Q2 2025 Dolby Laboratories Inc Earnings Call

Yeah.

Operator: Ladies and gentlemen, thank you for standing by.

Speaker Change: Ladies and gentlemen, thank you for standing by welcome to the Dolby Laboratories Conference call discussing second quarter fiscal year 2025 results.

Operator: Welcome to the Dolby Laboratories conference call discussing second quarter fiscal year 2025. 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 withdraw your question, again, press star.

Speaker Change: 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.

Speaker Change: 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'd like to withdraw your question again press Star one.

Operator: As a reminder, this call is being recorded Thursday, May 1st, 2020.

Speaker Change: As a reminder, this call is being recorded Thursday may 1st 2025.

Peter Goldmacher: I would now like to turn the call over to Mr. Peter Goldmacher, Vice President of Investor Relations.

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

Peter Goldmacher: Peter, please go ahead. Good afternoon. Welcome to Dolby Laboratory's second quarter 2025 earnings conference call. Joining me today are Kevin Yeaman, Dolby Laboratory CEO, and Robert Park, our CFO. As a reminder, today's discussion will include forward-looking statements, including our fiscal 2025 third 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 macroeconomic events, supply chain issues, tariffs, and other trade barriers, inflation rates, changes in consumer spending, and geopolitical instability on our business.

Peter Goldmacher: Good afternoon, welcome to Dolby Laboratories' second quarter 2025 earnings Conference call. Joining me today are Kevin Yeaman, Dolby Laboratories', CEO and Robert Park, our CFO as a reminder, today's discussion will include forward looking statements, including our fiscal 2025 third quarter and full year outlook.

Peter Goldmacher: 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 tariffs and other trade barriers inflation rates changes in consumer spending.

Peter Goldmacher: N geopolitical instability on our business a discussion of these and additional risks and uncertainties can be found in our 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: 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 factor section of our most recent quarterly report on Form 10-Q. Dolby assumes no obligation and does not intend to update any forward-looking statements made during this call as a result of new information or future events.

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 and a reconciliation between GAAP and non-GAAP financial measures is available in our earnings press release and in the interactive Analyst Center on the <unk>.

Peter Goldmacher: During today's call, we will discuss non-GAAP financial measures, and 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.

Peter Goldmacher: Investor Relations section of our website with that I'd like to turn the call over to Kevin Thanks, Peter and thanks to everyone for joining us on our second quarter FY 'twenty five earnings call in the second quarter, both licensing revenue and total revenue came in at the midpoint of the range of guidance. We provided on our last earnings call and non-GAAP earnings for the quarter came in at the high.

Kevin Yeaman: With that, I'd like to turn the call over to Kevin. Thanks, Peter, and thanks to everyone for joining us on our second quarter FY25 earnings call. In the second quarter, both licensing revenue and total revenue came in at the midpoint of the range of guidance we provided on our last earnings call, and non-GAAP earnings for the quarter came in at the high end of the range. As we approached the end of the quarter, all indications were that we were on track to be at or above the midpoint of our revenue guidance for the full year.

Peter Goldmacher: End of the range.

Peter Goldmacher: As we approached the end of the quarter. All indications were that we were on track to be at or above the midpoint of our revenue guidance for the full year.

Kevin Yeaman: As we speak today, there is, of course, a significant amount of uncertainty in the macroeconomic environment. We don't have the degree of visibility that we normally have as we develop our outlook for the remainder of the year.

Peter Goldmacher: As we speak today, there is of course, a significant amount of uncertainty in the macroeconomic environment.

Peter Goldmacher: We don't have the degree of visibility that we normally have as we develop our outlook for the remainder of the year.

Kevin Yeaman: Given the variability and potential outcomes, we are rising our revenue range from $1.33 billion to $1.39 billion, to a range of $1.31 billion to $1.38 billion for the year. Our current assessment, based on limited data points, is that we are likely to experience slight headwinds as a result of the macroeconomic environment. This could change quickly, and there are a broad range of scenarios based on how things evolve going forward. On the one hand, if we see progress in trade deals and increasing clarity in the macro environment, we could be at the mid to high end of this range.

Peter Goldmacher: Given the variability and potential outcomes, we are raising our revenue range from 1.33 billion to $1 39 billion.

Peter Goldmacher: A range of $1 three 1 billion to 138 billion for the year.

Peter Goldmacher: Our current assessment based on limited data points is that we are likely to experience slight headwinds as a result of the macroeconomic environment.

Peter Goldmacher: This could change quickly and there are a broad range of scenarios based on how things evolve going forward on the one hand, if we see progress in trade deals and increasing clarity on the macro environment, we could be at the mid to high end of this range.

Kevin Yeaman: On the other hand, if lack of certainty drags on or even escalates further, that would point to the mid to low end of our range.

Peter Goldmacher: On the other hand, if lack of certainty drags on or even escalate further that would point to the mid to low end of our range.

Kevin Yeaman: We are monitoring the situation closely, and Robert will walk you through the details on these numbers in a few minutes. In the meantime, we are staying focused on the things that drive growth in the long term. We continue to have strong engagement across our broad ecosystem of content creators, distributors, and OEM partners, and we are performing well on the partnerships that drive growth by bringing more Dolby experiences to more people around the world.

Peter Goldmacher: We are monitoring the situation closely and Robert will walk you through the details on these numbers in a few minutes in the meantime, we are staying focused on the things that drive growth in the long term.

Peter Goldmacher: We continue to have strong engagement across our broad ecosystem of content creators distributors and OEM partners and we are performing well and the partnerships that drive growth by bringing more dolby experiences to more people around the world.

Kevin Yeaman: I'd like to spend a few minutes on some highlights in the quarter, starting with automotive. We continue to see high demand for raising the bar on the quality of the in-car entertainment experience. This quarter, Porsche announced that Dolby Atmos will be available in the 2026 Taycan, Panamera, Cayenne, and 911 models. And Cadillac announced that it will include Dolby Atmos throughout its entire 2026 lineup of EVs. Also, Volvo, Xiaomi, and Hyundai all announced new models coming to market. Additionally, two more auto manufacturers, NIO and Zeker, have decided to deploy Dolby Vision for a total of three brands and nine car models offering Dolby Atmos and Dolby Vision.

Peter Goldmacher: I'd like to spend a few minutes on some highlights in the quarter, starting with automotive we continue to see high demand for raising the bar on the quality of the in car Entertainment experience this quarter Porsche announced that Dolby Atmos will be available in the 2026, Ty can panamera Cayenne, and 911 models and Cadillac announced that it will.

Peter Goldmacher: Dolby Atmos throughout its entire 2026 lineup of Evs.

Peter Goldmacher: Also Volvo Xiaomi and Hyundai all announce new models coming to market. Additionally, two more auto manufacturers Neo and Zika have decided to deploy Dolby vision for a total of three brands in nine car models offering Dolby Atmos and Dolby vision.

Kevin Yeaman: Automotive is an increasingly important part of our business, and the momentum continues to build.

Peter Goldmacher: Automotive is an increasingly important part of our business and the momentum continues to build.

Kevin Yeaman: In mobile, we are focusing on bringing the Dolby Atmos and Dolby Vision experience to all the ways that consumers enjoy content on their smartphones. User-generated content, primarily on social media and short-form video platforms, represent an important opportunity for us to drive further adoption of Dolby Vision into the mobile phone market. Apple has supported Dolby Vision and Dolby Vision Capture across its iPhone lineup for a while, and we continue to make progress in expanding Dolby Vision into the Android device ecosystem. In China, where we already have strong adoption across social media and video sharing services, we added two new partners.

Peter Goldmacher: In mobile we are focusing on bringing the Dolby Atmos and Dolby vision experience to all the ways that consumers enjoy content on their smartphones user generated content, primarily on social media and short form video platforms represent an important opportunity for us to drive further adoption of Dolby vision into the mobile phone market.

Peter Goldmacher: Apple has the board of Dolby vision, and Dolby vision capture across its iPhone lineup for a while and we continue to make progress in expanding Dolby vision into the Android device ecosystem in China, where we already have strong adoption across social media and video sharing services. We added two new partners Shao Zhu.

Kevin Yeaman: Xiaohong Xu, also known as RedNote, is a Chinese social media platform and an e-commerce marketplace primarily focused on lifestyle, beauty, fashion, and travel. And Guaishou is a popular Chinese social media platform specializing in short-form video content similar to TikTok. We are also seeing increased support across popular video editing apps, reflecting increased interest in Dolby Vision for user-generated content. Filmora has announced plans to support Dolby Vision, and CapCut, which currently supports Dolby Vision for iOS, is expanding its support to include Android. This ecosystem support is an important part of the virtuous cycle that drives OEMs to adopt Dolby Vision deeper into their device lineups.

Peter Goldmacher: Also known as Red note is the Chinese social media platform and an e-commerce marketplace, primarily focused on lifestyle beauty fashion and travel and quite show is a popular Chinese social media platform specializing in short form video content similar to tick tock.

Peter Goldmacher: We are also seeing increased support across popular video editing apps, reflecting increased interest in Dolby vision for user generated content.

Peter Goldmacher: El Morro has announced plans to support Dolby vision and cap cut which currently supports Dolby vision for I O. S is expanding its support to include Android. This ecosystem support is an important part of the virtuous cycle that drives Oems to adopt Dolby vision deeper into their device lineups earlier this year <unk> launched its first Android.

Kevin Yeaman: Earlier this year, Oppo launched its first Android device with Dolby Vision Capture as the default mode, and about a month ago, added three more phones and a tablet with Dolby Vision Capture and Playback. Realme and Xiaomi also launched new models that support Dolby Vision.

Peter Goldmacher: With Dolby vision capture as the default node in about a month ago added three more phones and tablet with Dolby vision capture and playback.

Peter Goldmacher: Real me and Xiaomi also launch new models that support Dolby vision.

Kevin Yeaman: We are focused on working with these partners to expand Dolby Vision deeper into their lineups and on expanding our presence with global social media and video sharing platforms. Moving on to the living room and the TV ecosystem, we continue to focus on bringing Dolby to more content and more devices. This past quarter, both the Super Bowl and March Madness were available in Dolby Atmos and Dolby Vision, continuing our momentum in sports. Waipu TV, the market leader in IPTV in Germany, announced support for Dolby Atmos and Dolby Vision. And TOD, the leading streaming platform for sports and entertainment in the Middle East and North Africa, launched a 4K set-top box with Dolby Atmos and Dolby Vision.

Peter Goldmacher: We are focused on working with these partners to expand Dolby vision deeper into their lineups and on expanding our presence with global social media and video sharing platforms.

Peter Goldmacher: Moving on to the living room, and the TV ecosystem, we continue to focus on bringing Dolby to more content and more devices. This past quarter, both the Super Bowl and March Madness were available in Dolby Atmos, and Dolby vision, continuing our momentum in sports.

Peter Goldmacher: [noise] Ypu T V. The market leader in I P. T V in Germany announced support for Dolby, Atmos, and Dolby vision and T O D. The leading streaming platform for sports and entertainment in the Middle East and North Africa launched a four K set top box with Dolby Atmos and Dolby vision.

Kevin Yeaman: More content in Dolby gives consumers a reason to upgrade their TVs and more reasons for OEMs to adopt Dolby further into their lineups. This quarter in the UK, Sky released the popular SkyGlass Gen2 TV with Dolby Vision and a Dolby Atmos soundbar built into the TV. Also, LG, Sharp and Hisense all announced new TV models with Dolby Vision.

Peter Goldmacher: More content in Dolby gives consumers a reason to upgrade their Tvs and more reasons for Oems to adopt Dolby further into their lineups. This quarter in the U K Sky released the popular Sky glass Gen. Two television with Dolby vision, and a Dolby Atmos sound bar built into the T V.

Peter Goldmacher: Also LG sharp and high says all announced new TV models with Dolby vision.

Kevin Yeaman: And a quick update on cinema. Filmmakers, studios, and moviegoers all value a premium movie experience, and exhibitors are focusing their investment dollars on rolling out more high-end theaters, which are garnering a higher share of the box office.

Peter Goldmacher: And a quick update on cinema filmmakers studios and moviegoers all value of premium movie experience and exhibitors are focusing their investment dollars on rolling out more high end theaters, which are garnering a higher share of the box office.

Kevin Yeaman: At CinemaCon, we announced that AMC and Dolby will add an additional 40 Dolby Cinemas at AMC locations in the United States through the end of 2027. We've also announced that we'll be adding Dolby Vision and Dolby Atmos to theaters in India this year, beginning with six exhibitors in major cities, and we also added a handful of new Dolby Atmos and Dolby Vision theaters in South Korea.

Peter Goldmacher: Cinema Con, we announced at AMC in Dolby will add an additional 40 Dolby cinemas at AMC locations in the United States through the end of 2027.

Peter Goldmacher: We've also announced that we will be adding Dolby vision and Dolby Atmos to theaters in India. This year, beginning with six exhibitors in major cities and we also added a handful of new Dolby Atmos and Dolby vision theaters in South Korea.

Kevin Yeaman: Stepping back, while there's uncertainty in the economic environment, we had a strong quarter and we had great wins across our main focus areas. We are well prepared to operate across a wide range of scenarios, and we are in a solid financial position. We continue to have strong engagement from content creators, distributors, and our OEM partners across our ecosystems, and we will remain focused on the things that we can control and that drive long-term growth.

Peter Goldmacher: Stepping back while there's uncertainty in the economic environment, we had a strong quarter and we had great wins across our main focus areas.

Peter Goldmacher: We are well prepared to operate across a wide range of scenarios and we are in a solid financial position. We continue to have strong engagement from content creators distributors and our OEM partners across our ecosystems and we will remain focused on the things that we can control and that drive long term growth with that I'd like to turn the call over to Robert to discuss the financials in more <unk>.

Robert Park: With that, I'd like to turn the call over to Robert to discuss the financials in more detail. Thanks, Kevin, and good afternoon to everyone on the call. Before we get into the details, I'd like to point out three important takeaways. First, Q2 revenue came in at the midpoint of the range, and earnings came in at the high end of the range we communicated last quarter. Second, we are adjusting the full-year revenue range to reflect the current environment, and I'll give you some color on that. And third, Dolby is a durable business. We have strong financial fundamentals, and we've successfully navigated difficult times before.

Peter Goldmacher: Dale.

Robert Park: Thanks, Kevin and good afternoon to everyone on the call.

Robert Park: Before we get into the details I'd like to point out three important takeaways first Q2 revenue came in at the midpoint of the range and earnings came in at the high end of the range, we communicated last quarter.

Robert Park: Second we are adjusting the full year revenue range to reflect the current environment and I'll give you some color on that and.

Robert Park: And third Dolby is a durable business, we have strong financial fundamentals and we've successfully navigated difficult times before.

Robert Park: With that as a backdrop, let's get into the details. Q2 revenue was $370 million, in line with the Midpointed Guidance, and up 1% year-over-year. And licensed revenue of $346 million was up 2% year-over-year. Products and services revenue was $24 million, slightly below the Midpointed Guidance, and down 10% year-over-year. Detailed licensing performance by NMarket is on our IR website. And as a reminder, timing of recoveries, minimum volume commitments, and true-ups can drive volatility between quarters. In Q2, these timing factors contributed to an 11% decline in broadcast, and a 17% increase in PC revenue on a year-over-year basis.

Robert Park: With that as a backdrop, let's get into the details.

Robert Park: Q2 revenue was $370 million in line with the midpoint of guidance and up 1% year over year and license revenue of $346 million was up 2% year over year.

Robert Park: Products and services revenue was $24 million slightly below the midpoint of guidance and down 10% year over year.

Robert Park: Detailed licensing performance by end market as on our IR website, and as a reminder, timing of recoveries minimum volume commitments and true ups can drive volatility between quarters and Q2. These timing factors contributed to an 11% decline in broadcast and a 17% increase in PT revenue on a year over year basis.

Robert Park: For the full year, we still expect strong growth in mobile and other markets, broadcast and PC to be flattish, and CE to be down mid-single digit.

Robert Park: For the full year, we still expect strong growth in mobile and other markets broadcast and PC to be flattish and see it to be down mid single digits.

Robert Park: Moving on to the bottom line. In Q2, we earned $1.34 per diluted share on a non-gap basis, up 5% year-over-year, and at the high end of our guidance, largely due to some OPEX spend that was pushed out to the second half. We generated $175 million in operating cash flow and finished the quarter with $701 million in cash and investments. We repurchased $35 million worth of common stock and have about $352 million remaining on our repurchase plan authorization. We declared a $0.33 dividend, up 10% from our dividend a year ago.

Robert Park: Moving on to the bottom line.

Robert Park: In Q2, we earned $1.34 per diluted share on a non-GAAP basis up 5% year over year and at the high end of our guidance largely due to some opex spend that was pushed out to the second half.

Robert Park: We generated $175 million in operating cash flow and finished the quarter with $701 million in cash and investments, we repurchased $35 million worth of common stock and have about $352 million remaining on our repurchase plan authorization, we declared a <unk> 33 cents dividend up 10% from our dividend a year ago now.

Robert Park: Now, I'd like to turn my comments to how we're thinking about Q3 and the full year. To reiterate some of the important context Kevin shared with you in his opening comments, the lack of visibility brought about by the current economic situation has limited our ability to forecast the business with the degree of precision we are used to. There are a wider range of scenarios in front of us than there usually are at this point in the year. So, we have adjusted our revenue outlook to reflect this. Let me walk you through this in a little more detail.

Speaker Change: I'd like to turn my comments to how we're thinking about Q3 and the full year to reiterate some of the important context, Kevin shared with you in his opening comments the lack of visibility brought about by the current economic situation has limited our ability to forecast the business with the degree of precision we are used to.

Speaker Change: There are a wider range of scenarios in front of us than they are usually are at this point in the year. So we have adjusted our revenue outlook to reflect this let me walk you through this in a little more detail.

Robert Park: The outlook for consumer spending on devices is a key factor in our forecast. It is difficult to make general statements about the impact of any broad-based weakness in the economy on our overall business, or how the uncertainty will affect consumer spending on devices for the remainder of the year. Even if we make high-level assumptions about potential impacts of the macroenvironment on device shipments, the details matter. For example, which types of devices are most impacted? Which Dolby technologies are on these devices? And are high-end or low-end devices being disproportionately affected? These are just some of the many factors that could impact our revenue.

Speaker Change: The outlook for consumer spending on devices as a key factor in our forecast.

Speaker Change: It is difficult to make general statements about the impact of any broad based weakness in the economy on our overall business or how the uncertainty will affect consumer spending on devices for the remainder of the year, even if we make high level assumptions about potential impacts of the macro environment in device shipments. The details matter for example, which types of devices are most impacted with.

Speaker Change: Dolby technologies, there on these devices and our high end or low end devices being disproportionately affected.

Speaker Change: These are just some of the many factors that could impact our revenue.

Robert Park: With that in mind, and to help you think about potential scenarios for the second half of the year, we estimate that if there were a 5% change in overall device shipments for the remainder of the year, it could have an approximate impact on our revenue of roughly 2% to 4%, or $15 million to $25 million for the remainder of this year. As a reminder, most of our licensing revenue is based on unit shipments. In general, we estimate revenues from unit shipments each quarter, and true it up the following quarter based on actual reported shipments from our partners.

Speaker Change: With that in mind and help you think about potential scenarios for the second half of the year.

Speaker Change: We estimate that if there were a 5% change in overall device shipments for the remainder of the year. It could have an approximate impact on our revenue of roughly 2% to 4% or 15 million to 25 million for the remainder of this year.

Speaker Change: As a reminder, most of our license revenue is based on unit shipments in general we estimate revenues from unit shipments each quarter and true it up the following quarter based on actual reported shipments from our partners. Our roles. He reporting is generally about one quarter in arrears because device shipment data is not real time.

Robert Park: Our royalty reporting is generally about one quarter in arrears because device shipment data is not real-time.

Robert Park: I would also like to share a few more endpoint-specific factors to keep in mind as the macroeconomic situation evolves. Mobile tends to have a higher concentration of minimum volume commitments, so it is less sensitive to near-term changes in device shipments relative to, say, broadcast, PC, or CEN markets. We are still in early days in the opportunity for auto and currently the majority of our auto revenue is from non-U.S. OEMs shipping to non-U.S. markets.

Speaker Change: I would also like to share a few more endpoints specific factors to keep in mind at the macroeconomic situation evolves.

Speaker Change: Mobile tends to have a higher concentration of minimum volume commitments. So it is less sensitive to near term changes in device shipments relative to say broadcasts P C or C E end markets we.

Speaker Change: We are still in early days and the opportunity for auto and currently the majority of our auto revenue is from non U S. Oems shipping to non U S markets.

Robert Park: The last point I'd like to make is that as you think about the impact of U.S. trade deals, we estimate that approximately 25% of our licensing revenues from consumer device shipments are from those sold into the U.S. These are some of the things to keep in mind as the environment continues to evolve.

Speaker Change: The last point I'd like to make is that as you think about the impact of U S. Trade deals, we estimate that approximately 25% of our licensing revenues from consumer device shipments are from those sold into the U S.

Speaker Change: These are some of the things to keep in mind as environment continues to evolve.

Robert Park: Now moving on to our outlook for Q3 in the full year. Our outlook for Q3 is for revenue to be between $290 million and $320 million. Within that, licensing revenue ranges from $265 million to $295 million. Gross margins are expected to be approximately 88% on an on-gap basis. Our outlook for non-GAAP operating expenses is between $190 million and $200 million. And with our effective tax rate for Q2 at about 20.5% on a non-GAAP basis, non-GAAP EPS is expected to come in between $0.62 and $0.77 per diluted share.

Speaker Change: Now moving onto our outlook for Q3 and the full year.

Speaker Change: Our outlook for Q3 is for revenue to be between $290 million and 320 million.

Speaker Change: Within that licensing revenue ranges from 265 million to $295 million.

Speaker Change: Gross margins are expected to be approximately 88% on a non-GAAP basis.

Speaker Change: Our outlook for non-GAAP operating expenses between $190 million and $200 million.

Speaker Change: And with our effective tax rate for Q2 at about 25% on a non-GAAP basis non-GAAP EPS is expected to come in between 62 cents and 77 cents per diluted share.

Robert Park: For the full year, we have widened and lowered the range of revenue to be between $1.31 billion and $1.38 billion. Our outlook for licensing revenue is to be between $1.21 billion and $1.28 billion. We see non-GAAP operating expenses between $760 million and $775 million, and non-GAAP earnings per share to be between $3.88 and $4.03.

Speaker Change: For the full year, we have widen and lowered the range of revenue to be between 1.31 billion and 1.38 billion.

Our outlook for licensing revenue is to be between $1, two 1 billion and 1.28 billion we.

Speaker Change: We see non-GAAP operating expenses between $760 million, and 775 million and non-GAAP earnings per share to be between $3 88 and.

Speaker Change: And $4 three.

Robert Park: In closing, I'd like to remind you that Dolby has successfully navigated many technological and economic cycles. We have a resilient business model with a diversified global revenue base, deep partner relationships, high gross margins, and a healthy balance sheet. We are well positioned to manage the business, and we will continue to focus on things that put us on a path of long-term growth.

Speaker Change: In closing I'd like to remind you that Dolby has successfully navigated many technological and economic cycles, we have a resilient business model with a diversified global revenue base deep partner relationships high gross margins and a healthy balance sheet, we are well positioned to manage the business and we will continue to focus on things that put us on a path of long term growth.

Operator: With that, I'd like to turn it back to the operator to open the line for your questions.

Speaker Change: With that I'd like to turn it back to the operator to open the line for your questions.

Operator: Operator. Thank you. As a reminder, to ask a question, please press star followed by the number one on your telephone keypad.

Speaker Change: Operator.

Speaker Change: Okay.

Speaker Change: Thank you as a reminder to ask a question. Please press star followed the number one on your telephone keypad.

Ralph Schackart: Your first question comes from the line of Ralph Schackart with William Blair. Your line is open. Good afternoon, and thanks for the extra color on the call today as it relates to the outlook. Just maybe first, you know, as you're talking to your OEM partners, Just curious, you know, those that may be in less, I guess, lower tariff regions. I guess what's sort of the ability for them to increase capacity, you know, if that should play out? That's the first question. Then I'll go to you.

Speaker Change: Your first question comes from the line of Ralph <unk> with William Blair. Your line is opened.

Ralph: Good afternoon, and thanks for the extra color.

Ralph: On the call today as it relates to the outlook just maybe first you know as you're talking to your OEM partners. Just curious does that may be in.

Ralph: I guess lower tariff regions.

Ralph: Guess, what sort of the ability for them to increase capacity.

Ralph: If that should play out that's the first question that in a.

Ralph: Secondly.

Ralph: Yeah.

Kevin Yeaman: Yeah, so, thanks, Ralph. Of course, it varies by end market. One data point I would share on that note is the location of manufacture for TVs. Mexico is the largest location of manufacture, generally exempt, under the exempt from tariff status. It's about 10 percent in China. Across the rest of our portfolio, it really varies by OEM. So, you know, I think ultimately, as Robert said, you know, when we model our forecasts about how many devices are going to ship and, you know, it's happening in real time, people deciding whether to increase prices because of any tariffs, whether it's going to affect consumer spending, whether they're adjusting supply chains.

Ralph: Yes, so thanks Ralph.

Ralph: Of course, it varies by end market.

Ralph: One data point I would share on that node is the the location of manufacture for Tvs, Mexico is the largest location manufacturer generally exempt under the exempt from tariff status to at 10% in China across the rest of our portfolio it really varies by OEM.

Ralph: So I think ultimately as Robert said.

Ralph: When we model our forecast is about how many devices are going to ship in.

Ralph: It is happening in real time people deciding.

Ralph: Whether to increase prices because of those because of any tariffs, whether it's going to affect consumer spending whether they're adjusting supply chains.

Kevin Yeaman: But at this point, especially given that mobile is less sensitive to unit shipments, as Robert said, in the short term, TVs are mostly in Mexico. From where we sit today, we think it's likely that we'll experience some slight headwinds, but that could change quickly depending on how it evolves from here. Great.

Ralph: But at this point.

Robert Park: Especially given that mobile is less sensitive to unit shipments as Robert said in the short term Tvs are mostly in Mexico.

Robert Park: From where we sit today, we think it's likely that we'll experience some slight headwinds, but that can change quickly depending on how it evolves from here.

Ralph Schackart: Robert, I missed this in the prepared remarks. Maybe you could just clarify, you talked about 25% of the units sold in the US. Was that in reference to the total volume of products that Dolby Reports' revenue. Maybe can you just kind of clarify that please?

Speaker Change: Great and Robert I missed this in the prepared remarks, maybe you just clarify you had talked about 25% of the units sold in the U S or was that in reference to the total volume of our products that.

Speaker Change: That Dolby reports as Ravi and maybe you can just kind of clarify that please thanks.

Robert Park: Yeah, hey, hi, Ralph. So while our ship-to and ship-from data is limited, we estimate that approximately 25% of our licensing revenue from consumer device shipments are from those sold into the U.S. and a large portion of that is, yeah. So for all our licensing revenue, about 25% is related to purchases in the U.S., consumer devices. Okay, that's helpful.

Speaker Change: Yeah, Hey, Hi, Ralph M. So while our ship to ship.

Speaker Change: Chip from data is limited we estimate that approximately 25% of our licensing revenue from consumer device shipments are from those sold into the U S and a large portion of that is yes.

Speaker Change: Okay.

Speaker Change: All of our licensing revenue 25 about 25% is related to purchases in the U S consumer devices in the U S.

Kevin Yeaman: That kind of just maybe last one, maybe a little bit bigger picture. You know, I've been getting good traction with Vision and Atmos, you know, as it relates to some of the economic noise that's going on right now. Has that solved any conversations there? I guess, maybe lost momentum. I'm just kind of curious, you know, the momentum you're seeing on those two growth products. No, we continue to have really strong engagement with partners across the ecosystem. You know, I talked about some of those today, you know, automotive in particular, where we continue to see people leaning into really investing in the in-car entertainment experience.

Speaker Change: Okay. That's helpful that Kevin just maybe a last one maybe a little bit bigger picture, obviously, we're getting good traction with.

Speaker Change: Vision and Atmos.

Speaker Change: As it relates to some of the economic noise, that's going on right now is that.

Speaker Change: Salt any conversations there I guess, maybe last one that I am just kind of curious you know the momentum you're seeing in those two products.

Speaker Change: No. We continue to have really strong engagement with partners across the ecosystem.

Speaker Change: You know I talked about some of those today you know automotive in particular, where we continue to see people leaning into really investing in the in car entertainment experience.

Ralph Schackart: Dolby Atmos Music is leading the way, you saw us announce Porsche has announced plans to launch four of its models with Dolby Atmos. Cadillac announced its plans to expand into the entirety of its EV lineup for 2026. And we also are now up to three Dolby Vision customers, so we're excited to move from Dolby Atmos Music in the car and expanding that into the entire audiovisual experience. That's helpful. Thanks, Kevin. Thanks, Robert.

Dolby Atmos music is leading the way you saw us announce a Porsche has announced plans to launch four of its models with Dolby Atmos Cadillac announced its plans to expand into the entirety of its EV lineup for 2026.

Speaker Change: And we also earn out to three Dolby vision customers. So we're excited to move from Dolby.

Speaker Change: Dolby Atmos music in the car and expanding that into the entire audio visual experience.

Speaker Change: That's helpful. Thanks, Kevin Thanks, Robert.

Steven Frankel: Our next question comes from the line of Steven Frankel with Rosenblatt. Your line is open. Good afternoon, and yes, thank you for the extra. Insight.

Speaker Change: Our next question comes from the line of Steven Frankel with Rosenblatt. Your line is opened.

Speaker Change: Good afternoon, and thank you for the for the extra insight.

Robert Park: In terms of the overall environment, to what extent if you see the environment continuing to deteriorate? Mike, you were just... OPEX for the back half of the year or is that expense level pretty much locked? Well, the first thing I would say, Steve, is, is given the uncertainty, we're going to stay focused on what we know to drive long term value. So we're not making any quick, we're not making any fast changes to our operating plans. On the other hand, you know, through periods of uncertainty, we've learned to make sure and be, you know, very attuned to whether there are any changes in the environment, which has any impact on any one of our individual growth opportunities to the upside or the downside.

Speaker Change: In terms of the overall environment to what extent, if you see the environment continuing to deteriorate might you adjust.

Speaker Change: Opex for the back half of the year or is that expense level pretty much locked in at this point.

Speaker Change: Well the first thing I would say Steve is is given the uncertainty we're going to stay focused on what we know to drive long term value. So we're not making any quick we're not making any changes to our operating plans.

Speaker Change: On the other hand, you know through periods of uncertainty we've learned to make sure and be very attuned to whether there are any changes in the environment, which has any impact on any one of our individual growth opportunities.

Robert Park: So we would make adjustments, we'll look to be quick to adjust to that if and when that happens. Right now we're, we're staying the course. And we're always, and I think you've seen us over the last couple of years, looking for opportunities to, you know, be as efficient as we can everywhere we can. and we continue to make great progress.

Speaker Change: To the upside or the downside. So we would make adjust we'll look to be quick to adjust to that if and when that happens right now where we're staying the course and we're always and I think you've seen us over the last couple of years looking for opportunities to be as efficient as we can everywhere we can.

Speaker Change: And we continue to make great progress in.

Kevin Yeaman: in the car with Atmos Music. What do you think it takes to get to the tipping point? Is it a... Is it hitting a particular car brand at a mainstream price point? Is it just... getting a couple more wins. What do you think the catalyst will be that will really tip this one? Well, look, I think we're doing we're really pleased with the momentum we have now. And and, you know, we continue every quarter to bring on new manufacturers. We see new and existing customers of ours expanding deeper into their lineups. They are, as you would expect from us, usually starting.

Speaker Change: Okay.

Speaker Change: In the car with Atmos music, what do you think it takes to get to the tipping point is it a is it hitting a particular car brand at a mainstream price point is it just.

Speaker Change: Getting a couple of more wins, what what do you think the catalyst will be that will really kick this market.

Speaker Change: Well look I think we're doing well.

Speaker Change: We're really pleased with the momentum we have now and and we continue every quarter to bring on new manufacturers, we see new and existing customers of ours expanding deeper into their lineups.

Speaker Change: They are as you would expect.

Speaker Change: For modest usually starting there starting at the higher end of their lineups and so we're also working with them and looking forward to when we start to get into high volume mainstream models. So that would be another big milestone, but in the meantime, we're very happy with the momentum.

Kevin Yeaman: They're starting at the higher ends of their lineups. And so, you know, we're also working with them and looking forward to when we start to get into high volume mainstream models. So that would be another big milestone. But in the meantime, we're very happy with the momentum.

Robert Park: And for Robert, what were TrueOps... TrueUps for Q2 is about a million. Pretty small jump back in the queue, but thanks.

Peter Goldmacher: Okay, great and for Robert tell what were true ups in the quarter.

Robert Park: Trups for Q2 is about a million.

Speaker Change: Pretty small jump back in the queue. Thank you.

Patrick Sholl: Our next question comes from the line of Patrick Sholl with Barrington. Hi, thanks, good afternoon. Another question on auto... Curious in terms of the type of vehicles that you're getting adoption from, Vision as well as Atmos. If that...

Speaker Change: Our next question comes from the line of Patrick Sholl with Barrington Research. Your line is opened.

Patrick Sholl: Hi, Thanks good.

Speaker Change: Good afternoon.

Speaker Change: Just another question on auto.

Speaker Change: Chris curious in terms of.

Speaker Change: The type of vehicles that you're getting adoption from vision as well as Atmos if thats.

Kevin Yeaman: more focused on eevee or a specific dash screen size or anything like that. And then, on products and services, I was wondering if you could detail any, like, tear-up exposure Yeah, so on automotive, our first three customers are Chinese EV manufacturers. We also, in the onset of Atmos, saw China move fast, and I think it's just a function of they move fast. And I think that we also are seeing concentration in EVs because those models are designed in a way which allows for faster implementations, and people are being aggressive about investing in the in-car entertainment experience.

Speaker Change: More focused on easy or like a specific dash screen size or anything like that and then on products and services. I was just wondering if you could detail any like tariff exposure on that side.

Speaker Change: Yeah, so on automotive.

Speaker Change: A R.

Speaker Change: Our first three customers or Chinese EV manufacturers. We also in the onset of Atmos I was trying to move fast and I think it's just a function of there they move fast and I think that we also are seeing concentration in evs because those models are designed in a way which allows for faster implementations and people are being aggressive.

Speaker Change: About investing in the in car entertainment experience. They also tend to have more screens.

Kevin Yeaman: They also tend to have more screens. But this is really, you know, there are some interesting stats about how much time people spend in their cars when the car isn't moving at all. And so, you know, for some, you know, some parts of the world or really anywhere in the world, whether you're kind of, you know, you're waiting to pick up somebody from somewhere or you have time in that car, then people are using their cars as moving entertainment centers and communication centers. So, I think overall, that's what's driving it. And it'll start with, you know, the ability to stream movies and shows and other types of content.

Speaker Change: But this is really.

Speaker Change: Yeah. There are some interesting stats about how much time people spend in their cars when the cars that moving at all and so for some some parts of the world or really anywhere in the world. If you whether youre kind of.

Speaker Change: You're waiting for to pick up somebody from somewhere you have timing of that car then people are using their cars as moving entertainment centers in.

Speaker Change: And communication centers. So so I think overall, that's what's driving it and it will start with the ability to stream movies and shows and other types of content.

Robert Park: On the second part of the question, do you want to take the impact reference? Yeah, yeah, hi. The question on impact on our products business, fairly small, the impact of the tariffs. Yeah, there are, we do manufacture our products overseas, but a large portion of those products are shipped to non-U.S. markets, and the impact on the tariff rates for those are pretty marginal. Okay, thank you.

Speaker Change: On the second part of the question do you want to take the impact yeah.

Speaker Change: Yeah, Yeah, Hi, the question on impact on our our products business.

Speaker Change: Fairly small the impact of the tariffs you yeah. There are we do manufacture our products overseas, but a large portion of those products are shipped to non U S markets.

Speaker Change: And the impact on the tariff rates for those are pretty marcela.

Speaker Change: Okay. Thank you.

Operator: There are no further questions at this time. Thanks, Operator. Thanks, everyone, for joining the call. We'll talk to you next quarter. Thank you for joining us. You may now dis-

Speaker Change: There are no further questions at this time I will hand things back over.

Speaker Change: <unk> Peter for closing remarks.

Peter Goldmacher: Thanks, operator, and thanks, everyone for joining the call we'll talk to you next quarter.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Thank you for joining US you may now disconnect.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].