Q1 2024 Dolby Laboratories Inc Earnings Call
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories conference call discussing fiscal first quarter results. During the presentation, all participants will be in a listen-only mode.
Ladies and gentlemen, thank you for standing by welcome to the Dolby Laboratories Conference call discussing fiscal first quarter results. During the presentation, all participants will be in a listen only mode.
Operator: Afterward, you will be invited to participate in a question and answer session. If you have a question during this time, please press star 1. As a reminder, this call is being recorded Thursday, February 1, 2021. I would now like to turn the conference over to Mr. Peter Goldman, Vice President of Investor Relief. Please go ahead.
Afterwards, you will be invited to participate in a question and answer session. If you have a question. During this time Please press star one.
As a reminder, this call is being recorded Thursday February one 2024.
I'd now like to turn the conference over to Mr. Peter Goldmacher, Vice President of Investor Relations. Peter. Please go ahead.
Peter Goldman: Good afternoon. Welcome to Dolby Laboratories' first quarter 2024 earnings conference call. Joining me today are Kevin Yeaman, Dolby Labs CEO, and Robert Park, our CFO. As a reminder, today's discussion will include forward-looking statements, including our fiscal 2024 second quarter and full year 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, ongoing supply chain issues, inflation rates, changes in consumer spending, and geopolitical instability on our business.
Peter Goldmacher: Good afternoon, welcome to Dolby Laboratories' first quarter 2024 earnings Conference call. Joining me today are Kevin Yeaman, Dolby Labs, CEO and Robert Park, our CFO as a reminder, today's discussion will include forward looking statements, including our fiscal 2020 for second quarter and full year outlook and our assumptions underlying that.
Peter Goldmacher: 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 ongoing supply chain issues inflation rates changes in consumer spending and geopolitical instability on our business.
Peter Goldman: A description 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 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 non-GAAP financial measures; a reconciliation between GAAP and non-GAAP financial measures is available in our earnings press release and in the Interactive Analyst Center in the Investor Relations section of our website. With that, I'd like to turn the call over to Kevin.
Peter Goldmacher: A description 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 report on Form 10-Q.
Peter Goldmacher: 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.
Peter Goldmacher: 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 interactive Analyst Center on the Investor Relations section of our website with that I'd like to turn the call over to Kevin.
Kevin J. Yeaman: Thank you, Peter, and thanks to everyone for joining us today. Revenue for the quarter came in about where we expected, and earnings were better than we expected. Our guidance for the full year is unchanged, and Robert will share detailed guidance for the second quarter in a few minutes. Today, I'd like to cover three topics. First, I'd like to make some brief comments on the macro environment.
Kevin J. Yeaman: Thank you Peter and thanks to everyone for joining us today.
Kevin J. Yeaman: Revenue for the quarter came in about where we expected and earnings were better than we expected our guidance for the full year is unchanged and Robert will share detailed guidance for the second quarter in a few minutes.
Robert Park: Today I'd like to cover three topics.
Robert Park: First I'd like to make some brief comments on the macro environment.
Kevin J. Yeaman: Second, I'd like to talk about our business and the momentum we are seeing in Dolby Atmos and Dolby Vision. And third, I'll wrap up my portion of the call with some brief closing thoughts. So, first, on the macro level, not much has changed.
Robert Park: I'd like to talk about our business and the momentum we're seeing in Dolby Atmos and Dolby vision.
Robert Park: And third I'll wrap up my portion of the call with some brief closing thoughts.
Robert Park: So first on the macro not much has changed.
Kevin J. Yeaman: Spending on consumer electronics is the largest factor impacting our foundational offering. However, we aren't seeing anything that would cause us to change our FY24 guidance for mid-single-digit declines in foundational licensing revenue. As it relates to Dolby Atmos and Dolby Vision, we continue to have strong engagement across creators, distributors, and device manufacturers, and we remain comfortable with our full year guidance for high single-digit growth for Dolby Atmos and Dolby Vision. Over time, we continue to expect Foundational to return to low single-digit growth and Dolby Atmos and Dolby Vision and imaging patents to grow at a three to five year CAGR of between 15 and 25 percent. Now, let me turn to the business.
Spending on consumer electronics is the largest factor impacting our foundational offerings, we aren't seeing anything that would cause us to change our FY 'twenty for guidance for mid single digit declines in foundational licensing revenue.
Robert Park: As it relates to Dolby Atmos and Dolby vision, we continue to have strong engagement across creators distributors and device manufacturers and we remain comfortable with our full year guidance for high single digit growth for Dolby Atmos and Dolby vision.
Robert Park: Over time, we continue to expect foundation also returned to low single digit growth in Dolby Atmos, and Dolby vision and imaging patents to grow at a three to five year CAGR of between 15 and 25%.
So let me turn to the business today.
Kevin J. Yeaman: Today I will focus on Dolby Atmos and Dolby Vision, which are the biggest components of our growth opportunity in the midterm and an important part of the path to returning the company to double-digit growth over time. We look at the opportunity for Dolby Atmos and Dolby Vision primarily through the lens of market ecosystems, which is the intersection of device, distribution, and content. Our primary focus for New Winds and Automotive is Dolby Atmos Music. For TV, it is TV shows, including sports, and movies. And for mobile, it is videos via user-generated content.
Robert Park: Today, I will focus on Dolby Atmos, and Dolby vision, which are the biggest components of our growth opportunity in the midterm and an important part of the path to returning the company to double digit growth over time.
Robert Park: We look at the opportunity with Dolby Atmos, and Dolby vision, primarily through the lens of market ecosystems, which is the intersection of device distribution and content.
Robert Park: Our primary focus for new wins in automotive is with Dolby Atmos music for T. V. It is TV shows, including sports and movies and for mobile it is videos via user generated content.
Kevin J. Yeaman: In each ecosystem we serve, we focus on enabling great content, which gives us the opportunity to grow our OEM partnerships. The real value of an OEM partnership is realized over years and decades as our partners adopt more of our technology and put our technology on more of their devices. I share this perspective with you to help you understand why we remain so excited about ongoing momentum in the creative community and confident and optimistic about the long-term opportunity for our business. If you recall, last quarter, we described the virtuous cycle of Dolby Atmos and Dolby Vision. We work with creators and distributors to create high-quality content in Dolby so that when consumers buy Dolby-enabled devices, they enjoy a more engaging and immersive audio and visual experience.
Robert Park: In each ecosystem, we serve we focus on enabling great content, which gives us the opportunity to grow our OEM partnerships.
Robert Park: The real value of an OEM partnership is realized over years and decades as our partners adopt more of our technology and put our technology on more of their devices.
Robert Park: Sure. This perspective with you to help you understand why we remain so excited about ongoing momentum in the creative community and confident and optimistic about the long term opportunity for our business.
Robert Park: If you recall last quarter, we described the virtuous cycle of Dolby Atmos and Dolby vision.
Robert Park: We work with creators and distributors to create high quality content in Dolby, so that when consumers by Dolby enabled devices, they enjoy a more engaging and immersive audio and visual experience.
Kevin J. Yeaman: The virtuous cycle for Dolby is, as more devices support the Dolby experience, the more content creators want to create in Dolby, and the more distributors want to deliver that content. On the creator and distributor sides of the cycle, we continue to see very strong adoption of Dolby Atmos and Dolby Vision. Artists continue to leverage Dolby for their best work. We are in the midst of award season, and the breadth of Dolby adoption and momentum is clear through this lens. Every nominee for Record, Album, Song, and New Artist of the Year for the 2024 Grammys used Dolby Atmos.
Robert Park: The virtuous cycle for Dolby is as more devices support the Dolby experience the more content creators want to create in Dolby and the more distributors want to deliver that content.
Robert Park: On the creator and distributor side of the cycle, we continue to see very strong adoption of Dolby Atmos and Dolby vision.
Robert Park: Artists continue to leverage Dolby for their best work.
Robert Park: We are in the midst of award season, and the breadth of Dolby adoption and momentum is clear through this lens.
Robert Park: Every nominee for a record album song and new artist of the year for the 2024 Grammys use Dolby Atmos.
Kevin J. Yeaman: 92% of the Billboard 2023 year-end top 100 artists are available in Dolby Atmos, and over 100 shows in Dolby Technologies were nominated at the Emmys and the Oscars, including Emmy winners Succession and The Last of Us. We continue to increase the availability of Dolby content through distribution partners, including Zee5, an Indian OTT service with 120 million monthly active users, which announced Dolby Vision support on its platform shortly after adding support for Dolby Atmos earlier in 2023. These highlights reinforce the momentum Dolby Atmos and Dolby Vision have in the artist and streaming communities in their quest to deliver the best audiovisual experiences possible. We are focused on making these experiences available on as many devices as possible. We've just returned from CES, where Dolby Atmos and Dolby Vision were on full display across the show floor, particularly in the living room on devices like TVs and soundbars, and we continue to be featured in lineup announcements from our partners, including TCL, LG, and Hisense. We also had strong engagement with Dolby Atmos FlexConnect, our new living room solution that enables consumers to place wireless speakers paired with a TV anywhere in a room and automatically get an immersive Dolby Atmos experience. Hisense announced that they would begin supporting Dolby Atmos FlexiConnect on their TVs.
Robert Park: 92% of the Billboard 2023 year and top 100 artists are available in Dolby Atmos.
Robert Park: And over 100 shows and Dolby technologies were nominated across the Emmys, and the Oscars, including Emmy winners succession, and the last of us.
Robert Park: We continued to increase the availability of Dolby content through distribution partners, including <unk> five an Indian OTT service for 120 million monthly active users, which announced Dolby vision support on its platform shortly after adding support for Dolby Atmos earlier in 2023.
Robert Park: These highlights reinforced the momentum Dolby Atmos, and Dolby vision, and the artist and streaming communities in their quest to deliver the best audio visual experience as possible.
Robert Park: We are focused on making these experiences available on as many devices as possible.
Robert Park: We just returned from CES, where Dolby Atmos and Dolby vision were unfold display across the show floor, particularly in the living room and devices like Tvs and sound bars, and we continue to be featured in lineup announcements from our partners, including Tcl LG and <unk>.
Robert Park: We also had strong engagement with Dolby Atmos flex connect our new living room solution that enables consumers to place wireless speakers paired with the TV anywhere in a room and automatically get an immersive Dolby Atmos experience.
Robert Park: <unk> announced that they would begin supporting Dolby Atmos flex connect on their Tvs.
Kevin J. Yeaman: In gaming, Alienware and Asus, two of the world's leading gaming monitor manufacturers, announced support for Dolby Vision. A big focus of the show for us was our growing presence in Ottawa. We enjoyed positive reactions from our Dolby Atmos-enabled demo car, which delivers a fully immersive Dolby Atmos experience in an affordable mid-sized car with a standard four-channel, eight-speaker sound system.
Robert Park: In gaming Alienware, and <unk> two of the world's leading gaming monitor manufacturers announced support for Dolby vision.
Robert Park: A big focus at the show for US was our growing presence in auto.
Robert Park: We enjoyed positive reactions from our Dolby Atmos enabled demo car, which delivers a fully immersive Dolby atmos experience and an affordable mid sized car with a standard for channel eight speakers sound system. In addition, Apple recently announced support for Dolby Atmos in car play broadening our market opportunity by enabling auto Oems to.
Kevin J. Yeaman: In addition, Apple recently announced support for Dolby Atmos in CarPlay, broadening our market opportunity by enabling auto OEMs to offer consumers multiple ways to experience Dolby Atmos in their cars. On the OEM side, as of the end of the first quarter, we've announced agreements with 13 auto OEMs, up from 10 at the end of the fourth quarter. One of our new partners this quarter is Zeker, the premium EV brand of Chinese automaker Geely. They announced that the Zeeker 007, which is expected to retail for less than $30,000, will support Dolby Atmos, and they're going to be doing that via an over-the-air update later this year.
Robert Park: To offer consumers multiple ways to experience Dolby Atmos in their cars.
Robert Park: On the OEM side as of the end of the first quarter, we've announced agreements with 13 auto Oems up from 10 at the end of the fourth quarter.
Robert Park: One of our new partners this quarter Zika the premium EV brand of Chinese automaker Geely they.
Robert Park: They announced that the Zika <unk>, seven which is expected to retail for less than $30000 will support Dolby Atmos and they are going to be doing that by an over the air update later this year.
Kevin J. Yeaman: Interestingly, about half of our OEM partnerships are with Chinese EV manufacturers, which are quickly becoming some of the most popular cars on the road in China and Europe. We're also excited that the Apple Vision Pro, which begins shipping tomorrow, will include Dolby Atmos and Dolby Vision. We believe Apple's spatial computing environment with Dolby Atmos and Dolby Vision will continue to expand the horizons of what is possible with sight and sound. To sum up on Dolby Atmos and Dolby Vision, we continue to make progress on multiple fronts. This progress gives us confidence in our expectation for a multi-year CAGR of 15-25% for Dolby Atmos, Dolby Vision, and imaging patents. Looking beyond Dolby Atmos and Dolby Vision, we've talked to you about our opportunity with Dolby I O, where we are focused on enabling more engaging, real-time, and personalized experiences in sports and entertainment. We are seeing strong demand for our ultra-low latency real-time streaming product, and while it's early days, we just closed our first seven-figure deal. I'd like to wrap up my comments with some closing thoughts.
Robert Park: Interestingly about half of our OEM partnerships are with Chinese EV manufacturers, which are quickly becoming some of the most popular cars on the road in China and Europe.
Robert Park: We're also excited that the Appalachian Pro which began shipping tomorrow will include Dolby Atmos and Dolby vision.
Robert Park: We believe Apple spatial computing environment with Dolby Atmos, and Dolby vision will continue to expand the horizons of what is possible with sight and sound to sum up on Dolby Atmos and Dolby vision, we continue to make progress on multiple fronts.
Robert Park: This progress gives us confidence in our expectation for a multi year CAGR of $15 to 25% for Dolby Atmos, Dolby vision and imaging patents.
Looking beyond Dolby Atmos, and Dolby vision, we've talked to you about our opportunity with Dolby Io, where we are focused on enabling more engaging real time, and personalized experiences and sports and entertainment.
Robert Park: We are seeing strong demand for our ultra low latency realtime streaming product and while it's early days, we just closed our first seven figure deals.
I'd like to wrap up my comments with some closing thoughts.
Kevin J. Yeaman: It was a solid quarter, and our outlook for the year is unchanged. Looking forward, our foundational offerings remain strong, and we have momentum with Dolby Atmos and Dolby Vision. We continue to invest in innovation and attractive new areas of growth, including Dolby I O, and we have a strong margin profile with healthy cash generation. All of this gives us confidence in our opportunity to grow revenue and earnings going forward. And with that, I'll turn it over to Robert.
Robert Park: It was a solid quarter and our outlook for the year is unchanged looking forward, our foundational offerings remains strong and we have momentum with Dolby Atmos and Dolby vision.
Robert Park: We continue to invest in innovation and attractive new areas of growth, including Dolby Io and we have a strong margin profile with healthy cash generation.
Robert Park: All of this gives us confidence in our opportunity to grow revenue and earnings going forward and with that I'll turn it over to Robert.
Robert Park: Thanks, Kevin. Before we get to the detailed financials, I'd like to share three thoughts. First, revenue for Q1 was within the range we laid out in the Q4 earnings call, and profitability came in higher than guidance, primarily due to timing of spend. Second, while the environment remains uncertain, our guidance for the full year remains unchanged.
Robert Park: Thanks, Kevin before we get to the detailed financials I'd like to share three thoughts first revenue for Q1 was within the range. We laid out in the Q4 earnings call and profitability came in higher than guidance, primarily due to timing of spend.
Robert Park: While the environment remains uncertain our guidance for the full year remains unchanged and third as I've said before we feel good about our long term prospects as our value proposition remains strong and our financials. Our solid Q1 revenue was $316 million down 6% compared to the year ago quarter, and just above the midpoint of guide.
Robert Park: And third, as I've said before, we feel good about our long-term prospects as our value proposition remains strong and our financials are solid. Q1 revenue was $316 million, down 6% compared to the year-ago quarter, and just above the midpoint of guidance we shared with you on the last earnings call. Licensing revenue of $294 million was down 5% year over year.
Robert Park: We shared with you on the last earnings call licensing revenue of $294 million was down 5% year over year.
Robert Park: Products and services revenue was $22 million down 19% year over year, driven by lower cinema product sales and came in lower than expected due to timing of orders now expected later in the year.
Robert Park: Products and Services revenue was $22 million, down 19% year over year, driven by lower cinema product sales, and came in lower than expected due to the timing of orders now expected later in the year. Detailed licensing performance by NMarket is on our IR website, but I'd like to point out some noteworthy details. As a reminder, timing of recoveries, minimum volume commitments, and true-ups can drive volatility between quarters. And we saw that dynamic in mobile this quarter, as we expected. In Q1, mobile revenue was down about 45% year over year due to these factors, but we still expect mobile to be down only slightly for the full year. Our end-market outlook for the full year is unchanged from last quarter's call. We continue to expect solid growth in other markets, and PCs should benefit from slightly higher units, higher revenue in imaging patents, and recovery. However, this increase will be offset by slight declines in broadcast, CE, and mobile.
Robert Park: Detailed licensing performance by end market is on our IR website, but I'd like to point out some noteworthy details.
Robert Park: As a reminder, timing of recoveries minimum volume commitments and true ups can drive volatility between quarters, and we saw that dynamic in mobile this quarter as we expected.
Robert Park: In Q1 mobile revenue was down about 45% year over year due to these factors, but we still expect mobile to be down only slightly for the full year.
Robert Park: Our end market outlook for the full year is unchanged from last quarter's call. We continue to expect solid growth in other markets and PC should benefit from slightly higher units higher revenue in imaging patents and recoveries.
Robert Park: This increase will be offset by slight declines in broadcast CE and mobile.
Robert Park: While we see growth in Dolby Atmos and Dolby vision in these markets. This year. The overall revenue declines are primarily due to tough comps in terms of timing and size of deals and true ups and foundational imaging patents.
Robert Park: Moving to the bottom line in Q1, we earned $1.01 per diluted share on a non-GAAP basis above the high end of our guidance, primarily due to lower operating expenses related to timing of patent program spend higher other income and lower taxes.
Robert Park: While we see growth in Dolby Atmos and Dolby Vision in these markets this year, the overall revenue declines are primarily due to tough comps in terms of timing and size of deals, true-ups, and foundational imaging patents. Moving to the bottom line, in Q1, we earned $1.01 per diluted share on a non-gap basis.
Robert Park: We generated $8 million in operating cash flow as a reminder, overtime operating cash level correlate to non-GAAP net income, but this quarter, we had a variety of timing issues working against us.
Robert Park: Above the high end of our guidance, primarily due to lower operating expenses related to the timing of patent program spending, higher other income, and lower taxes. We generated $8 million in operating cash flow. As a reminder, over time, operating cash flow will correlate to non-GAAP net income, but this quarter, we had a variety of timing issues working against us. Moving on, we repurchased $80 million of common stock and have $132 million remaining on our repurchase plan authorization. We declared a 30-cent dividend, up 11% from our dividend a year ago, and ended the quarter with cash and investments of just under $900 million. We recorded a $6 million non-GAAP restructuring charge in the quarter in line with the restructuring plan we communicated last quarter and completed in November.
Robert Park: Moving on we repurchased $80 million of common stock and have $132 million remaining on our repurchase plan authorization.
Robert Park: We declared a 30 cent dividend up 11% from our dividend a year ago and ended the quarter with cash and investments of just under $900 million.
Robert Park: We recorded a $6 million non-GAAP restructuring charge in the quarter in line with the restructuring plan, we communicated last quarter and completed in November.
Robert Park: Turning to guidance there is still uncertainty in the market and our guidance assumes no material change in the macroeconomic environment.
Robert Park: While we continue to see steady growth of content created and distributed in Dolby technology and strong engagement from our partners device shipments remained soft and things are just taking longer to get done.
Robert Park: For Q2, 'twenty four we expect revenue to be between $345 million and $375 million within that licensing revenue is estimated to range from 320 million to $350 million.
Robert Park: Turning to guidance, there is still uncertainty in the market, and our guidance assumes no material change in the macroeconomic environment. While we continue to see steady growth of content created and distributed in Dolby technology and strong engagement from our partners, device shipments remain soft, and things are just taking longer to get done. For Q224, we expect revenue to be between $345 million and $375 million. Within that, licensing revenue is estimated to range from $320 million to $350 million, and gross margin should be approximately 90% on a non-GAAP basis. We expect non-GAAP operating expenses to be between $180 million and $190 million. Our effective tax rate for Q2 is projected to be around 20% on a non-GAAP basis. So, as a result, we estimate that non-GAF EPS should be between $1.14 and $1.29 per diluted share. Our full year guidance for fiscal year 24 is unchanged at roughly flat revenue.
Robert Park: Gross margin should be approximately 90% on a non-GAAP basis, we expect non-GAAP operating expenses to be between $180 million and $190 million. Our effective tax rate for Q2 is projected to be around 20% on a non-GAAP basis.
Robert Park: So as a result, we estimate that non-GAAP EPS should be between $1 14, and $1 29 per diluted share our full year guidance for fiscal year 'twenty four is unchanged at roughly flat revenue embedded in this guidance is an assumption of a mid single digit decline in foundational audio licensing revenue.
Robert Park: Offset by high single digit growth in Dolby Atmos, Dolby vision, and imaging patent licensing revenue and flat products and services revenue non-GAAP gross margin should be roughly 89% non-GAAP operating expenses for the full year should be in that $740 million to $750 million range, which will result in about a 1% to 2%.
Robert Park: <unk> point improvement in operating margins on a full year basis.
Robert Park: On the bottom line, we are expecting non-GAAP EPS between $3 60 and.
Robert Park: And $3 75 per diluted share.
Robert Park: To wrap things up the creation and distribution of Dolby enabled content continues to grow nicely. Our partners are still very engaged our financials remains strong and we are well positioned for growth when economic conditions improve.
Robert Park: Embedded in this guidance is an assumption of a mid-single-digit decline in foundational audio licensing revenue, offset by high single-digit growth in Dolby Atmos, Dolby Vision, and imaging patent licensing revenue, and flat products and services revenue. Non-GAAP gross margin should be roughly 89%. Non-GAAP operating expenses for the full year should be in the $740 million to $750 million range, which will result in about a one to two percentage point improvement in operating margins on a full year basis.
Speaker Change: With that I'd like to turn it back to the operator to open the line for your questions operator.
Speaker Change: Thank you if you have a question. Please press star one on your telephone keypad.
Your first question comes from the line of Ralph Shakur with William Blair. Your line is open.
Ralph Schackart: Hi, good afternoon. Thanks for taking the question, Kevin maybe kind of go back to some of your introductory comments on macro.
Ralph Schackart: I think you'd talked about some of the macro being the same as last call, but maybe just kind of taken a step back as you look out into 2020 for this year and if you compared.
Robert Park: On the bottom line, we are expecting non-gas EPS between $3.60 and $3.75 per diluted share. To wrap things up, the creation and distribution of DLB-enabled content continues to grow nicely. Our partners are still very engaged, our financials remain strong, and we are well positioned for growth when economic conditions improve. With that, I'd like to turn it back to the operators and open the line for your questions, operator.
Ralph Schackart: You know where you are today versus if you looked out into 2023, maybe just sort of give an assessment of the relative macro I guess this year versus last year. When you were looking out.
Ralph Schackart: Yeah.
Speaker Change: Thanks for the question Ralph.
Speaker Change: So.
Speaker Change: Of course as it relates to our foundational.
Speaker Change: Revenues the biggest macro factor is the number of device shipments and as we said we haven't seen anything that would cause us to change our outlook for that.
Operator: Thank you. If you have a question, please press star 1 on your telephone keypad. Your first question comes from the line of Ralph Schackart with William Blair.
Speaker Change: As it relates to kind of the overall environment, what you are referring to.
Ralph Schackart: Your line is open. Good afternoon. Thanks for taking the question. Kevin, maybe we could kind of go back to some of your introductory comments on macro. I think you talked about the macro being the same as last call, but maybe just kind of taking a step back as you look out into 2024 this year, and if you compared, you know, where you are today versus if you looked out into 2023, maybe just sort of give an assessment of the relative macro, I guess, this year versus, you know, last year when you were looking out. Yeah, thanks for the question, Ralph. So, of course, as it relates to our foundational revenues, the biggest macro factor is the number of device shipments. And, as we said, we haven't seen anything that would cause us to change our outlook on that.
Speaker Change: I would remind you that what we didn't say that we saw a couple of big deals delayed what.
Speaker Change: What we did see was that it's been a couple of years of.
Speaker Change: And uncertain and changing kind of economic environment and a lot of companies are devoting attention cycles to making their adjustments to focus on that and that just has had an effect overall of.
Speaker Change: Of some deals could take another month or two to get that device when it could take another month or two for a partner to get from a device went to a product in market or sometimes they have their product ready to go and they might for a number of reasons decided to launch it a few months later so all of that was the dynamic we talked about that we were.
Ralph Schackart: As it relates to kind of the overall environment you're referring to, I would remind you that, you know, what we didn't say was that we saw a couple of big deals delayed. What we did see was that it's been a couple of years of an uncertain and changing kind of economic environment, and a lot of companies are, you know, devoting attention cycles to making their adjustments to focus on that. And that just has had an effect overall of, you know, some deals could take another month or two to get that device win. It could take another month or two for a partner to get from a device win to a product and market, or sometimes they have their product ready to go, and they might, for a number of reasons, decide to launch it a few months later. So, all of that was the dynamic we talked about that we were seeing the cumulative effect of last quarter when we guided to high single-digit growth in Dolby Atmos, Dolby Vision, and ImagingPad. And we are still growing; we still see growth in the high single digits.
Seeing the cumulative effect of last quarter, when we guided to high single digit growth in Dolby Atmos, Dolby vision and imaging patents.
Speaker Change: And we are still growing.
Speaker Change: Still see growth of high single digits, we continue to have really strong engagement across the ecosystem.
Speaker Change: We.
Speaker Change: Continue to see high single digit growth for the year and we continue to be confident that with the engagement, we have and the wins that we're getting that we can return to the 15% to 25% CAGR over that midterm three to five year period.
Speaker Change: Great and then maybe just kind of circling back a little bit to CES you had some comments in the prepared remarks, but maybe just give an assessment of how CES. This year, perhaps versus last year and any momentum you're seeing at least perhaps with like initial conversations coming out of this year. Thanks.
Speaker Change: Yeah.
Speaker Change: <unk>.
Speaker Change: Thank you.
Speaker Change: One highlight for US was just that as you.
Speaker Change: Walk the show floor Dolby is everywhere across the show, Florida were featured in a number of our partners. Our lineup announcements. We were featured across the living room across all living room devices.
Kevin J. Yeaman: We continue to have really strong engagement across the ecosystem, and we continue to see high single-digit growth for the year. And we continue to be confident that with the engagement we have and the wins that we're getting, we can return to the 15-25% CAGR over that midterm three to five year period. Great, and then maybe just kind of circling back a little bit to CES. You had some comments and prepared remarks, so maybe just give an assessment of how CES went this year, perhaps versus last year, and any momentum you're seeing, at least perhaps Yeah, so, you know, one highlight for us was just that as you, you know, walk the show floor, Dolby is everywhere on the show floor, and we were featured in a number of our partners' lineup announcements. We were featured across the living room, across, you know, all the living room devices. So, that was a real highlight, sort of outside the Dolby space, everywhere.
Speaker Change: So that was a real highlight sort of outside the Dolby space around everywhere within the Dolby space of course, we were showing you know everything we do but I would say automotive is where we just had.
Speaker Change: A lot of engagement a lot of activity.
Speaker Change: Had a lot to share we had a we had a demo car, which really shows the full power of the Dolby Atmos experience for a car at an affordable price point with four channels and eight speakers lot of interest in that.
Speaker Change: We had.
Speaker Change: And a number of cars is nothing like actually experiencing Dolby Atmos to get excited about Dolby Atmos in the car and we have a really robust pipeline.
Speaker Change: Really strong engagement.
Speaker Change: Most every major auto manufacturers represented at the show and we had a lot of people a lot of people coming through so those were some of the highlights for ourself.
Speaker Change: Great maybe one last one and I'll turn it over and historically Dolby as did sort of a professional consumer strategy and a lot of timeshare newer products, starting pretty high end devices and make their way into more mass market prices anything you're observing in the auto market that would sort of suggest that that would alter.
Kevin J. Yeaman: Within the Dolby space, of course, we were showing, you know, everything we do. But I would say automotive is where we just had a lot of engagement, a lot of activity. We had a lot to share.
Speaker Change: Things may perhaps picking up.
Speaker Change: Where you might see atmos move to less expensive vehicles, just love your thoughts on that.
Kevin J. Yeaman: We had a demo car, which really showed the full power of a Dolby Atmos experience for a car at an affordable price point with four channels and eight speakers. A lot of interest in that. We had a number of cars. But it's nothing like actually experiencing Dolby Atmos to get excited about Dolby Atmos in the car.
Speaker Change: Yes, it's a great question because as you know that is.
Speaker Change: Our goal is to is to have Dolby atmos be the way everybody experience as music in the car.
Speaker Change: And.
Speaker Change: It's early days, we're at 13 OEM wins, that's up from 10 last quarter, we've only been added a couple of years.
Kevin J. Yeaman: And we have a really robust pipeline, really strong engagement. You know, pretty much every major auto manufacturer is represented at the show, and we had a lot of people, a lot of people coming through. So those were some of the highlights for us. Great, maybe one last one. I'll turn it over.
Speaker Change: Just over half of those are shipping in the market and many of them will be coming to market. This year.
Speaker Change: Already seen partners like Mercedes extend to their already up to 10 models.
Speaker Change: And we expect to release more this year.
This quarter I mentioned.
Ralph Schackart: And, you know, historically, Dolby has been sort of a professional consumer strategy. And a lot of times, your newer products start on pretty high-end devices and make their way into, you know, more mass market prices. Anything you're observing in the auto market, you know, that would sort of, you know, suggest that that would alter, you know, things may perhaps picking up where you might see Atmos move to, you know, less expensive vehicles? I would love your thoughts. Yeah, it's a great question because, as you know, our goal is to have Dolby Atmos be the way everybody experiences music in the car. And, you know, it's early days. We're at 13 OEM wins. That's up from 10 in the last quarter. We've only been out for a couple of years.
Speaker Change: Zika.
Speaker Change: By Geely in China that that model that they announced is going to be at a price point of just under $30000.
Speaker Change: So.
Speaker Change: I do believe that there's something about the Dolby Atmos experience the importance of music in the car, which combined with the engagements. We're having that we believe we have the opportunity to to get to get to the mainstream even as we even as we start out at the high end here. So.
So that's our that's our focus and being able to demonstrate the experience in.
Speaker Change: In an affordable car is a big part of the equation because you know that.
Speaker Change: Many of those first models. If you are at the highest end of luxury models you could be talking 20, even 30 speakers so to be able to to have people experience. It.
Kevin J. Yeaman: Just over half of those are shipping in the market now, and many of them will be coming to market this year. We've already seen partners like Mercedes extend to, they're already up to 10 models, and we expect to release more this year. This quarter, I mentioned the Zeker by Geely in China.
Speaker Change: The type of hardware implementation and cost that youre mainstream models are going to have that's a big step forward for our team to do that and they've got a really strong reception.
Speaker Change: Great. Thank you Kevin.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Steven Frankel with Rosenblatt. Your line is open.
Kevin J. Yeaman: That model that they announced is going to be at a price point of just under $30,000. So, I do believe that there's something about the Dolby Atmos experience, the importance of music in the car, which, you know, combined with the engagements we're having, we believe we have the opportunity to get to the mainstream, even as we started out at the high end here. So that's our focus. And being able to demonstrate the experience in an affordable car is a big part of the equation because, you know, many of those first models, if you're at the highest end of luxury models, you could be talking about 20, even 30 speakers. So to be able to have people experience it at the type of hardware implementation and cost that your mainstream models are going to have, that's a big step forward for our team to do that, and it got a really strong reception.
Steven Frankel: Good afternoon, let me start with a couple Robert questions to get them off the sideline and then we'll go to you Kevin.
Steven Frankel: Robert on.
Steven Frankel: Mobile, which.
Steven Frankel: <unk> was down sharply down a lot more than the market may be give us some insight into the timing differences behind that and does the timing difference there explain most of the cash flow different on a year over year basis.
Robert Park: Yeah, Hi, Steve I'll answer those.
Speaker Change: Two two separately. So if you think about mobile if you take a step back it's about where we.
Steve: We expect it to be for the full year, we expect it to be down slightly related to market trends and our and that can be partially offset by by growth in Dolby Atmos, and Dolby vision and imaging theyre down for the quarter due to the timing as you said, a minimum volume commitments and recoveries and that can swing from quarter to quarter. We do expect it to be up significantly sequentially next quarter. So.
Ralph Schackart: Great. Thank you, Kevin. Your next question comes from the line of Steven Frankel with Rosenblatt. Good afternoon.
Steve: You will see timing difference on both ends of that.
Steven Frankel: Let me start with a couple of questions for Robert to get him off the sidelines, and then we'll go to you, Kevin. So, Robert, on mobile, which obviously was down sharply, down a lot more than the market, maybe give us some insight into the timing differences behind that, and does the timing difference there explain most of the cash flow difference on a year-over-year basis? Yeah, hi, Steve, I'll answer those two separately. So if you think about mobile, if you take a step back, it's about where we expect it to be for the full year. We expect it to be down slightly, really due to market trends, and that can be partially offset by growth and Dolby Atmos and Dolby Vision and imaging there. Down for the quarter due to the timing, as you said, of minimum volume commitments and recoveries, which can swing from quarter to quarter.
Steve: As it gets to the cash flow in terms of just setting the stage for cash flow Q1 is normally weak quarter due to seasonality.
Steve: And you can see that this quarter was a typically soft their working capital.
Steve: Balanced timing issues that went.
Steve: Against this this particular quarter.
But if you step back and take a look at our cash flow over time operating cash flows will fluctuate quarter to quarter, but it correlates very closely to our non-GAAP.
Steve: Net income overtime and Youll continue to see that.
Speaker Change: Okay, and then Kevin.
Kevin J. Yeaman: Thanks for the update on <unk> can you give us any more color and just to clarify you said multiple seven figure deal.
Speaker Change: Okay, and what could you tell us about those customers or use cases.
Kevin J. Yeaman: Yes, so yes, thanks, Steve I'll.
Kevin J. Yeaman: So you remember that last quarter, we talked about how we were focusing on where we were seeing increased demand and that where we're seeing that demand is with larger customers that we're wanting to implement at larger scale and in particular the use cases that we're excited about with our our customers and our prospects are.
Robert Park: We do expect it to be up significantly sequentially next quarter, so you will see timing differences on both ends. As it goes to cash flow in terms of just setting the stage for cash flow, yeah, Q1 is normally a weak quarter, you know, due to seasonality, and you can see that. This quarter was, you know, atypically soft; there were working capital balance timing issues that went against this particular quarter.
Kevin J. Yeaman: All in and around the sports and entertainment space and companies that are looking to really innovate around the digital experience and they want to offer experiences in real time, they want to offer experiences that are more interactive and more personalized.
Robert Park: But if you step back and take a look at cash flow over time, operating cash flows will fluctuate quarter to quarter, but it correlates very closely to our non-GAAP net income over time, and you will continue to see that. Okay, and then, Kevin, thanks for the update on IO. Can you give us any more color, and just to clarify, you said a multiple seven-figure deal? What could you tell us about those customers or their use? Yeah, so yeah, thanks, Steve. So last quarter, we talked about how we were focusing on where we were seeing increased demand and that where we were seeing that demand was with larger customers that were wanting to implement at a larger scale. And in particular, the use cases that we're excited about with our customers and our prospects are all in and around the sports and entertainment space, and companies that are looking to really innovate around the digital experience, and they want to offer experiences in real time. They want to offer experiences that are more interactive and more personalized, and many of them are starting with our ability to offer streaming and ultra-low latency, which means hundreds of milliseconds of delay compared to the seven or eight seconds on average you might otherwise get.
Kevin J. Yeaman: And many of them are starting with our ability to offer streaming and ultra low latency, which means hundreds of milliseconds of delay compared to the seven or eight seconds on average you might otherwise get.
Kevin J. Yeaman: That continues to be there.
Kevin J. Yeaman: Those are the use cases that we're excited about we're seeing a lot of.
Kevin J. Yeaman: <unk>.
Kevin J. Yeaman: In areas like our I gaming and sports betting where there are some very clear value propositions for the value of having that content.
Kevin J. Yeaman: In real time.
Kevin J. Yeaman: And beyond that we're just seeing again across the broader sports and entertainment experience.
Kevin J. Yeaman: A lot of creative ideas around where to take this because people are of course I'm expecting to engage in real time and have a and have a more personal relationship with their content. So so that's what we're seeing and and yes. We did sign a couple of seven figure deals and Thats I think just a data point that.
Kevin J. Yeaman: The shift that.
Kevin J. Yeaman: We've made from kind of the self service developer platform to focus on these larger opportunities we feel like we're on the right path and we're really excited about.
Kevin J. Yeaman: Those are the use cases that we're excited about. We're seeing a lot of interest in areas like iGaming and sports betting, where there are some very clear value propositions for the value of having that content be in real time. And beyond that, we're just seeing, across the broader sports and entertainment experience, a lot of creative ideas around where to take this because people are, of course, expecting to engage in real time and have a more personal relationship with their content. So that's what we're seeing. And yeah, we did sign a couple of seven-figure deals.
Kevin J. Yeaman: How about the prospects going forward still early days, but good progress.
Speaker Change: Okay, and then pick up on Ross' question about.
Speaker Change: Getting into more mass market platforms.
Speaker Change: With Atmos auto and encouraged by the fact that you're seeing that in China.
Speaker Change: Closer to home or in Europe.
Speaker Change: Do you think.
Speaker Change: Those companies are waiting for more consumer demand or do you think.
Speaker Change: There are other factors that are holding back today, but they don't this doesn't have to be pulled through.
Kevin J. Yeaman: And that's, I think, just a data point that this shift that we've made from kind of the self-service developer platform to focus on these larger opportunities. We feel like we're on the right path, and we're really excited about the prospects going forward. Still early days, but good progress. Okay, and to pick up on Ralph's question about getting to more mass market platforms with Atmos Auto, encouraged by the fact that you're seeing that in China, you know, closer to home or in Europe. Do you think... Those companies are waiting for more consumer demand, or do you think there are other factors that are holding back today, but this doesn't have to be pulled through by the consumer for them to be convinced there's value?
Speaker Change: By the consumer for them to be convinced theres value in doing this.
Speaker Change: Okay.
Speaker Change: I think it's just that we've been in the market for selling Dolby Atmos for about two years. We've added 13 Oems it's natural that those Oems are going to start with the higher end models.
Speaker Change: And.
Speaker Change: We think thats.
Speaker Change: Substantial progress for two years, we think that each of those partners are interested in continuing to expand their lineups and are expanding their lineups.
Speaker Change: So and when we look across our pipeline.
Speaker Change: We see a lot of a lot of interest for both and that includes interest in mainstream models, which is which is which is why we wanted to.
Kevin J. Yeaman: I think it's just that we've been in the market selling Dolby Atmos for about two years. We've added 13 OEMs. It's natural that those OEMs are going to start with the higher-end models, and we think that's, you know, substantial progress for two years. We think that each of those partners is interested in continuing to expand their lineups and are expanding their lineups.
Speaker Change: Demonstrate.
Speaker Change: To our partners that.
Speaker Change: The experience for an affordable price point with that appropriate amount of hardware audio hardware is is a really spectacular experience.
Speaker Change: Great. That's all the questions I have for now thank you.
Kevin J. Yeaman: And when we look across our pipeline, we see a lot of interest in both, and that includes interest in mainstream models, which is why we wanted to, you know, demonstrate to our partners that the experience at an affordable price point with an appropriate amount of hardware, and audio hardware, is a really spectacular experience. Great. That's all the questions I have for now.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Jim Goss with Barrington Research. Your line is open.
Speaker Change: Thanks.
James Charles Goss: I'd like to talk a little more about the music and cars idea also.
James Charles Goss: Did I understand correctly that you had some OTA updates to enable Houston.
James Charles Goss: Some devices with new technologies.
Steven Frankel: Thank you. Your next question comes from the line of Jim Goss with Barrington Research. Your line is open.
James Charles Goss: So how much of that as possible how prevalent is that.
James Charles Goss: And how do you benefit economically.
James Charles Goss: Thanks. I'd like to talk a little more about the music and cars idea. Also, did I understand correctly that you had some OTA updates to enable usage on some devices with new technologies, and if so, how much of that is possible? How prevalent is it?
Speaker Change: Yes, so what you picked up on Jim is that the.
Speaker Change: The Zika announcement they have.
Speaker Change: Told their customers that are there.
Speaker Change: There.
Speaker Change: They'll get their Dolby Atmos update by an over the air update so yes, clearly that they have.
Kevin J. Yeaman: and How Do You Benefit Economically? Yeah, so what you picked up on, Jim, is that with the Zika announcement, they have told their customers that they'll get their Dolby Atmos buy-in over their update. So, yeah, clearly, that requires you to have the right hardware requirements and everything to be able to do that, and the economic model is no different for us. We still charge per device, in this case, per car, so that's no different. But what's exciting about it is that it means it provides a way to enable more cars, to the extent that there are cars on the road that have the basic capabilities to receive it, that in that respect expands the addressable market. So it primarily involves electric vehicles and not too many of the other types, even if they're high-tech types. Well, in this case, it's an electric vehicle.
Speaker Change: That requires you to have the right hardware requirements in and everything to be able to do that.
Speaker Change: And the economic model is no different for us we're still.
Speaker Change: We still charge per device in this case per car. So that's no different but what's exciting about it is that.
Speaker Change: It means.
Speaker Change: It provides a way to enable more cars for the extended their cars on the road that have the base capabilities to receive it.
Speaker Change: So in that respect expands the addressable market.
Speaker Change: So it's primarily involves for electric vehicles.
Speaker Change: Sure.
Speaker Change: Not too many of the other types even.
Speaker Change: Hi Tech.
Speaker Change: Cars.
Speaker Change: Well in this case, it's an electric vehicle.
Kevin J. Yeaman: I mean, there are many vehicles that can receive over-the-air updates for the entertainment system, in our case, or other aspects of it. Increasingly, that's becoming the case, but, I mean, the big news here is that we have another OEM win and that they're going to be introducing it into a car that has a price point under $30,000. And I think, and you're right, it is significant that our partners are increasingly, across many of our device categories, if they have the base hardware requirements, it is, in some cases, possible to bring Dolby Atmos and Dolby Vision to consumers via an over-the-air update. Maybe another one.
Speaker Change: There are many vehicles that can receive over the air updates for the entertainment system in our case or other or other <unk>.
Speaker Change: Acts of it increasingly that's becoming the case.
Speaker Change: But.
Speaker Change: I mean, the Big news here is that we have another OEM win and that they're going to be introducing it into a car that has a price point under $30000.
Speaker Change: And I think.
Speaker Change: And Youre right. It is it is significant that our partners are increasingly across many of our device categories. If they have the base the base hardware requirements. It is.
Speaker Change: In some cases as possible to bring Dolby Atmos and Dolby vision.
Speaker Change: To consumers via over their update.
Speaker Change: Okay, maybe one other one.
Kevin J. Yeaman: You've been very good at pursuing increased penetration for Atmos and Vision by enrolling additional SKUs and various devices. At what point do they shift in your mind to foundational technologies rather than growth technologies? How do you look at that sort of thing as you roll through the cycle?
Speaker Change: <unk> been very.
Speaker Change: Very good.
Speaker Change: Pursuing increased penetration for Atmos and vision.
Speaker Change: And rolling out additional skus on various devices.
Speaker Change: At what point does it shift the ratio from euro amount two foundational technologies.
Speaker Change: Rather than being growth technologies.
Speaker Change: How do you look at that sort of thing.
You roll through the cycles.
Kevin J. Yeaman: Yeah, look, the spirit of the foundational patents compared to Atmos Vision and Imaging patents was to help you and the investment community understand how to think about the macro environment. And so for our foundational offerings, which are both our audio patents and our branded audio codecs, those enjoy such significant penetration across such a broad range of devices that what happens in the macro in terms of consumer spending, or more specifically, how many devices are shipped during a quarter, is going to be a big factor in what happens with foundational revenues. Whereas we've been talking a lot today about Dolby Atmos and Dolby Vision, even on TVs in the living room, where we have our highest penetration of Dolby Atmos and Dolby Vision, we still have a lot of devices to pursue.
Speaker Change: Yes look the spirit of the foundational compared to Atmos vision and imaging patents was to help.
Speaker Change: You in the investment community.
Speaker Change: Understand how to think about.
Speaker Change: The macro environment and so that so for instance, our foundational offerings, which are both our audio patents in our branded audio codecs those enjoys such penetrate such significant penetration against such a broad range of devices that.
Speaker Change: What happens in the macro in terms of consumer spending or more specifically how many devices are shipped during the quarter is going to be a big factor on what happens with foundational revenues, whereas we've been talking a lot today about Dolby Atmos and Dolby vision even in.
Speaker Change: Tvs in the living room, where.
Speaker Change: Where we have our highest penetration of Dolby Atmos and Dolby vision, we still have a lot of devices to pursue and then automotive as we just talked about it's still pretty early days for mobile we have pretty good penetration of Dolby Atmos.
Kevin J. Yeaman: And then, you know, automotive, as we just talked about, it's still pretty early days. And for mobile, we have pretty good penetration of Dolby Atmos and a significant opportunity to continue to extend our presence based on our early wins in Dolby Vision and Dolby Vision Capture. And so, obviously, across the board, the macroeconomic, how many devices are being purchased affects us, but for Atmos and Vision, it really is more about getting on more of the devices that are shipping. And we've said that, you know, we think we can grow that significantly in the midterm. We believe we can get to a 15 to 25% CAGR over the midterm.
Speaker Change: And a significant opportunity to continue to extend our presence based on our early wins and in Dolby vision and Dolby vision capture and so on.
Speaker Change: Obviously across the board the macroeconomic how many devices are being purchased affects us but for Atmos envision. It really is more about getting on more of the devices that are shipping.
Speaker Change: Sure.
Speaker Change: We've said that we think we can grow that significantly in the midterm.
Speaker Change: We believe we can get to a 15% to 25% CAGR over the mid term.
Speaker Change: And so.
Kevin J. Yeaman: And so, still plenty of room to grow. So, I'm not thinking about yet when it's going to shift to foundational. Okay. Thanks very much. Appreciate it. There are no further questions at this time. I will turn the call over to Peter for closing. Okay, great.
Still plenty of room to grow.
Speaker Change: I'm not I'm not thinking about yet when it's going to shift a foundational.
Speaker Change: Okay. Thanks, very much I appreciate it.
Speaker Change: There are no further questions at this time I will turn the call to Peter for closing remarks.
Operator: Everyone, thanks for dialing in on our call today, and we'll talk to you next quarter. Operator, thank you. Thank you. This concludes today's conference call. We thank you for joining. You may now disconnect your line. Which pair pairs best with you? Let us know in the comments section below and don't forget to subscribe to our channel for more videos like this!
Peter Goldmacher: Okay, great everyone. Thanks for dialing in on our call today, and we'll talk to you next quarter operator. Thank you.
Speaker Change: Thank you. This concludes today's conference call. We thank you for joining you may now disconnect your lines.
Speaker Change: Okay.
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Speaker Change: Yes.
Speaker Change: [music].