Q2 2022 Dolby Laboratories Inc Earnings Call
The Adobe Laboratory as Clinton caused you to begin shortly thank you for your patience as a reminder, if you'd like to ask a question you may be shaped by pressure stuff that I'd buy one because I think he passed.
[music].
Thank you for your patience, the Dolby Laboratories conference Kuwait each began shortly.
As a reminder, if you would like to ask a question you may do shaper pressure stuff like buy one and he's living here.
[music].
Okay.
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. Afterwards, you'll be invited to participate in a question and answer session at that time. If you have a question you will need to press star followed by one on your side.
Thank you Pat as a reminder, this call is being recorded Thursday may five 2022, I would now like to turn the conference call over to athletes whenever senior manager Investor Relations for Dolby Laboratory. Please go ahead Ashley.
Good afternoon, welcome to Dolby Laboratories' second quarter 2022 earnings conference call.
Joining me today are Kevin Yeaman, Dolby Laboratories', CEO and Robert Park CFO .
A reminder, today's discussion will include forward looking statements, including our third quarter and fiscal 2022 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, including among other things the extended the continuing impact of COVID-19 and.
Related shutdowns ongoing supply chain issues and geopolitical instability on our business.
A discussion of these 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 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 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 third quarter and fiscal 2022 outlook, so with that introduction behind us I will now turn the call over to Kevin.
Yes.
Thank you Ashley and good afternoon, everyone.
Quarter came in above the midpoint of our guidance on both revenue and non-GAAP EPS and we continue to gain wins with Dolby vision, and Dolby Atmos and build momentum with Dolby Io.
At the same time, we are operating in an increasingly uncertain environment and we are reducing our full year outlook to reflect the impact of lower estimated T V gaming and automotive shipments for the year Rob.
Robert will take you through the details in a few minutes.
While the environment is dynamic we have a durable business model, a healthy balance sheet strong cash flow and confidence in our long term growth prospects.
We have established a prominent position in the entertainment ecosystem and remain steadfast in our belief that people want to have the best quality experiences.
We continue to see Dolby vision, Dolby Atmos, and our imaging patent it's growing at a rate of over 35% on the strength of strong adoption across a broad range of use cases.
And there is much opportunity ahead with Dolby Io as we empower developers to create immersive experiences and raise the bar on quality.
So let me start with foundational audio which represented about 75% of our licensing revenue last year.
With its deep adoption across devices are foundational audio revenues are more heavily impacted by macro trends.
We came into the year expecting foundational audio to be down low single digits and are now we're expecting year over year declines in the high single digits.
This is due to lower TV shipments, which we are now estimating to decline mid single digits globally, and even larger declines in North America, and Europe coming up strength in those regions last year.
Additionally, supply chain issues have continued to weigh on gaming and automotive, which has resulted in lower unit estimates in those markets.
In the near term there continues to be many uncertainties that are limiting our visibility, including COVID-19 related shutdowns in China.
War in Ukraine, and ongoing concerns around supply chain and inflation.
At the same time, we are well positioned for the long term.
Dolby has an enduring licensing business with a high margin profile strong profitability and consistent cash generation.
This business is diversified across a broad range of consumer devices with our foundational audio technologies included in so many of the devices that people used to consume audio and video content.
The expansive and growing amount of content available in Dolby combined with broad adoption across content distributors and devices puts us in a position to provide long standing value, making for a durable business.
Over the long term, we expect foundational audio to track roughly in line with market demand for the consumer devices, we serve.
Dolby vision, Dolby Atmos, and our imaging patents, which represented almost 25% of our licensing revenue last year benefit from these same valuable characteristics, but with greater opportunity for growth ahead as they are earlier in their adoption cycles.
We continue to increase the number of ways people can enjoy dolby experiences through music gaming and live content.
With over 400 studios in over 40 countries designed for recording music in Dolby Atmos and another 200 slated to open in the near future. It is now easier than ever for artists and producers to create immersive trucks.
With an increase of music available in Dolby Atmos from New recordings and re releases Apple music has stated publicly that plays a spatial audio tracks with Dolby Atmos have quadrupled since September .
As music and Dolby becomes even more prevalent we strengthened our core proposition in areas like mobile PC and automotive.
In gaming player unknowns battleground mobile, commonly known as pub G. One of the most popular mobile games today now supports Dolby Atmos.
Ended live content Disney Star will now broadcast Indian Premier League cricket with Dolby Atmos.
Neighbor has launched Naver shopping live with Dolby vision, the world's first Dolby vision capable live commerce content Dolby.
Dolby vision is ability to capture and reproduce ultra vivid colors and detailed textures gives consumers a more realistic shopping experience online.
With new content experiences, we are creating additional value to our partners and consumers and add to the reasons for deeper adoption within devices.
The growth of Dolby vision, and Dolby Atmos as evident with adoption from new customers and deeper adoption from existing partners.
The combined Dolby experience is making its way into Tvs of all sizes with LG debuted the world's smallest OLED TV at 42 inches and Xiaomi launching 800, each model, both highlighting Dolby vision and Dolby Atmos.
And we see new models of Tvs and sound bars from a number of partners.
In mobile vivo has launched their first tablet with Dolby vision and Dolby Atmos. The first vivo product to include the combined experience.
We are also seeing an increase in gaming specific devices adopting Dolby experiences.
Including Lenovo Legion gaming line, with Dolby, Atmos, and Dolby vision, and Jeremy's gaming edition smartphone with Dolby Atmos.
New phones and tablets from Abo, Samsung and real knee launch this quarter as well all highlighting Dolby Atmos.
We are excited by the momentum of adoption and the opportunity is still ahead of us.
Now I'd like to turn to our developer platform.
Our goal for Dolby Io is to be the destination for developers that want to build the most immersive online experiences.
We offer the capabilities to help them create those immersive experiences with tools like high quality audio and video capture some specialization that feels more lifelike and delivery of livestream content at scale and ultra low latency to massive audiences.
Ultimately, we believe that quality matters everywhere and Dolby Io has applicability across all verticals.
In the near term we are focused on those in which quality of experience is top of mind, such as virtual live performances online and hybrid events gaming premium education and content creation and production.
For example, we are talking to a lot of customers, who are building virtual worlds for gaming platforms for music concerts and live performances to creating new ways for people to collaborate for business and brand engagement.
These customers are excited because we have the tools to infuse those virtual worlds with high fidelity audience interaction of participation and amazing content.
A great illustration of this is ours a virtual event platform built with Unreal engine that is integrated with snapchat to bring a user's bit <unk> into an immersive environment.
<unk> uses Dolby Io to stream concerts to viewers on snapchat, allowing them to interact with their avatars in real time.
We are working with other companies, who are building immersive work environments, allowing business people to create their own avatars and stage meetings events showrooms and training sessions that a virtual space all of which can be enhanced by Dolby Io.
Cone interactive for example designs interactive experiences for brands and with our spatial audio their customers can network and share insights with a more natural and realistic feel similar to being at a live conference room.
The possibilities of these types of interactions are endless and we believe that Dolby Io has a key role in making them. The most high quality immersive experiences possible.
We are encouraged by the discussions we are having with existing and potential customers.
With an estimated Tam of $5 billion and growing we are excited about the opportunity ahead and its potential to significantly contribute to long term growth.
To wrap up we continue to operate in an uncertain environment impacting primarily our foundational audio revenues in the current year and at the same time, we are well positioned for the long term we.
We are still seeing strong growth of Dolby Atmos and Dolby vision as they are adopted deeper into new devices and content, giving consumers. The most immersive entertainment experiences.
And we are excited about the opportunity ahead with Dolby Io and our ability to help developers create high quality experiences through apps and services.
All of this gives us confidence in our ability to navigate near term headwinds and drive revenue and earnings growth into the future.
And with that I'd like to hand, it over to Robert to take us through the financials.
Great. Thank you, Kevin and good afternoon, everybody, let's get right to the numbers for Q2 total revenue in our fiscal Q2 of $334 million was above the midpoint of guidance and included a negative true up of about $2 $5 million for Q1 2022 shipments reported that were below the original estimate the negative true up was primarily in foundational revenue in our <unk>.
<unk> market for Tvs, which was approximately 11 million below our Q1 estimate and to a lesser extent in our gaming market. These negative true ups were partially offset by a favorable true ups in CE in PC.
On a year over year basis second quarter revenue was about $15 million higher than last year's Q2, as we benefited from the strength in P&C, along with improved results for Dolby cinema, and our cinema products business. These.
These increases versus prior year were partially offset by lower units and TV, which are down more than 15% compared to last year's Q2 in North America, and Europe and negative Trups in broadcast gaming and automotive.
Q2 revenue was comprised of $313 8 million in licensing.
And $25 billion in products and services.
Let's get into the year over year trends in licensing revenue by end market.
Broadcast represented 33% of total licensing in fiscal Q2.
While broadcast revenues of $104 5 million were essentially flat year over year foundational revenues were impacted by a negative true up for Tvs, coupled with a lower estimate for TV shipments for Q2 <unk>.
These factors were offset by higher adoption of Dolby vision, and Dolby, Atmos, Tvs, and new licensees or imaging patent programs.
Mobile represented 21% of total licensing in fiscal Q2 mobile revenues of $66 1 million were essentially flat year over year, as new licensees and our imaging patent programs and timing of revenues under contract were offset by lower recoveries and the negative revenue true up as we stated on the last call we expect our mobile revenue.
To grow mid single digits in fiscal year, 'twenty, two and I will cover that in more detail in a few minutes.
PC represented about 18% of total licensing in fiscal Q2, our Q2, PC revenues increased by $6 4 million or 12% compared to prior year Q2. This increase was driven by increased Dolby Atmos and Dolby vision adoption, along with higher unit shipments.
Consumer electronics revenues of $54 million represented about 17% of total licensing in fiscal Q2 on a year over year basis, Q2, CE licensing increased by approximately $5 7 million or 12% driven by higher foundational audio revenues for DMA and sound bars, as well as higher recoveries.
We also saw growth from higher adoption of Dolby, Atmos, and Dolby vision and sound bars and Dma's.
These favorable factors were partially offset by the larger true up in the prior year.
Other markets represented about 11% of total licensing in fiscal Q2, they were down $1 8 million year over year as lower foundational revenues from gaming and automotive due to the ongoing supply chain constraints were partially offset by higher revenues in Dolby cinema.
Beyond licensing our products and services revenue in Q2 was $20 5 million compared to $60 million in last year's Q2.
The year over year increase reflects ongoing improvements in the cinema industry globally.
Total gross margin in the second quarter was 89, 4% on a GAAP basis, and 89, 9% on a non-GAAP basis.
Operating expenses in the second quarter on a GAAP basis were $255 5 million compared to $204 million in Q2 of the prior year. This.
This year over year increase was driven by a few factors we recorded a $34 4 million expense, reflecting a settlement and related accrual in connection with a commercial dispute involving agreements that we assumed in a 2014 acquisition relating to our cinema products business.
This is a onetime item and we expect this will fully resolve this matter. We also booked a $5 2 million restructuring charge in Q2 comprised of severance and related benefits.
As we adjust our resources towards the areas, where we see the largest opportunities.
Along with changes related to the exit of a lease facility.
Q2, 'twenty two also saw higher salary costs from increased head count and annual Merit increases along with increased marketing spend.
Operating expenses in the second quarter on a non-GAAP basis were $187 2 million compared to $170 4 million in the prior year non.
non-GAAP operating expenses increased year over year due to higher salary expense for more head count along with our annual merit increases and increased marketing spend.
Operating income in the second quarter was $43 4 million on a GAAP basis, or 13% of revenue compared to $83 2 million or 26% of revenue in Q2 of last year.
Operating income in the second court on a non-GAAP basis was $113 3 million or 33, 9% of revenue compared to $110 9 million or 34, 7% of revenue in Q2 of last year.
The income tax rate in Q2 was 16% on a GAAP basis, and 17, 3% on a non-GAAP basis.
Our GAAP tax rate benefited primarily from discrete adjustments for the settlement charge and to a lesser extent stock based compensation.
Net income on a GAAP basis in the second quarter was $36 7 million or <unk> 36 per share per diluted share compared to $76 2 million or <unk> 73 per diluted share in last year's Q2.
Net income on a non-GAAP basis in the second quarter was $94 million or <unk> 92 per diluted share compared to $94 8 million or <unk> 91 per diluted share in Q2 of last year.
During the second quarter, we generated $63 million in cash from operations compared to $83 5 million generated in last year's fiscal Q2.
We ended the second quarter with about 1.1 dollars 7 billion in cash and investments.
During the second quarter, we bought back one 1 million shares of our common stock an increase of almost 50% from last year and nearly 175% from last quarter and we ended the quarter with $421 million of stock repurchase authorization available we are expecting higher levels of buyback in the second half of the year through a <unk> one trading plan.
<unk>.
We also announced today a cash dividend of <unk> 25 per share the dividend will be payable on Wednesday may 25, 2022 to shareholders of record on Tuesday May 17 2022.
Now, let's get discuss the outlook.
Let me start by saying there is an increased uncertainty in the current environment. Many of our partners have highlighted this increase uncertainty and are not providing guidance, which makes it even more challenging to correlate our outlook to what they're seeing in the markets. They serve.
Given the ongoing implications of the pandemic in Asia, and particularly the shutdowns in China, the geopolitical instability in Europe supply chain constraints and inflationary concerns globally, our visibility to what our customers will ship is very limited, making it much more difficult to provide guidance, we will be providing a scenario of what the full year could look like and certain.
Factors assumed in key markets and a high level estimate for Q3.
The visibility challenges, mostly impact our foundational audio revenues as these technologies are more broadly adopted across a wide range of products for certain device categories. Like Tvs, we are anticipating even larger year over year declines with global shipments expected to drop mid single digits for the year and at even higher rates in North America, and Europe , where our attach rates are much higher.
In addition supply chain issues from gaming consoles in autos are extending further into the year than previously anticipated.
That being said, we still anticipate total licensing growth in fiscal 'twenty, two will be driven by Dolby Atmos, Dolby vision and imaging patents.
Across all end markets with year over year growth in excess of 35%.
With that as the backdrop, we are estimating fiscal year 'twenty two total revenue to come in between $1 3 billion and $1. Three 5 billion. This would result in about a 1% to 5% year over year growth as compared to the $1. Two 8 billion in fiscal year 'twenty one we.
Within this licensing revenue could range from $1 billion, and $221 million to $1 billion and $265 million compared to $1 $214 million in fiscal year 'twenty one.
We are reducing the expected year over year growth for our other markets category to a 15% primarily due to the ongoing supply issues in gaming and to a lesser extent auto all of which are negatively impacting our foundational revenues offset by growth in Dolby cinema.
Our PC market revenues are expected to grow high single digits, while mobile markets revenue are estimated to grow mid single digits.
Both PC and mobile growth will be driven by Dolby Atmos, Dolby vision and imaging patents.
Our CE market is anticipated to be up slightly year over year again, two to Dolby Atmos Dolby vision and imaging patents broadcast revenue is now estimated to decrease mid single digits as growth from Dolby Atmos, Dolby vision and imaging patents is more than offset by decreases in foundational revenue, particularly in Tvs due to lower shipments that I mentioned earlier.
Products and services revenue are still estimated to range from 75 million to $90 million for fiscal year 'twenty, two with improvements in cinema products and growth of Dolby Io.
Gross margins for fiscal year 'twenty, two are expected to be relatively consistent with fiscal year 'twenty one.
With the one time charges in Q2, GAAP operating expenses for the fiscal 2022 could now range from $905 million to $925 million.
On a non-GAAP basis, we now expect operating expenses to range from $745 million $765 million.
Given these changes we now expect to deliver operating margins between 19% and 21% on a GAAP basis and between 32% and 34% on a non-GAAP basis.
We expect other income to range from $3 to $4 million for the year.
Our effective tax rate for the year is projected to range from 16% to 18% on a GAAP basis, and 17% to 19% on a non-GAAP basis.
Based on the factors above we now estimate that full year diluted earnings per share will range from $1 98.
To $2 48 on a GAAP basis on a non-GAAP basis full year diluted earnings per share is estimated to range from $3 27 to $3 77.
Let me now cover a high level scenario of what Q3 could look like.
Determining the revenue split between Q3, and Q4 is difficult for the factors I mentioned earlier as well as timing of recoveries and revenues under contract.
That said for the Q3 scenario, we estimate total revenues ranging from 285 million to $310 million within that licensing revenues could range from $270 million to $290 million.
Q3 products and services revenues could range from $15 million to $20 million.
Q3 gross margin on a GAAP basis is expected to be 90%, 89% plus or minus and the non-GAAP gross margin is estimated to range from 89% to 90%.
Operating expenses in Q3 on a GAAP basis are estimated to range from $214 million to $224 million operating expenses in Q3 on a non-GAAP basis are estimated to range from $185 million to $195 million.
And our effective tax rate for Q3 is projected to range from 19% to 20% on a GAAP basis, and 18% to 19% on a non-GAAP basis.
Based on a combination of the factors I just covered we estimate that Q3 diluted earnings per share could range from 28 to <unk> 43 on a GAAP basis and from 54 to <unk> 69 on a non-GAAP basis.
We believe there is further uncertainty and risk in the current environment, but it is difficult to quantify at this time, we felt it was important to convey estimates and assumptions for the remainder of the year based on the best information currently available.
While we are seeing short term external headwinds in certain markets for our foundational revenues. We continued to see strong momentum in our Dolby Atmos Dolby vision and imaging patents.
Graham revenues and are optimistic about our Dolby Io growth opportunity.
Taking a step back what remains consistent are the fundamentals of Dolby business is sticky diverse customer base across a large set of devices, where our technologies provide value over decades high gross margins and operating cash flows and a strong balance sheet.
With that let's move on to Q&A operator can you. Please queue up the first question.
Okay.
Thank you, ladies and gentlemen, if you wish to read a question today's question and answer session. You may do so by pressure stuff one by one and there's nothing keypad. If you would like to withdraw your question Press Star followed by chain if you will.
On a speaker phone please pickup your handset before entering Youll request, please be sure to identify yourself and you'll find at the outset to research all participants we ask that you limit yourself to one question and a follow up question until all participants have had a chance in the first round. If time allows we will then come back to arndt and even mining question.
One moment please for the first question.
Our first question comes from Ross <unk> from William Blair. Please go ahead. Your line is now open.
Good afternoon. Thanks for taking the question just on the revised outlook just want to make sure I'm clear on it sounds like you had supply chain or continued supply chain headwinds for auto and gaming.
So I guess it sort of makes sense, but just on TV how much of that revised outlook is due from I guess supply chain and door, just TV prices increase and you know so you have to.
<unk> year over year, and how much of that was potential pull through from what we saw during <unk>, but any color on the broadcast side.
Oh.
Yeah, Ralph as well so.
<unk>.
Of course, there are a number of factors and we can't necessarily draw a straight line to any one of them.
Didn't say, we have a lot of indications that television is the supply chain driven as gaming and auto.
But of course, there was a good.
Bump in the second half of last year, particularly in North America, and Europe . So part of it can be coming off the other side of that.
And.
In general it's an uncertain environment. So all those factors, we talked about are kind of kind of contributing but the other day.
The lowering of the outlook reflects our view of what what the year now it looks like in terms of volumes.
Okay. Thanks, and then just.
This is a tough question.
But how much perhaps do you think your growth and new technologies segment, our new products, such as vision Atmos imaging patents could.
It could be constrained due to supply chain uncertainty or if one of your OEM doesn't want to launch new product just kind of curious if theres any sort of constraint on that near term as a result of the macro headwinds.
Well.
I guess I would start by pointing out route that we still are expecting to see 35% or greater growth in those areas and the way that doesn't mean that they're completely immune to all of these uncertainties, but what it does mean is that.
The two things I would point to one in the foundational business. We are on so many of the devices that the wide range of devices that people used to enjoy entertainment that we are going to be pretty it's we're going to be impacted by the overall macro trends, whereas with Dolby vision and Dolby Atmos.
The much more significant factor is us getting on a greater percentage of the devices that are shipping.
And the other thing I would point out is that.
Most of the.
Our partners.
Our reporting and you can you can hear it in a lot of their kind of earnings reports.
Would generally point to the premium and holding up better than the overall market and that reads more closely on where Dolby vision and Dolby Atmos as it's an adoption cycle because most people start with the high end before they start moving it through the <unk>.
The the rest of the lineup.
Great and just maybe on Io, Kevin something investors are really focused on maybe.
It was a sense of any further commercialization efforts you had intra quarter, even if they're small and really not impactful on the overall business at this point given the scale of the other business. So just any sort of color on progress and traction enter quarter would be helpful.
Yeah, yeah, thanks for that.
We're excited about the opportunity Ralph and I think.
One way to to.
To think about it is everything we've ever done at Dolby started with a space where people assumed that what they had was good enough and when we look at this space, we see a significant opportunity to raise the bar on the quality of apps and services by providing developers with these tools.
We're focused first and foremost on those services, which really differentiate themselves based on quality. So that's why we talk a lot about examples in the area of virtual performance gaming.
And the like.
Because once people begin to go there then it doesn't it begins to adopt that it no longer looks good enough everywhere else. So you've seen that pattern in the past with things like Dolby Atmos and Dolby vision that the goal for us over time is to keep.
Keep in pursuit of these audits by our experiences so that everybody has to drive to that place and we're seeing a lot of great. Examples I gave a few.
In the.
The intro.
We have.
Our partner.
Quarter named.
Boardroom wanted to social audio App for media companies academic societies professional associations and they've added our spatial audio to launch their first event with the contemporary Art Center in New Orleans, and it gives you that lifelike experience of being there from a.
From a from a audio expected.
I'll give you another a company by the name of fifth Colin So they launched their latest version of their what they call their core live production software at NAV.
And they wanted an award at NAV for product of the year and their product integrates.
Our video capabilities, our spatial audio our ability to live streamed to large audiences all in service of enabling remote production for their customers.
So that they can get broadcast quality, great noise cancellation spatial audio all natively in the web browser and obviously that is one of our focus areas of content creation and production, especially remotely again, it's an area. It's a it's a use case that is going to highly value the highest quality at the outset.
So we're really excited about not only these these.
These couple of <unk>.
Examples of many of the customers that we brought on board are out there in the market but.
But.
The increasing number of discussions we're engaged in for the future.
Okay. That's helpful. Thanks, Kevin.
Our next question comes from Paul Chung from Jpmorgan. Please go ahead. Your line is now from home.
Hi, Thanks for taking my questions.
So it sounds like the Apple music.
Here's our and are responding very well to Atmos music.
Can you expand on the usage, there and the feedback and the.
How difficult is it to kind of master attract and Atmos and can you kind of apply to the whole music Library and then.
<unk>, taking notice here as well and then.
Is there any other monetization from.
More usage of Atmos music or is it just really just the kind of playback devices here.
Any thoughts on Atmos.
Yes sure.
So first of all it's getting easier and easier for artists to create in Dolby Atmos.
The.
First the first thing to solve is do they have to do artists and producers have somewhere to go to mixed in Dolby Atmos until I highlighted in my remarks that there are now 400 studios with 200 to come additional lead to come online soon.
And so we've got a great.
Infrastructure now for people to vehicles for artists to be able to come in and create in Dolby Atmos.
It's we have all the it's all now based on plug ins to the workflows and tools they are accustomed to using.
I think we have something like two thirds of the Billboard top 100 artists have at least one track in Dolby Atmos now that first track is like anything else, that's or learning curve and so once we get the first.
Once we get the first session with them or that once they take their first step towards Dolby Atmos.
Then we see that continuing.
And it becomes kind of their their natural way to create so that's what really gets the momentum going and we're pleased with the.
Continued reaction from artists from consumers all across the board.
For Dolby Atmos music the revenue opportunity is really to bring of course continue to bring.
That too is many artists as many services as possible and then it really increases our value proposition to license to everything from mobile devices, PC or a big music listening device.
And automotive.
Which as you know we're excited about.
We've got some wins under our belt, there and we're excited about the opportunity ahead as it relates to automotive.
Great and then just on <unk>.
Auto.
Go ahead.
I was just going to add that while it's there are.
Yes.
All I'll switch.
A little bit from the subject of Dolby Atmos music, which is through premium services for artists to devices and note that we have some interesting engagements on the Io side from a recurring revenue point of view, where people are applying our Matt it's not it's not Dolby atmos per se, but it is giving people the ability to master. So for instance, Soundcloud we've.
Talked about in the past there is a.
A button you compress to master and Dolby and what that does is goes through equalization and the mastering process to make for a much higher scale.
Quality soundtrack and with increasing use cases for music in these services, whether it's a virtual performance or the ability to your own creation or just too.
Because you want music is part of your experience there are some really interesting opportunities that.
We're already experiencing.
Experiencing in Dolby Io as it relates to improving the quality of Av.
Of music.
Got you and then.
Just on auto.
You released the new high end Mercedes.
What's kind of the update there and feedback and then.
Do you expect to kind of expand to the whole fleet and then or any other kind of Oems taking notice Ken can auto over time become.
A material contributor.
Yes, so first of all just in terms of the reaction I mean.
This is as impactful of a wow Dolby experiences as any demo that debt.
We've got a lot of great once people are really.
Blown away by the Dolby Atmos.
Car automotive experience.
And.
We've also got as you know probably lucid and Neil are now on the road.
Mercedes is amazing it is of course, our goal to bring that across the product lines as broadly as possible and we and yes just in general.
While you're on the theme of Dolby Atmos music.
Yes people are taking notice across all of our constituents and we're.
In discussions across.
Content creation and playback in auto and other and.
And we do think that automotive.
Can represent a significant.
The opportunity for us.
Okay, and then lastly, Robert on the buybacks.
So you have a lot of flexibility here is it the pace of buybacks going to.
Now exceed last year's levels or.
How do we think about modeling buybacks.
Hey, Paul.
Yeah on the buybacks as I noted on the call it's accelerated.
Increased significantly in Q2, we expect that to increase in the back half of the year in one of the challenges we had with executing on our buyback was limited windows in which we could do open market purchases and so we instituted a <unk> one plan trading plan.
To be able to execute more seamlessly to the back half of the year to make that a little easier to make that execution easier than it had been in the past. So that is our our mechanism in order to get that first one was the authorization you saw last quarter and we're going to execute on that for the back half of the year. So you should expect.
A much higher activity in <unk>.
Alright, thank you.
Yeah.
Thank you as another reminder, if you would like to ask a question. Please press star followed by one listen Thank you Pat.
Our next question comes from Jim Goss from Barrington Research. Your line is now open. Please go ahead.
Good afternoon.
Couple of things one first.
Discussion about music it seems.
It seems like the.
Monetization devices with music overlap some of the existing monetization options and I'm just wondering about the incremental vision of this it would seem like.
You'd have opportunities in <unk>.
Mobile devices.
Televisions pre Pcs consumer electronics, and possibly even smart speaker type applications, but they might have also.
Had that same opportunity for <unk>.
Video or video audio.
Combinations. So I'm, just wondering about the incremental revenue opportunity with music reinstated.
Yeah. So first of all yes, all of those are devices through which.
You can enjoy music and therefore are all opportunities for Dolby Atmos and yes, we do have a growing number of.
Televisions that support Dolby vision Dolby Atmos.
With leading with the value proposition of streamed content, but as you also know we still have a lot of Tvs to go and in the case of mobile and PC. This is important because while we have.
Great adoption on the high end and of course.
Our included throughout the iOS ecosystem and that the initial value proposition was largely around that same streamed content.
Emusic is a and we also talked about mobile gaming. These are primary use cases on mobile devices and Pcs. So.
Having that so yes, it adds more value to partners, who have already taken that step with us and it provides more value to consumers.
Remember that we have a significant growth opportunity ahead, with Dolby Atmos and Dolby vision across these devices and we see these additional context music gaming.
Live content.
As additional reasons to adopt across more of these devices and further into the lineups and of course, we spent a lot of time.
We spent some time just a moment ago talking about automotive, but automotive thats the.
As are our lead value proposition right now is Dolby Atmos music.
Okay, and the way it might.
Come to the fore.
Is to look at the growth in the individual categories from the mix sort of just be contributing too.
Some.
Additional gains in the areas, where you are gaining your.
Your royalty revenues basically.
Yeah.
Big driver.
We're seeing.
We continue to expect Dolby Atmos, Dolby vision, and our imaging patent portfolios to grow.
Over 35% this year and that is both a function of the.
Success, we've had to date in.
Getting more content and extend and expanding to additional entertainment contacts.
Starting with movies and television.
And then now it's expanding to music gaming to live sport.
And even today I talked about our first example of somebody who is employed in their service for online shopping all of those things are what is both.
Contributing to.
The demand for Dolby, Atmos, and Dolby vision, and what gives us confidence in our ability to keep driving growth going forward.
Okay and Kevin with.
Television sales I mean this is a.
Very unusual cycle with the <unk>.
So supply challenges and.
How are you thinking that.
After the pause that seems to be there right now that you'll be able to accelerate.
With Atmos and vision and the combination.
More and more televisions and at some stage do you want to be somewhat restrictive in terms of.
Which types of devices in which quality level that both atmos and vision just to maintain that the exclusivity element or do you really want them to be on as many as you can and it doesn't matter at what price point.
Well everything we do.
I would say the the growth driver right now is all about what we've been talking about which is greater adoption and bringing more <unk> two two devices.
Okay. Thanks very much.
Uh-huh.
I have a sign of a mind to if you would like to ask a question. Please press stuff in it by one.
<unk> now.
We have no further questions. So a hand it back to Kevin <unk> four occasion remarks.
Great well, thank you everybody for joining us today, and we look forward to keeping you updated.
Gentlemen, this concludes today's cool. Thank you for joining you may now disconnect your lines.
[music].