imaging patent programs. These factors will be partially offset by lower foundational audio revenues.
Due to timing of revenues under contract.
Consumer electronics represented about 15% of total licensing in fiscal year 2021 on a year over year basis, CE licensing increased by $29 million or 19% driven by higher foundational audio revenues as a result of increased unit volumes and sound bars in ADR.
Okay.
We also saw growth from higher adoption of Dolby Atmos, and Dolby vision revenues increased 28%.
Compared to prior year, which was in line.
And with full year growth drivers of both higher foundation audio revenues and graduation.
As you look ahead.
For fiscal year 'twenty, two we Cte revenues relatively flat year over year.
We expect to see higher revenues from Dolby vision, and Dolby Atmos adoption as well as increasing contributions from an imaging patent program.
These growth drivers will be partially offset by lower foundational audio revenues as industry analysts are estimating unit volumes and DMA and Tom market decrease year over year, and we anticipate lower CPE recovery.
Okay.
PC represented about 12% of total licensing in fiscal year, 2021, or fiscal year, 'twenty, one or 7% driven by higher foundational audio revenues as a result of strong PC shipments.
And then throughout the year and growing revenues from Dolby Atmos and Dolby vision.
Each of those factors were partially offset by lower recoveries compared to fiscal year 'twenty.
Are you Atmos revenue.
As we look ahead to fiscal year 'twenty, two we see low to mid single digit growth in our PC revenue at Morris Pcs continue to adopt Dolby vision, and Dolby Atmos as well as growth in our imaging patent program.
Other markets represented about 12% of total licensing in fiscal year 2021.
Or up about $26 million or 21% year over year, driven by higher revenues from gaming due to the console refresh that is related to patents.
In Q4, with our other markets grow about 26% year over year.
As theaters reopen and higher revenues from gaming.
As we look ahead.
Fiscal 'twenty two we anticipate that other markets revenues could grow at an even higher rate of over 20.
And we also see continued growth.
I think our products and services revenue was 60.
Compared to $83 million in fiscal year 'twenty.
Prior year included about <unk> <unk>.
Added to our cinema products business and included revenues for our communications hardware business, which we exited in early fiscal year 'twenty one.
$15 million compared to $14 million.
And last year's Q4, the year over year increase reflects higher demand.
Semi industry.
89, 2% on a GAAP basis, and 93% on a non-GAAP basis.
Operating expenses in the fourth quarter on a GAAP basis for $214 million.
Operating expenses in the fourth quarter on a non-GAAP basis were $189 9 million compared to $176 5 million in the prior year.
Operating expenses were at the low end of our guidance for Q4.
Operating income in the fourth quarter was $40 4 million on a GAAP basis, or 14, 2% of revenue compared to $30 1 million or 11, 1% of revenue in Q.
Q4 of last year.
Operating income in the fourth quarter on a non-GAAP basis was $66 6 million or 23, 4% of revenue compared to $54 3 million or 20% of revenue in Q4 of last year.
On a full year basis operating income was $344 million on a GAAP basis or about 26, 9% of revenue compared to $218 7 million or 18, 8% in fiscal 2020.
Full year operating at $50 7 million or about 35, 2% of revenue compared to $317 9 million or 27, 4% in the prior year.
Income tax in Q4 was minus 3% on our tax rate benefited from a number of discrete items, including return to provision true ups.
Net income on a GAAP basis in the fourth quarter.
Was $44 2 million or <unk> 42 per diluted share compared to <unk>.
The $6 8 million or <unk> 26 per diluted share in last year's Q4.
Net income on a non-GAAP basis in the fourth quarter was $60 4 million or <unk> 58 per diluted share compared to $45 8 million or <unk> 45 per diluted share in Q.
Q4 of last year <unk>.
During the fourth quarter, we generated $110 million in cash from operations compared to $113 million generated in last year's fourth quarter.
We ended the fourth quarter with about $1 3 billion in cash and investments.
During the fourth quarter, we bought back about 1 million shares of our common stock and ended the quarter with about $291 million of stock repurchase authorization available going forward.
We also announced today a cash dividend of <unk> 25 per share an increase of <unk>, <unk> or 14% compared to the prior quarter. The dividend will be payable on December eight 2021 to shareholders of record on November 32021.
Now, let's turn to guidance for fiscal 'twenty. Two we currently estimate total fiscal year 'twenty two revenues could range from 134 billion to $1 4 billion. This would result in about 5% to 92 $1.358 billion compared to $1 billion and $214 million in fiscal year.
The 4% to 8% year over year growth.
As I referenced earlier discussing our revenue by end market.
We expect strong growth in our other markets for increased Dolby cinema, and gaming revenues as well as growth in mobile PC and to a lesser extent broadcast due to increasing adoption of Dolby vision, and Dolby Atmos and growth and our imaging patent programs, partially offset by lower foundational audio revenue.
For products and services revenues, we anticipate this could range from 75 million to $90 million for fiscal year 'twenty, two with improvements in cinema products and growth in Dolby Io.
Gross margin for fiscal year 'twenty, two are expected to be relatively consistent with fiscal year 'twenty one.
Let me shift to operating expenses, we had several factors that impact our year over year expectation.
Fiscal 2022 is a 53 week fiscal year for us and that results in an extra week apparel in Q1.
We'll see a return on some expenses like travel and events that were lower during the pandemic. In addition to normal annual merit increases that will typically go in effect fiscal Q2.
<unk>.
Dolby vision, Dolby Atmos, and Dolby Dot Io with these considerations. We are estimating operating expenses for fiscal 2022 could range from $869 million to $889 million on a GAAP basis and between $750 million to $770 million on a non-GAAP basis.
With all of this our business model remains very strong as we expected.
To deliver operating margins between 24% to 26% on a GAAP basis and between 34% and 36% on a non-GAAP basis.
Based on the factors above we estimate that full year diluted earnings per share will range from $2 53.
$3 three on a GAAP basis and $3 52.
And to $4 <unk> on a non-GAAP basis.
Let me shift to how that translates to what we see for fiscal Q1.
For Q1, we see total revenues ranging from $345 million $375 million within that licensing revenues will range from $330 million to $355 million note that in the prior year Q1, we benefited from a significant favorable true up of over 21 million for Q4 fiscal 'twenty shipments that was large larger than <unk>.
Given the volatility of conditions during the pandemic.
And growth and our imaging patent program.
Q1 products and services revenue could range from $15 million to $20 million.
Let me.
We move on to the rest of the P&L outlook for Q1.
Q1 gross margin.
On a GAAP basis is expected to be 90%, 91% and the non-GAAP gross margin are estimated to be about 91% 92%.
Operating expenses in Q1 on a GAAP basis, our estimated range from 221 $9 million to $231 million.
Operating expenses in Q1, our non-GAAP basis are estimated to range from $190 million to $200 million, which contemplates the impact of the 53 week fiscal year.
Other income is projected to range from $1 million to $2 million for the first quarter.
And our effective tax rate for Q1 is protect projected to a non-GAAP basis.
Based on the combination of the factors I just covered.
Covered we estimate that Q1 diluted earnings per share could range from 71 to 80.
<unk> on a GAAP basis, and from 98 to $1 13 on a non-GAAP basis.
With that let's move on to Q&A.
Operator can you please queue up the first question.
Thank you ladies and gentlemen.
You wish to register 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 team.
You are on a speakerphone, please pick up your handset before entering djerba clubs.
Please be sure to identify yourself and your firm at the outset.
It will be fair.
All participants will be extra to limit yourself to one question and a follow up question until all participants have had a change in the first round.
Allows.
We will then come back to answer any remaining questions.
One moment please for the first.
Good afternoon. Thanks.
Taking my question and thanks for the increased disclosure very helpful. This first two revenue guide for foundational audio revenues, Kevin I think you called for a decrease in loans.
So thats sort of EBIT based.
Sort of factored into there, which I'm guessing is it maybe just a broader tranches et cetera, and how that might be impacting that portion of the guidance.
Okay.
Yes, Ralph I guess the.
I guess, the most I can say about the macro.
There is still it's still dynamic.
And when we forecast as you know we start with industry analysts reports and I would say that.
The unit shipment estimates it does bear some are a little down.
Overall, we might best characterize it as kind of flattish with with people, noting a loss.
A lot of uncertainty around supply chain and consumer spending.
The reason why this year, then that's just slightly down.
Single digits in our estimation is that we did have the.
The larger than normal true up that were lapping from Q1 of last year and we also had the timing of a particular contact across the year. So given that the unit environment is kind of flattish, it's a little more sensitive to those things. So you can see we did.
We had that 11% growth last year and this year, we see low single digits, but.
But going forward, Ralph I think whats.
I also want to make sure it's clear that it's a really strong foundation is diversified across.
Lot of different devices across a lot of different geographies when we look back.
Several years dating back to a couple of years before the pandemic.
This is this is on average.
Growing low single digits, and so that's kind of how we look at it going forward and in any given year.
It's going to be based on these individual dynamics and obviously these last couple of years have been particularly dynamic.
Great and then I appreciate you framing the Dolby <unk> opportunity for Us Tonight.
Carl you talked about increasing the API features with some improvements and then also I think seeing some increase in self serve activity. Just curious had had some of the features of functionality has been a limitation.
I guess to drive further adoption going forward.
Yes, Thanks, I think I'd frame it like this as you know we've been Dolby Io has been in market for.
Alright, so its eyewear to simplify that and do a couple of phases I would say phase one was we were getting our first aid.
Focus on where we're highly differentiated improving audio quality.
By voice.
And.
That gave us a lot of confidence that there is.
Value to being able to improve.
All of these applications and services.
We also learned a lot and we learned.
Hi.
About scale and specifically because we want to get too and maximize usage, how many users do we need to support or.
Audio.
Video, whether it's passive or or people that are active speakers.
And as you know we had a major update in July around that.
Continued actually now to advance that.
We've also added a lot more in terms of differentiation. So the way I would characterize where we are today Ralph is that IPO.
Major relief has been in market.
For a few months and we've rolled that out to all of our existing customers and we.
Tested and they've expanded their use cases and usage and it's.
It's getting great feedback.
That we are now we think in a position to compete on kind of the scale and what we learned during the.
The customers, we have today and we have us continuing to differentiate and we've in fact.
Even seeing some some new features that continue to raise the bar on.
On quality. So so yes, so more recently, we've begun to see that take the form of some really exciting.
I think its self service activity.
As you know we brought a new leader on board towards the end of June.
And in addition to being focused on the roadmap and all the things we just talked about.
She is really focused on now really increasing awareness building the increasing the pipeline.
So we're excited about what's ahead.
Great one more quick one if I could it doesn't seem like any earnings call for calendar Q3 would be complete without asking company and how you might benefit from the Meda versus just love your thoughts on that Kevin PD on the foundational side or I guess vision or.
Certainly other technologies. Thank you.
Sure.
I guess I would start by saying that.
Well first of all I think the metaphors the meta versus I guess can take many forms but ultimately it is an audio visual experience and I think that that has.
I think that creates opportunities across both.
Foundational and what we're doing with Dolby Io and unlikely more immediately with Dolby Io because of the form it takes which is that developers can come in and it certainly.
Something that the team is watching closely as we build the roadmap and think about.
The use cases that we're we're.
We're going after and engaging with them.
In environments, and maybe by extension the meta versus debt.
Where there is an expense.
Saudi vision experience like that we certainly see that as opportunity across slowly.
Great. Thanks, Kevin.
Thank you.
The next question is from the line of Steven Frankel with Congress you May proceed.
Good afternoon, thanks for the opportunity.
You guys in your script said something that I've never heard Dolby talked about before this notion of that contract that slipped out of the quarter and into.
New fiscal year.
Revenue comes from royalties.
These that have reported that estimated core.
And then turned up based on royalty reports quarterly.
But there are also we do have revenue from things like.
Mike.
Recoveries.
We have contracts that have things like minimum commitments, which means that that we might have periodic payments that usually at least once a year, but they are periodic and theres a lot of reasons why wouldn't we are forecasting revenue of recovery or one of those payments could shift in timing.
So.
This one just happened to cross a fiscal year.
And does it shifted into Q1 or given where Q1 revenue landed it's going to end up later in the year.
It is included in our range of estimates for Q1, we certainly see it in FY 'twenty, two and remember that as it relates to Q1, a couple of things going on there as well one we're lapping the larger than normal true up from last year.
And.
And last year, we highlighted that that Q1 last year.
Sure did benefit from.
A recovery in another.
Some of the timing of those contract payments.
Thats why youre seeing the U K.
Yes.
First in the Q1 trend compared to what.
Tighter supposed to judge the success of.
Bio in fiscal 'twenty two.
Yes so.
I would say, Steve that first and foremost I talked today about.
While <unk> can be applied to a very broad set of use cases I talked about the use cases, where we think we can really bring significant differentiation. So I would watch for.
Our ability to bring developers.
Within those focus verticals.
And then.
Over time of course, we look to.
We will we do look to share more specific metrics with you.
I would look to.
That's likely to include a number of active developers revenue run rate.
We're not there yet so in the meantime, I would focus on.
Our ability to bring great experiences to life.
Okay, and that was a significant quarter for hiring and given the pace of the last few quarters, maybe you could share some insight as to where those bodies are going.
Yes.
So.
Two things one is certainly as it relates to.
It relates to our growth initiatives and as you can tell from the script one is.
It relates to Atmos and vision, we're focusing on context, where we're making a lot of progress like music like gaming like automotive.
And we were also we're also focusing on Dolby Io.
I would also say that I think during.
The pandemic, we had probably fallen behind in hiring a little bit and we did manage to catch up a little bit.
And last quarter.
As we've kind of across four continents.
Okay.
And then last one.
Where do you think the vision market share is in the <unk> market as we head into another holiday season.
In terms of life in Asia.
Yeah, so for Tvs.
We focus on the percent of <unk> Tvs, which we think are about 60% of the market.
We think we're at about between 20, and 25% and I've learned to give a range because I've learned that in chinas will adjust their numbers in arrears and so my my number will move around a little bit that's up from 10% in 19 and 15% to 20.
In last year.
<unk>.
The <unk>.
I would also note Steve that Dolby Atmos on 14 television it is catching up to that number pretty quickly.
And remember that a lot of our growth in Dolby vision is also.
We will be coming from.
Mobile PC.
And.
The other use cases.
Where we still have outside of the Apple ecosystem.
We're still really at the pretty early stages as it relates to PC.
You probably saw that we added xiaomi with Dolby vision playback last quarter.
So that's kind of where we see that so.
But I guess I would say we talked about.
Oh, sorry go ahead.
And then on the only the lapsing slipped in is any comments around where the backlog stands today.
What's the state of discussions now with the world's open up about it.
Discrete new screen signings for the new year.
Especially given the slate in 'twenty two.
Yes, we do see I mean, we have some new openings scheduled that we would still expect it to be.
A lower number than pre pandemic years, but of course, we expect growth in Dolby cinema revenues just from the returned to the box office.
And also the fact that.
Premium for Dolby cinema, and premium formats in general are garnering higher share of the box office than pre pandemic.
Okay, great. Thank you Kevin.
And Steve if I could come back one second to add to the Atmos.
You asked about <unk> and attached so think about that category in that category as a growth driver.
Yes.
We.
But Asian of Dolby Atmos Dolby vision.
Imaging patent.
Which currently is approaching.
No.
We see that having the potential to.
Hi al.
The foundational.
<unk> is today and then just.
Can you that as a way of thinking about it.
Alright.
Really helpful. Thank you.
Thank you.
The next question is from the line of.
You May proceed.
Hi, Thanks for taking my question so.
Just on the App.
Most.
Particularly in auto you're really starting at the high end here at Mercedes So.
Do you expect to see.
Seeing accelerating discussions.
And as with other Oems and then.
How do we think about.
<unk> kind of.
The higher ASP per car given kind of the multiple speakers or is the right way to think about it.
Per car side.
Tom.
That's the first question.
Yes. Thanks, we're excited about the automotive opportunity I think in terms of our demo experiences on our ability to while people right now are automotive atmos, meaning that there are very high on that list.
And yes, Youre right were starting with some high end cars in less than that so I think you see that as a pattern with everything we do right whether it's whether it's.
What we've done with Dolby vision Dolby Atmos in any context, usually that's going to start at the high end models.
But of course like always we're looking to make the Atmos music experience as our broadly.
Broadly available across all the ways in which people enjoying music and there are other entertainment experiences and to circle back to another of your question is yes.
The.
While we still arent going to go into specific ASP.
Asps.
We do anticipate that the automotive will be amongst our higher.
Quite a bit higher than the average.
And then on the Atmos music.
Music streaming side, what's been the feedback at <unk>.
Yeah.
Apple music and is that generating interest from other large streaming service Susan.
Will that eventually kind of translate over into two auto demand at some point.
Yes.
<unk>.
<unk>.
I think the response from our partners has been really strong I mean, you've seen the.
And you can see the reviews out there in the social media posts from artists and from consumers out the reception.
Momentum and of course that generates interest from other potential partners, whether it's services or Oems and Thats.
We also did.
Drew salt.
Yeah.
Good.
Some.
<unk> engaged in some great marketing activities.
Last quarter, which also helped to raise that awareness.
So.
Yeah, so that that generates interest in that.
That's why we have to go execute and Thats why were.
One of the many reasons why we're we're able to tell you on.
Got it.
Revenue.
The contribution there and how much of that contribution.
It's sitting in products and services.
Considered a service so it's not included.
It is licensing.
And when it gets big enough. We will include it or break it out separately.
Okay and then last question from me. Okay go ahead.
No. That's okay go ahead.
Yeah, So free cash flow hit a record this year.
Primarily on earnings which is always nice to see.
And your revenue and op margin guidance suggests pretty strong profitability again span. So can we expect free cash flow up.
And 'twenty two as well.
And then will you be increasing capex on more cinema build et cetera, and then.
Given this cash over the past couple of years.
Should we expect some more.
Aggressiveness on buybacks in any.
Other investments thank you.
Hi.
Yes, I'll start with the last one on the buybacks, we did increase the buyback.
Buyback this quarter $96 million versus Q3 saw we bought back $39 million.
Kind of impacted by the shorter windows, a buyback, but we expect to continue buybacks.
With a focus at least to offset dilution and we'll also continue to be optimistic.
And with our authorization, we had $291 million remaining and provides an opportunity.
Our intent to continue to return cash to shareholders and that's what we wanted to do in terms of a balanced capital allocation will also impact 2020 are not expected to be much different than they were for fiscal year 'twenty one.
Well next question.
This is from the line of Jim gross with Barrington Research you May proceed.
Good afternoon.
The operating expense guidance was roughly.
We were sort of a budget and then I wonder if.
So we are aware of it.
Key.
Growth in the category.
In the operating room.
Expense relative to the.
Yes, good question.
Step back and I think about the architecture and the model that we have at first half we're guiding our operating margins at midpoint of 35%. So that's our kind of our northstar to try and maintain a healthy operating margin given the revenue that we have which is stronger than our prepayment property margins.
That there are a number of factors.
In fiscal year 'twenty two.
This is here we have of course of the year on here, a 53 week fiscal year extra week of expenses for items like payroll.
Depreciation and rent.
Also our annual focal increases going.
Go into effect in Q2, which is part of the increase and then the.
The third item is really extending partial return of expenses that were hampered during the pandemic like travel event into the areas.
That we think are most impactful I got Io.
Atmos and vision, particularly in gaining and cars so.
I think it's a balanced approach to making sure we invest for the future in both innovation and growth.
Just you know that extra 50, <unk> week at that smaller between $7 million to $8 million by itself.
Okay.
That's good.
Okay.
And those expenses.
Andy sort of maintained.
It's going to grow commensurate with the.
The close of the business so yes.
So we're going to continue investing in R&D absolutely.
Okay and then the other.
Category I'd like to ask about is the foundational technologies.
I don't know if Ive heard you talk about it quite in the same way.
A lot of sense of course.
Could you.
Could you frame out roughly.
What share of total.
Would be represented by that category and how.
Some of the major categories would be in terms of.
So this is.
Foundational.
As a percentage of.
And that is confirmed.
Okay.
You can really think of that.
Of our technologies and what we group there are the ones that tend to have really.
Thawed.
Yeah.
Of our of our revenue so.
This is Dolby digital plus in Q4, our audio patents.
And.
And then the.
The approaching 25% is Dolby Atmos.
And that's what we're seeing growth rates accelerating from 20% last year to over 35.
Percent.
This year and that would include the Dolby cinema licensing revenue.
And just tying into that there is a management process and the people.
At foundational and versus some of the profile of humps.
Like is it all all the same or are there different management techniques and different people assigned to those areas.
We're not organized that way, we're really sharing that construct and help.
As a way of helping to understand our revenue drivers and I think it's important in that regard because.
On one hand, we have our foundational work.
Sure.
There are.
Theres always categories that we're looking to grow into.
And two it's a large base with high attach rates. So it's much more sensitive to kind of the overall dynamic around what's happening with unit shipments.
There is.
Offerings like Dolby Atmos, Dolby vision and our imaging.
The portfolios are all about the new wins and the new licensees that we've been talking about and Thats whats driving the growth.
Organizationally.
We have people who are selling all of those things. We have engineers that are engineering all of those things some people might be specific to one thing a lot of people.
B across more than one day. So this is really a way to think about.
To understand our revenue growth drivers going forward.
Alright, Thanks, Kevin appreciate it.
Thank you.
Again to ask a question please press star one.
Okay.
There are no additional questions.
I will now pass it back over to Kevin Yeaman.
Closing remarks.
Great well, thank you everybody for joining us today.
Thank you for the questions and we look forward to.
To seeing you throughout quarter and updating you again next quarter. Thank you.
Right.
That concludes today's conference call. Thank you and have a great day.
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