Q3 2022 Dolby Laboratories Inc Earnings Call
Ladies and gentlemen, thank you for your patience this call as Jade starts in a couple of minutes time.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Dolby Laboratory, Inc. Conference call discussing fiscal third 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 one on your telephone.
As a reminder, this call is being recorded Tuesday August nine 2022.
I would now like to turn the call over to Ashley Schwinn, Iowa Senior manager Investor Relations with Dolby Laboratory.
Please go ahead Ashley.
Good afternoon, welcome to Dolby Laboratories' third quarter 2022 earnings Conference call. Joining me today are Kevin Damon Dolby Laboratories, CEO , Robert Park, CFO , and Maggie O'donnell head of Investor Relations.
As a reminder, today's discussion will include forward looking statements, including our 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 impact of current macroeconomic events COVID-19 ongoing supply chain issues inflation changes in consumer spending and geopolitical instability on our business.
A discussion of bees 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.
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 non-GAAP financial measures a reconciliation between GAAP and non-GAAP financial measures is available in our earnings press release and in the New Interactive Analyst Center on the Investor Relations section of our website.
So with that introduction behind Us I will now turn the call over to Maggie.
Thank you Ashley and thanks, everybody for joining us today for this call, we're going to try something a little bit different and I'm gonna be leading our conversation with Kevin and then Robert is going to take us through the numbers after that.
We welcome feedback on this new format. So please reach out to us at Investor Relations at there'll be dot com. If you want to have a discussion.
With that let's get started.
So Kevin lets start at a really high level, what's top of mind for you coming out of this quarter sure well, what's always top of mind is focusing on our long term strategy and our top strategic priorities haven't changed we're continuing to grow revenue from Dolby Atmos, Dolby vision and our imaging thousands.
Our focus is on continuing to bring Dolby experiences to more types of content and bringing Dolby experiences to more consumers around the world and we're really excited about our wins this quarter.
Our foundational audio technologies are deeply embedded in the ecosystem for entertainment audio delivery across a broad set of consumer devices.
Walt foundational is more sensitive to near term headwinds, it's a great position to be in and.
So we're focused on strengthening that even further.
And we're focusing on establishing Dolby Io as the platform for developers that are looking to build the most immersive online experiences.
Now it's hard to talk about what's top of mind without also talking about the uncertainty in the macroeconomic environment and these are all factors that we talked about last quarter inflation COVID-19 restrictions supply chain issues ultimately just uncertainty around the consumer spending environment and as that relates to us how many consumer devices.
And ship in the second half so it continues to be a really dynamic environment and at the end of each quarter. We look at all the data points available to us we update our outlook to reflect what we're saying at this point in time and we've lowered our outlook too for the remainder of the year to reflect those current estimates.
But we're focused on the things we can control those are our strategic priorities because thats what determines our success in the long term got it yeah. So before we dig into that long term a little bit further can you just elaborate a little bit more on the outlook.
Yes, so Robert is going to talk about this in quite a lot of detail in just a moment, but at a high level. The vision revisions to our outlook are primarily in our mobile broadcast and PC end markets and there's two things that are driving that first is the revised estimates for how many consumer devices are going.
Ship in the second half of the year and that the fact that a number of our end markets.
Then also as it relates specifically to mobile we are seeing some longer transaction cycles on some of our deals particularly in Asia.
So.
Coming back to the high level foundational, which is more sensitive to the macroeconomic headwinds that is now expected to be down just over 10% for the fiscal year.
Dolby Atmos, Dolby vision and imaging patents, while not immune to the macro environment are much less sensitive and we're expecting strong growth for the year, roughly 35% and we're happy with the progress we're making there.
Bolivar the environment's uncertain, we're just going to continue to stay focused on our strategic priorities. We have a strong business model strong cash flow healthy balance sheet and attractive set of growth opportunities and I'm confident in our long term strategy and the opportunities that are in front of us.
Cool well, what what is it that makes me feel confident in its long term strategy.
When I take a step back I'm as excited as I've ever been about the future of Dolby or.
Our focus has always been on inventing new ways to create and to deliver spectacular content experiences and in the process of doing that we've earned the trust of some of the worlds most discerning creative professionals, leading media content companies.
Top device manufacturers around the world and so when all of this comes together when this ecosystem come together artists are inspired to create their stories and Dolby we partner with the content companies in the device manufacturers to raise that quality bar and the result is a more compelling and engaging experience for consumers and increase.
Singly, we're saying that those consumers are.
More frequently experiencing and importantly, recognizing the difference that Dolby Briggs.
And.
When I look back over the years, we've often had to spend quite a lot of time and effort showing people convincing people that good enough isn't good enough and what I find different about today is that we're seeing.
Everybody got because so many people across the industry that are looking proactively to push the boundaries on what it needs to have an immersive experience. We're seeing this in a consumer devices music online experiences games sports and the list goes on and on and so.
That just makes it a great time to be in the business of providing the highest quality audio and video capabilities.
In a really unique and great position now.
I wanted to ask how does that exactly turn into growth over the medium or long term.
Yeah, our goal is to achieve.
Achieve sustainable double digit growth and as it relates to Dolby Atmos Dolby vision and our imaging patents, we're very confident in the growth outlook. This is incremental to our foundational revenue.
And we believe that over the medium term it has the potential to be at least as large as our foundational revenue is today and so given that it's already a significant portion of our revenue.
And we continue to see strong growth even in this uncertain environment. This is a major contributor to our overall company growth rate.
For over this midterm.
With our foundational audio technologies, we're deeply embedded in the ecosystem for entertainment audio delivery across a broad set of consumer devices. These are technologies that are fundamental to the playback of content. They are now and they will be for many years to come.
It's a great position to be in and we're continuing to strengthen it. So we believe that once we get past the uncertainty in the current environment and things kind of stabilize then that's when we can return to what we were experiencing before.
For all of this weighed on us which is to say that that should be kind of flat to slightly up.
On top of all that we continue to be really excited about Dolby Io.
And you know what.
It creates the opportunity to deliver new Dolby experiences to even larger audiences. So while it's a small part of the overall pie today, we see this becoming a significant growth opportunity over the long term so when I step back from all that.
Of course more than one way to get to sustainable double digit growth, but we are.
We believe we have the portfolio of growth opportunities that we need to recycle.
You mentioned that one of these things that we can control is the adoption of Dolby Atmos and Dolby vision.
Can you talk about those two initiatives specifically.
Sure so the Dolby Atmos and Dolby vision ecosystem initially came to life in the form of movie and TV content.
We start by working with storytellers to expand their audio visual palate.
And we work across content distribution device manufacturers to bring these ecosystems to life and we've really become embedded throughout the movie and TV ecosystem.
And that's what has led to our strong presence in the living room.
Specifically things like TV set top boxes sound bars, all the ways, we enjoy movie and TV content.
In a really good initial presence across high end devices in mobile PC and other categories that ecosystem continues to grow and we see it as a growth driver in the future as we continue to get further into the lineup so TV sound bars and all of those.
All of those devices.
Over the last couple of years, what we've also been really focused on is extending Dolby Atmos and Dolby vision into other forms of content new forms of storytelling.
We've always believed that Dolby Atmos, and Dolby vision can dramatically enhanced content experiences across a wide range of genres and use cases, and so that's why we've been focused on extending our presence into areas like music mobile media content gaming.
Live sports.
Because it's becoming a part of the experiences that creators and consumers care about the most and that they engage with most frequently that's what increases demand for Dolby experiences and so that's what drives the opportunity for increased adoption, whether it's a living room on mobile devices cars, Pcs and and more and and we saw some good.
Progress this quarter, particularly in Dolby Atmos music and the ability to for consumers to capture in Dolby vision.
Cool yeah, so, let's let's double click on Dolby vision capture for a second what is the significance of this recent xiaomi announcement and why should investors care about it well. This is our first Android win for Dolby vision capture of course, Dolby vision capture has been a part of the Apple ecosystem for nearly two years now we're really excited that xiaomi.
Now enables Dolby vision capture on its flagship smartphone in China.
With Dolby vision every piece of content that people capture with their what their phone can be more lifelike and more realistic.
And this works it provides value and a lot of different context. So one of my favorite examples is in South Korea neighbor, which is a large online e-commerce platform, they're using it in the context of life shopping.
So consumers can see the merchandize in more detail.
They can see that the colors are right before they make the purchase so that the color of clothes. They see on their phone is the color that theyre going to see when they open that box. So we're beginning to see this new ecosystem that is coming to life around Dolby vision use we'll call it broadly user generated content and.
At the same time that Xiaomi launched in fact, multiple Chinese messaging services.
Began supporting the upload transfer in the playback of Dolby vision content, social media platforms like Wechat, Billy Billy QQ.
So all it means that anyone with the Xiaomi <unk> can now create and Dolby. They can capture that can edit that can share whether it's a professional influencer there's people capture their own home videos and and this of course also creates more demand for playback in Dolby vision.
The wide range of devices.
It sounds like another thing that you're really excited about is music can you elaborate on these new announcements around 10 cents and Mellon and what this means for Dolby.
Well starting in July Dolby Atmos music became available on QQ music and that's Tencent music streaming surface in China. That's one of the top five one of the five largest music streaming services in the world.
And it's also our first domestic Chinese music service to take that to support Dolby Atmos.
I would also highlight Mellon that is the largest Korean music streaming service is also now supporting Dolby Atmos.
Of course, it's great to see more streaming services come to life and it's also created some opportunities to introduce new genres to Dolby Atmos music. So Mel.
Mellon has started curated playlists from top K pop artists like Bts, and black Pink and that's really exciting to see because.
Building these ecosystem starts with that passion from the artists, who really want to create in Dolby and we continue to see increased engagement from artists from studios.
Which is resulting in more music. So we have two thirds of the top 100 Billboard artists that have one or more songs available in Dolby Atmos.
Also notable this quarter, we have Dolby live now at MGM in Las Vegas, which is a live venue where artists can perform live in Dolby Atmos and so usher became the first to put on a live Dolby Atmos show with Dolby life.
Kicking off our residency, which is going to have I think a 24 show run.
So what this does is it brings in audiences to who or many of whom will have their first experience with Dolby Atmos, It's a great experience and that of course, we hope that they will then go seek to enjoy their music that way at all of the time.
It also gives us an opportunity to engage directly with the artists who are coming through that venue for their residency, which just also kind of.
<unk> the the pipeline for more content or artist means more music means more streaming service means more people can experience it.
So that's another ecosystem that we see coming together really nicely.
And that's what fuels the opportunity to increase Dolby Atmos adoption.
All the ways that consumers enjoy their music, which could be the car on a mobile device or in the living room.
Personally I love enjoying some music and my cards, it's absolutely my favorite place to enjoy a new album, but that it makes sense that auto is going to be a big focus for us. So can you talk about that opportunity.
Yeah from the very.
Early days of our demonstrating Dolby Atmos music. It was very clear whether it was musicians studios everybody cares about the car experience as it relates to music is just part of the experience.
The music ecosystem is what's fueling that opportunity for us in automotive.
And before that Mercedes and lucid have both embraced the Dolby Atmos experience and a high end vehicles more recently, Li auto which is an electric vehicle startup in China.
As announced that Theyre going to support Dolby Atmos, Neo which is another Chinese EV company has announced a new model in in Dolby Atmos after already having launched one so we're really excited about the reactions that we're getting from.
Across the industry.
This makes for one of our best demo experiences our Dolby Atmos demo cars, just blow people away every time and whether it's an artist's music executive car company executive or a trade show attendees.
It's been very handy during the pandemic because you can take that car to wherever you need to take it.
And so even as we see traction at the high end. We're confident that this is an experience that people want to have and that just as we were able to do with Tvs for Dolby vision and sound bars with Dolby Atmos, we have an opportunity to transform the experience from the <unk>.
High end to mainstream with Dolby Atmos. So today, we are 100% focused on making Dolby atmos successful in the car, but long term, we think there's a lot more opportunity because the future of cars is evolving towards even more immersive experiences and that's going to create we think that creates opportunities for us across.
Audio and video offerings.
So lastly on Dolby I am what are your goals there over time, and how should investors expect us to evolve.
Well as we talked about earlier I don't think there's ever been a better time to be in the business of raising the bar on immersive experiences and this is especially true in the online world.
Dolby Io is a platform for the developers whose job is to build these online experiences and to make the immersive and engaging and bring people to the experience make them highly interactive enable social engagement.
Live events and Webinars as an area, where we're seeing strong engagement.
Using our ability to deliver live interactive audio video chat the ability to live stream those experiences to larger audiences and high quality ultra low latency.
Events like they could be online corporate events they could be.
Virtual concerts, they could be premium education courses.
And the list goes on but it all starts with having a compelling and differentiated offering that addresses a problem that developers have.
And.
We've learned a lot over since we've launched the platform and we believe that given our technology our relationships. Our knowhow that there are some things, we can do better than anyone else, especially around.
Media quality, so things like media capture.
Things like spatial audio which makes for a much more lifelike experience.
And we enable developers to then stream these experiences to large audiences at very high quality. So.
And all of these quality enhancements can be delivered natively in the browser, which is the primary platform that developers are targeting so that's also really important.
So we're confident that we have an offering that provides value and that is addressing.
A problem or want that developers currently have.
And we have a strong roadmap for differentiation of course going forward, because we're always thinking about what's next on raising the bar.
So then then our attention turns to the go to market model and how do we how do we scale this and developer model scale by starting with that differentiated value proposition that it's about raising awareness with developers and it's about making it easy for them so that they can.
Engage with the API is the technologies start to build things and try things and then ultimately of course going live and becoming paying customers. Because we are paid on a transactional volume.
So.
We've seen a very significant rise in the number of developers signing up for our platform beginning around the first quarter of this fiscal year we've seen.
We've really been pleased with the amount of people that are now coming to the platform.
And we've that's been followed by a similar rise in the number of developers who are engaging with the technology. We can see that they're building things or try it out and we're learning how to use it.
So.
We're seeing this increased engagement. That's what this is we're getting that engagement that we're looking to have.
We're seeing that translate into growth in paid accounts and increased revenue and I'm optimistic that these are the early signs that we're on the right path towards increased revenue growth.
Great.
So before I turn it over to Robert to walk us through the financials do you want to share any final thoughts.
Well I'll keep my final thoughts for now brief I'm sure everyone wants to hear here are the numbers.
The environment's uncertain.
I think that that's a consistent theme.
Cros.
All companies, but we are focused on the things that we control and that means continuing to grow.
The Dolby experience to more types of content to more people around the world and staying focused on those top priorities because that's what drives our long term success.
Got it.
Kevin I'm going to turn it over to the numbers Guy.
Robert go ahead, great. Thanks, Maggie of course, let's start with Q3.
Total revenue in our fiscal Q3 was $290 million, which was within the guidance range Q3 total revenue was up 1% year over year, driven by increased adoption of Dolby Atmos, and Dolby vision, new licensees and imaging patents and improve results for Dolby cinema, and our cinema products business.
This was offset by lower broadcast in PC unit shipments and lower recoveries, which are collections of royalties from prior periods primarily in broadcast. We also saw a true up in Q3. This year, a positive $3 million versus last year, a positive $14 million.
Licensing revenue was $269 million down 1% year over year, driven by lower broadcast in PC unit shipments lower recoveries and a lower true up.
Offset by increased adoption of Dolby, Atmos, and Dolby vision, and new licensees and imaging patents.
Let's get into the year over year trends in licensing revenue by end market all of the detailed revenue by end market and the percentage of the total licensing can be found in the new interactive analyst center available on the Dolby IR web site.
Broadcast revenue was down 20% year over year, driven by lower recoveries and lower estimated shipments for Tvs and set top boxes.
Partially offset by growth in Dolby Atmos, Dolby vision and imaging patents.
Mobile revenue was up 27% year over year, driven in part by timing of revenue associated with minimum volume contracts as well as higher adoption and new licensees for Dolby Atmos, Dolby vision and imaging patents.
<unk> revenue was up 8% year over year, driven by higher recoveries and growth that Dolby Atmos, Dolby vision and imaging patents, partially offset by lower PC unit shipments, we are expecting lower PC unit shipments for the rest of fiscal year 'twenty two.
Consumer electronics revenue was up 2% year over year, driven by an increase in adoption of Dolby Atmos, Dolby vision and imaging patents.
Other markets revenue was up 17% year over year, driven by higher box office sales and growth of Dolby cinema.
Finally products and services revenue was $20 million up 33% year over year, driven by ongoing improvements in the cinema industry globally.
Move on to the rest of Q3 financials.
non-GAAP.
Total non-GAAP gross margin was 88% of revenue down slightly from 89, 7%.
In the third quarter of last year due to the shift in revenue mix non.
non-GAAP operating expenses were $179 million up 3% year over year, driven by increase in <unk> and marketing spend.
Operating expenses were lower than our expectations for the quarter due to lower internal labor expenses and timing of program marketing spend some of which is pushing into Q4.
non-GAAP operating income was $76 million or 26% of revenue compared to 29% of revenue in Q3 of last year.
The non-GAAP income tax rate was 13, 9% compared to 13, 7% in Q3 of last year.
The Q3 tax rate was lower than expectations due to discrete items.
Net income on a non-GAAP basis was $69 million or <unk> 68 per diluted share compared to <unk> 70 of that $75 million or <unk> 71 per diluted share in Q3 of last year.
non-GAAP EPS was at the high end of our guidance range, primarily driven by lower than expected operating expenses any more favorable tax rate.
During the third quarter, we generated $173 million in cash from operations compared to $172 million generated in last year's fiscal Q3.
We ended the third quarter with about $1 1 billion in cash and investments.
During the quarter, we bought back about $2 5 million shares of our common stock. We ended the quarter with about $230 million of stock repurchase authorization available we continue to execute our buybacks through a <unk> one trading plan.
We recently received board approval to increase the existing share repurchase authorization by $350 million, bringing our total authorization to about $580 million.
We also announced today a cash dividend of <unk> 2025 per share the dividend will be payable on August 31, 2022 to shareholders of record on August 23 2022.
Now, let's get into the fiscal 'twenty two outlook.
First we continue to see uncertainty in the marketplace. The combination of the macroeconomic climate inflation impact of Covid measures supply chain and unpredictability in consumer spending creates uncertainty for our customers, including estimating what they will ship to their customers. These factors impact our business and this limited.
Visibility makes it much more difficult to provide guidance, but we are providing an updated estimate based on the best information we have available.
With all of that as a backdrop, we are adjusting our full year revenue estimate driven primarily by changes in our mobile PC and broadcast end markets. We now estimate total revenues to be plus or minus flat to last year's revenue ranging from $1 $2 7 billion to $1 3 billion.
Within that licensing revenues could range for $1.190 billion to $1 $215 million.
Broadcast revenue is now expected to decline in the mid to high single digits last quarter, we talked about softness in Tvs and we are still seeing incremental softness in Tvs as well as lower unit shipments in set top boxes.
Mobile revenue is now expected to be down low single digits compared to the positive mid single digit growth. We discussed last quarter. We are seeing that for some of the deals we've been working on transaction cycles cycles are taking a little longer in this environment, particularly in Asia.
PC revenue is expected to grow mid single digits down from our previous guide of high single digits. We are seeing softness in the PC market and downward adjustments to unit shipments are impacting our second half.
Consumer electronics revenue is still expected to be up low single digits driven by growth in Dolby Atmos, Dolby vision and imaging patents.
Other licensing revenue is still expected to grow around 15% driven by Dolby cinema.
Within this we are now expecting our foundational audio revenues declined just over 10% year over year, and Dolby Atmos, Dolby vision and imaging patents revenue to grow roughly 35%.
Product and services revenues could range from 80 million to $85 million, which is within the range previously provided as we still expect improvements in cinema products and growth of Dolby Io.
non-GAAP gross margin estimated to range from 89% to 90% non-GAAP operating expenses are estimated to range from $740 to $750 million for fiscal year, 'twenty, two which is lower than the previous guidance due to lower internal labor expenses.
non-GAAP operating margins are now estimated to be 30% to 32%.
Our effective tax rate for the year is projected to range from 17% to 18% on a non-GAAP basis.
Fully diluted earnings per share on a non-GAAP basis is estimated to range from $3 22 to $3 37.
Great. Thanks for the color Robert.
Operator.
Open up the line for analyst questions.
But before we do that Robert can you just summarize your outlook for Dolby.
Sure Maggie of course.
And as we're now getting continued uncertainty in the near term that's for sure at the same time, we remain excited about the long term growth opportunities ahead.
The fundamentals of Dolby as business remain intact. Dolby is an enduring company that always has been the leader in the vast minutes sight and sound we've gone through several technology shifts and come out stronger each time, making consumer experiences better for device makers content creators content distributors and now developers, we have a durable business model with high gross margins.
Positive cash flows and a strong balance sheet, we are moving into a very exciting phase with robust opportunities for growth out of us.
Great.
Operator, I'm turning it over to you.
Thank you ladies and gentlemen.
If you wish to register a question for today's question answer session May do so by pressing star one.
You would like to withdraw your question. Please press star two.
If you aren't speakerphone, please pick up your handset before entering your.
<unk>.
Please be sure to identify yourself and your firm payouts that.
To be fair to all participants we ask that you.
You can limit yourself to one question and one follow up question until all participants have kind of a tranche in the first round.
If time allows we will then come back to answer any remaining questions.
One moment please for the first question.
Our first question comes from Steven Frankel from Rosenblatt. Your line is open. Please go ahead.
Hi, good afternoon, and thanks for all the color I just wanted to dig in on the mobile situation for a minute Kevin earlier in the year you talked about some confidence in the back half because you had.
Some deals that had minimum upfront.
Guaranteed.
<unk>.
Are you referring to some of those now stretching out or did you get those deals this quarter and it things in the pipeline that you thought you would close in Q4 that are stretching out.
Yeah, So Steve as a reminder, the types of.
As you know most of our revenue comes from device based royalty revenues.
Essentially you have about three types of deals.
Which could.
Revenue on Chinese.
One is just pointed out is really haven't.
Yes.
It is what it is.
For that portion.
And then also when we sign up the patent licenses.
Yes.
Yeah.
At any given time we.
We have.
Sure.
You remember exactly right we anticipated.
Sure.
In the marketplace.
In the quarter.
<unk>.
Yeah.
The percentage of the deals that we think are going to close particularly in Asia. This is.
Can't be attributed to any one factor, but if you take China as an example, we haven't been able to.
And anyone from headquarters for three years, now and just with the.
The macroeconomic environment that probably is.
Can be a distraction to any of our customers. So the net is we still see a lot of activity in the pipeline, but we're anticipating a lower close rate in Q4.
Now over the over the long term.
We see potential growth drivers in mobile, including Dolby vision capture which I talked about earlier.
Dolby Atmos music is also a driver for our mobile to name a few.
Okay.
Okay, and what about the pipeline in mobile in kind of the next tier down in automobile what.
What does that pipeline look like what is your confidence level on being able to get there.
Yes.
Yeah well.
We're happy to have a battle.
Partner this quarter and to have neo extending us to another model.
Like I said earlier, it's the music proposition with Dolby Atmos is very strong across all of our constituents. So.
We feel very good about our pipeline of engagements and we're confident that we'll be able to continue to.
The Dolby experience to more and more cars and like I said ultimately our goal is to have this.
Mainstream experience for the car.
Okay, and then one last quick one.
Given the lower outlook in the current environment, and that's something that may stick around for a while.
Have you.
Either pulled back potential investments in areas or are you rethinking how you might be spending money as you get into the new fiscal year.
I would say.
Highest level thing is really sharpening our thinking on where the highest impact opportunities are to drive that long term growth and getting even more focused on those things and this is now approaching the end of our fiscal year. So in any year. This would be about the time, where we start to take stock of everything we've learned over the last year of course, we strive to do.
That on a daily basis, but this is a time, where we tend to reflect on that really get even more focused around what's working what's not working where do we want to how do we want to realign our resources around that.
And then of course in addition to that you have the backdrop of this very uncertain environment.
And so all of that goes into our thinking on how do we make sure that we are focused on the most impactful opportunities that are aligned around that and then in the meantime, while we go through that process, we have paused our hiring activities.
For some of the most critical holes.
Okay.
Great. Thank you.
I'll jump back in the queue.
Our next question comes from Ralph <unk> from William Blair. Your line is open.
Good afternoon, Thanks for taking the questions first one just maybe on the macro.
Kevin as you sort of sit here today versus last quarter a lot of obviously a lot has changed maybe if you could kind of walk through from your perspective, what's changed most from Dolby from what we're seeing today and perhaps if you could also maybe reflect on some of the conversations that Youre also having with your licensing partners and then I have a follow up.
Yeah.
It's a great question Ralph.
The last part of your question takes me to a very different place in the first part of your question was the last part of your question takes me to what I said earlier, which is that I can't remember a time, where so many of our partners across so many of our categories are really looking to push the boundaries on what it means to have an immersive experience.
So on one hand, when we're demo ing and engaging about the potential for the future, whether it's with cars or Dolby vision capture live sport.
That continues to be.
Full steam ahead on focused on our long term priorities now obviously, that's in the backdrop of this economic environment and I think you know.
The factors I don't think after list them for you again, but it's.
The net effect of it all is it is making it difficult to read visibility into the near term and I think I.
If I were to characterize what's change you know last quarter, we are at.
Saw that.
TV shipments.
Gaming console shipments were looking to be lower than we thought coming into the year, we've seen a little more of that with Tvs, but now this quarter. We also see it for Pcs. So.
We're just we're keeping.
Up to date on all of those developments as they come in but.
So it really is just these are these two worlds on the one hand, it is keeping tabs on kind of what's going on in the macroeconomic environment as it relates to where the near term activity is going to be on device shipments and so forth.
But on the other hand across our strategic priorities, we feel really good about the engagement we have for for more Dolby experiences.
Great and maybe just one on expenses Robert.
G&A came in quite a bit lower than at least we were forecasting and dumped sequentially I know expenses.
It's around quite a bit but maybe just what were the factors as it relates to G&A and perhaps you know how should we think about that spend going forward I know you talked about pausing hiring but any color there would be helpful. Thank you.
Yeah on G&A.
Most of the impact is going to be lower personnel costs.
Slower hiring even before the pausing the hiring we were behind on the hiring to start with so.
Lower personnel cost is really driving the.
The majority of that Ralph.
Could hear from you.
Okay. Thank you.
Our next question comes from Paul Chung from Jpmorgan. Your line is open.
Hi, Thanks for taking my questions on <unk>.
On I O can you expand on the integration with millicom.
Miller cash and how that's going.
You have a lot of new partners here more logos on the on the website are you expanding Io with those new partners as well and then how do we size the kind of no test opportunity.
And also I saw United Masters looks like a new logo, what's going on there.
Mhm.
Yeah. So.
Well I guess I'll start where you where you ended United Masters is using our music mastering to improve the met the threshold mix give me professional mixing like quality against a music recording.
So that's a great add for the quarter is it so millicom is what brought us the ability to.
Livestream these experiences to large audiences.
At.
Ultra low.
Delay so sub second delay.
And what we're finding already that the first the first thing, we're finding which is which is the thing you want to see from an integration point of view is that we have a lot of customers that are doing both the interactive audio video chat.
Experiences and then wanting to live stream those two very large audiences. These could be things like we have one developer that is doing.
Music productions and in a virtual cloud like environment, and so you could be doing you can be in that experience with your headset or you could be watching it as they stream it to these two.
Large audiences and the examples go on and on where also the beauty of our developer platform of course is that developers from.
Different corners of the world can discover your technologies and you see some really good use cases come to life and we've seen that in some areas like <unk>.
Actions, where it turns out ultra low delay is very valuable so.
<unk> has been using it we have some.
Car auction company, not something that I think I.
Four told when I was talking to you a year ago, but that's been the high quality low delay as his valuable there.
Remote production and content production that is something that we've talked about we continue to see demand. There we have customers like NBC CBS again that ability to interact and.
And and collaborate with the high quality and the low delay is extremely valuable there.
So.
We have now.
So the product.
Is being.
Being used together and is.
Further integrated.
The website has now gone live.
A single website and we're in the process of bringing the rest of the pieces together, but it really.
From a product market fit that's kind of the first criteria. It's been a really it's already proving to be a really nice fit and that's evidenced by the increasing number of developers we have who are using the core Dolby I don't Io real time.
Interactive.
Audio video combined with the Miller cast live streaming capability.
Okay, great. Thanks for that and then follow up on Dolby vision capture you know how do we think about the kind of incremental HP you get with an adoption of this feature.
Given the expansion into Android how does this kind of accelerated across multiple Oems and running Android.
Are those discussions accelerating and can we see some progress on Dolby vision, I guess across the Samsung platform or are they taking notice here.
You know just on the whole vision opportunity as well thank you.
Yes of course.
<unk>.
<unk>.
The reason, we're excited about the win with Xiaomi and Dolby vision capture as we do think it's a very compelling experience on mobile devices.
It addresses a use case that is primary to the mobile device, rather it's applying that to social media to life shopping like neighbor is.
Or just to euro two euro of video. So we think it's a very compelling experience.
And drives the adoption of both Dolby vision capture and playback, where they don't have it. So we see it as a big opportunity and we think it's always.
An important step to get the first in this case in the Android ecosystem and then it's significant that we have these other ecosystem partners coming along with it like I said Wechat variability Q2, the fact that they're engaging with it that strengthens the value proposition for the next OEM to to come.
Along and have more reasons to to work with us so.
I'm not going to go through or any specific engagements, but yes, we're encouraged by the reaction to the xiaomi announcement and.
We are again.
Have a good have a good pipeline of engagement.
Great. Thank you.
Okay.
Our next question comes from Jim Goss from Barrington Research. Your line is open.
Thank you.
Robert you went through the licensing revenue changes, but didn't give the licensing revenue mix I might I wonder if you might give a quick run through those percentages just to true up our model.
And that.
I was wondering too in the chips Bill.
How about the impact and timing and any political risk.
So the China relationships you have.
Hey, Jim are you.
So a couple of things one the percentage of revenue for each of the end markets.
<unk> 10-Q, as well as in the interactive Analyst Center.
Okay, I'll check with them.
Okay.
Try and make it easy for it.
Okay. Thanks.
Second part of your question, Jim I remember the geopolitical element.
What was it can you just repeat that part and also well the chips fill that it was just passing them I'm wondering what.
What the impact might be and how how long before they were to be any impact.
Yeah, I think that the context of what we've been.
Talking about today as it relates to uncertainty of the environment that's.
Those are pretty long lead time, so I don't I don't think that will play into kind of our near term view of the environment and.
And yes, I think I would add.
Geopolitical uncertainty.
That's the word Ukraine or.
Uh huh.
China relations to the long list of things that create for an uncertain environment I will say.
For now.
Our our engagements in China are really strong as evidenced by some of the things we've talked about today, but it's something that we pay very close attention to and stay very closely engaged with both in the U S and in China.
Okay, and then one separate thing.
Atmos music.
A lot of the theaters or talking about alternative music content and the theaters as maybe something that.
It could be another opportunity in the auditorium.
Alright.
Imagine that would tie into Atmos I'm, just wondering if that was kind of looking at it as best possible.
Opportunity for you or or is there no additional opportunity because you're already embedded in those theaters.
Well I think the opportunity there and I think youre right I mean, it's not of course, it's not.
There may be discussions over the years about bringing different types of contact content to the cinema, but I think but I see what you're saying, which is that I think there's more energy behind those ideas today than there's ever been before and what that does for US is two things one.
Spreading the making Dolby atmos more available whether its lie that Dolby life, whether it's we've had cultures that had been streamed live in Dolby Atmos.
Whether it's in the car or in the cinema that just contributes to the awareness and passion for the ecosystem around Dolby Atmos music and then of course, it drives demand for and experiences in the case of cinema. It increases the values why you would want to include Dolby Atmos in.
Sure.
Your theater or whether you would want to have the Dolby vision experience because by the way.
The only thing better than that concert in the cinema in Dolby Atmos would be that concert in Dolby vision Dolby Atmos.
Right.
Okay.
Thank you.
As a reminder, I'll ask any further questions. Please press star one on your telephone keypad now.
This concludes our Q&A I'll now hand back to the management team for any final remarks.
Well I want to thank everybody for joining us today.
And we look forward to speaking with you again soon.
Today's call is now concluded. Thank you for your participation you may now disconnect your lines.
Uh huh.
No.
Right.
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Yeah.
Okay.
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