Q2 2024 Dolby Laboratories Inc Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the Dolby Laboratories Conference call discussing fiscal second quarter results during.

During the presentation, all participants will be in a listen only mode.

Afterwards, you will be invited to participate in a question and answer session.

If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

If you would like to rejoin the question again press the star one.

I would now like to turn the conference over to Mr. Peter Goldmacher, Vice President of Investor Relations. Peter. Please go ahead.

Peter Goldmacher: Good afternoon, welcome to Dolby Laboratories' second quarter 2024 earnings Conference call. Joining me on the call today are Dolby laboratories, CEO, Kevin Yeaman, Dolby Laboratories' CFO Robert Park as a reminder, today's discussion will include forward looking statements, including our fiscal 2020 for third quarter and full year.

Peter Goldmacher: Our 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 macroeconomic events supply chain issues inflation rates changes in consumer spending and geopolitical instability.

Peter Goldmacher: Our business a discussion of these and additional risks and uncertainties can be found in the earnings press release that we issued today under the section captioned forward looking statements as well as in the risk factors section of our most recent quarterly report on Form 10-Q.

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. 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.

Peter Goldmacher: Section of our website with that I'd like to turn the call over to Kevin. Thank.

Kevin J. Yeaman: Thank you Peter and I want to thank everybody for joining us on the call today.

Kevin J. Yeaman: Revenue for the quarter came in right about where we expected earnings came in better than we expected and our guidance for the full year remains unchanged.

Kevin J. Yeaman: Robert is going to share a few of the details with you for the second quarter and he's also going to speak to third quarter guidance in just a few minutes.

Robert J. Park: Today I'd like to cover three topics.

Kevin J. Yeaman: First I'm going to make some comments on the macro environment second I'll share some insights into our business and third I'll wrap up my portion of the call with some brief closing thoughts. So let me start with the macro we haven't noticed any big changes, but it does remain a tough environment for many of our OEM partners. Following strong growth in fiscal 'twenty, one on the strength of pandemic purchasing.

Kevin J. Yeaman: Device sales have been down each year, and the resulting declines in foundational revenue have overshadowed strong growth in Dolby Atmos, Dolby vision and our imaging patents.

Kevin J. Yeaman: This dynamic is that when device sales recover and we do expect device sales to recover it will have a noticeable positive impact on revenue and margins.

Kevin J. Yeaman: Our foundational technologies make up about two thirds of our highly profitable licensing revenue at about 60% of our total revenue.

Peter Goldmacher: The macros and having the same impact on Dolby Atmos and Dolby vision, because growth is coming from getting our technology on more devices, which we are doing especially in areas like auto sales cycles haven't changed noticeably engagement remains very strong and the amount of content continues to grow and that's especially true in sports this quarter.

Peter Goldmacher: So even if the general economic environment remains somewhat underwhelming, we remain optimistic about our prospects over time.

Peter Goldmacher: We continue to target foundation older returned to low single digit growth in Dolby Atmos, Dolby vision and imaging patents to grow at a three to five year CAGR of between 15 and 25%.

Peter Goldmacher: So let me turn to some comments on Dolby Atmos and Dolby vision were the three most powerful growth drivers, our mobile Tvs and auto.

Peter Goldmacher: I'll give you a brief update on each of these opportunities.

Peter Goldmacher: Starting with mobile we have a compelling value proposition with Dolby Atmos and Dolby vision for our mobile device providers and most of these providers are already users of our foundational technologies.

Peter Goldmacher: We see a meaningful and durable opportunity to continue to expand our relationships to include value added offerings, such as Dolby Atmos, Dolby vision and Dolby vision capture.

Peter Goldmacher: And then second quarter, we announced a number of partnerships <unk> introduced five new phones with Dolby vision capture Xiaomi announced new models with Dolby Atmos and Dolby vision.

Peter Goldmacher: And are also announce new models with Dolby vision.

Peter Goldmacher: As it relates to the affordable end of the market, we had some nice wins lava mobile in India in Chinese phone maker transient both introduced more affordable phones with Dolby Atmos. So let me turn to Tvs. We are very excited about Max's announcement that it will be streaming all of its live sports in Dolby Atmos and Dolby vision in the U S. This.

Peter Goldmacher: Is good for TV and sound bar adoption.

Peter Goldmacher: And the same way that streaming movies in Dolby Atmos, and Dolby vision catalyzed device sales like Tvs and sound bars from viewers looking for the most immersive movie experience, we think streaming sports in Dolby Atmos and Dolby vision will have a similar impact Mac is the first stream or to offer all of their lives sports content, including baseball hockey and basketball and <unk>.

Peter Goldmacher: Dolby Atmos and Dolby vision and their introduction has led to interest for high quality sports content from other partners and our sports content isn't limited to the U S. The Indian Premier League will be broadcasting cricket in Dolby Atmos and Dolby vision for the first time this year.

Peter Goldmacher: And there is an ever growing slate of global sports content in Dolby, Atmos, and Dolby vision, including tennis rugby and soccer.

Peter Goldmacher: The more high quality content, that's available in the market the higher the likelihood that consumers will want to purchase devices that can deliver the best experience.

Peter Goldmacher: We are particularly excited about the Olympics and the European Championship Soccer this summer.

Peter Goldmacher: Also new partner Hyundai is shipping the Genesis initially in Korea with Dolby Atmos.

Peter Goldmacher: We're also seeing momentum in revenue growth from existing partners. Both in terms of the aggregate growth from current models and also an increase in new models, especially from partners like Mercedes Neo and lucid.

Peter Goldmacher: So before I move onto my closing thoughts I want to say that I'm proud of all the hard work and success as our teams are having driving content growth innovating on the product front. These efforts are the backbone of our business and ensure that our partners continue to value and grow their relationship with us.

Peter Goldmacher: Looking forward Foundation remains solid despite persistent softness in device sales.

Peter Goldmacher: An improvement in the macro and I returned to device sales growth will have a meaningful positive impact on our revenue and margins.

Peter Goldmacher: In Dolby Atmos, and Dolby vision ongoing progress with our content and streaming partners are creating an ever growing groundswell of support for our three main focus areas Tvs mobile and automotive.

Peter Goldmacher: We continue to expect to deliver margin growth ahead of revenue growth our balance sheet is strong and I remain confident about our long term prospects.

Peter Goldmacher: And so with that I'll turn it over to Robert who will take you through the financials in a bit more detail. Thanks.

Robert J. Park: Thanks, Kevin and thanks to everyone joining us on the call today before we review the quarter in some detail I'd like to hit the highlights.

Robert J. Park: First revenues for Q2 were just above the midpoint of the range. We laid out in the Q1 earnings call and profitability also came in above the midpoint of the range.

Robert J. Park: Second while the environment remains uncertain and dynamic our guidance for the year remains unchanged and third as I have said before we feel good about our long term growth prospects our value proposition remains strong and our financials are solid.

Robert J. Park: Q2 revenue was $365 million down, 3% compared to the year ago quarter, but above the midpoint of guidance. We shared with you on the last earnings call licensing revenue of $338 million was down 4% year over year products and services revenue was $26 million up 8% year over year.

Robert J. Park: Our end market outlook for the full year is unchanged from last quarter's call.

Robert J. Park: Detailed licensing performance by end market as on our IR website.

Robert J. Park: But I'd like to point out some noteworthy details.

Robert J. Park: As a reminder, timing of recoveries the minimum volume commitments and true ups can drive volatility between quarters mobile is the biggest standout in the quarter growing 151% sequentially, primarily due to timing and although we saw a nice snapback from mobile in the quarter, we still expect mobile to be down slightly for the full year.

Peter Goldmacher: Similarly, you may notice that broadcast is down 18% year over year. This quarter. This again is just about timing.

Peter Goldmacher: As we have said before we expect broadcast to be down slightly for the full year.

Peter Goldmacher: So thats.

Speaker Change: Is there or what would what would be the reason behind that and what should we expect over the next couple of quarters.