Q3 2025 Dolby Laboratories Inc Earnings Call
Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories conference. Call discussing third quarter fiscal year 2025 results.
During the presentation, all participants will be in a listen-only mode.
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. A discussion of these and additional risks and uncertainties can be found in the earnings press release that we issued today under the section captioned "Forward-Looking Statements," as well as in the risk factors section of our most recent quarterly report on Form 10-Q.
Dolby assumes no obligation and does not intend to update. Any forward-looking statements made during this call as a result of new information or future events.
During today's call, we will discuss 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.
Thanks Peter. And thanks, everyone joining us for our third quarter of fiscal 25 earnings call.
Results for the third quarter. We're generally in line with our expectations, both licensing, revenue, and total revenue came in above the midpoint of the range of guidance. We provided on our second quarter earnings call and non-gaap earnings came in just a moment, the high end of the range
On our last earnings call. We talked about the macro environment and the related challenges to our visibility as we provided our outlook for the remainder of the year.
Robert will go through the details in a moment at a high level, the macro remains uncertain, our Outlook remains unchanged and we continue to monitor the environment while staying focused on the things that we can control.
I'd like to cover some of the highlights from the quarter before I turn the call over to Robert to discuss the financials.
We continue to see strong engagement with our ecosystem of content, creators, distributors, and device OEMs.
Starting with music over 90% of the Billboard 100 artists record in Dolby, Atmos.
We are also seeing momentum and back catalogs being remixed, and re-released in Dolby Atmos from bands, like the Rolling Stones, Phil Collins, The Grateful Dead, Fleetwood Mack, and the Doobie Brothers.
In Sports, FIFA Club World Cup. Soccer, the Stanley Cup finals, the French Open the Indian Premier League playoffs and finals and the world test cricket championship final where all available in Dolby.
HBO Max, which is streaming most of its sports in Dolby Atmos and Dolby Vision, is launching its streaming service in a dozen new countries this summer as the platform approaches availability in 100 markets.
In the cinema Mission Impossible. The final Reckoning, How to Train Your Dragon F1, the movie Jurassic world rebirth, Superman and the Fantastic 4, just to name. A few are all in Dolby, Atmos and Dolby Vision across music, Sports and movies. It's clear that the creative Community continues to embrace the value of content created with Dolby, Atmos and Dolby Vision. Moving on to end markets. Let's start with Automotive. Where we continue to enjoy strong momentum.
Last quarter, we talked about strong customer demand for oems to raise the bar, on the quality of Inc, car, entertainment and big wins with Porsche and the Cadillac EV lineup.
This quarter, we were excited to add Audi as a partner Dolby. Atmos is now available in the Q7, the Q8, the A8, and the Ron GT.
In India, the release of tata's new Harrier Eevee with Dolby Atmos was rail received in the market.
Additionally, Mahendra announced that the thar rocks will offer Dolby Atmos. We now have Partnerships with 2 of the top 3 Indian auto manufacturers, Tata and Mahindra in the third largest car market in the World, Behind China and the US.
To date. We have announced Dolby Atmos Partnerships with almost 30 oems
We believe the strong progress we've made over the last 3 years, is a testament to how well our offerings resonate with the direction. The Auto industry is going
In Mobile Motorola rolled out. Its first smartphone with Dolby Vision capture and xiaomi added 2, new phones with Dolby Atmos and Dolby vision.
Many of the most popular social media platforms in China support Dolby Vision.
Including Xiao Hong. XU also known as red note, qu show and Billy Billy.
We are seeing the increase adoption by Chinese phone oems. So that their customers can create and share high-quality user generated content, this quarter Oppo partnered with rednotebook,
our progress in China, demonstrates the value Dolby Vision brings to social media, enabling creators to make the best most engaging content possible. And we are focused on bringing this experience to the rest of the world.
Is from Partners including Samsung higher TCL Marshall JBL and LG. We also worked with longtime Partners Lenovo and Google to launch. The world's first Chromebook with Dolby Atmos.
So to wrap up, we had solid results for the quarter and we continue to see strong engagement with content creators content, Distributors and device manufacturers.
There continues to be increasing demand, for the most compelling and immersive, audiovisual content, and more ways than ever to experience that content.
The number of experiences in Dolby Atmos and Dolby Vision continues to grow across music Sports podcasts, user-generated content, movies and TV, in mobile devices TVs, PCS cars, and Sound Bars.
All of this gives us confidence in our ability to drive growth by bringing more Dolby experiences to more people around the world.
With that. I'd like to turn the call over to Robert. Thanks. Kevin and good afternoon to everyone on the call.
Before we review the quarter in some detail, I'd like to hit the highlights.
First.
Revenues for Q3 were above the midpoint of the range. We laid out in the Q2 earnings call and earnings came in just about the high end of the range.
Second, the macro environment remains uncertain and dynamic. That said, our guidance for the full year is generally in line with what we communicated last quarter, with revenues expected to be between $1.33 billion and $1.36 billion.
And earnings to be between 3.88 and 4.3 for the year.
Third.
We feel good about our long-term growth prospects. As we continue to make progress within market wins and strengthening our ecosystem.
Our value proposition, remains strong and our financials are solid.
Q3 Revenue was 316 million up 9% year-over-year and Licensing. Revenue of 290 million was also up 9% year-over-year.
And services revenue was $26 million, up 18% year-over-year.
Revenue came in at the high end of the guidance range due to activity. Expected in the fourth quarter, coming in early.
Detailed licensing performance by end market is on our IR website.
And as a reminder timing of recoveries minimum volume, commitments, and true-ups can drive volatility between quarters.
In Q3 these timing factors contributed to a 17% year-over-year. Growth in broadcast 11% year-over-year, decline in Mobile and 22% year-over-year growth in PC.
For the full year, we still expect broadcast growth to be flattish, immobile, and other end markets to grow mid-teens.
PC growth is expected to be up mid, single digits, and CE, which we had previously expected to be down mid. Single digits is now expected to be, download teens for the full year, mainly driven by lower devices, shipments and lower recoveries
Moving on to the bottom line, we are at $0.78 per diluted share on a non-GAAP basis, which is above the high end of our guidance due to higher revenue and lower operating expenses, partially offset by lower non-operating income.
We generated a 68 million in operating cash flow and finished the quarter with 777 million in cash and Investments.
We repurchased 40 million worth of common stock and have about 312 million remaining on our repurchase plan authorization.
We declared a 33 cents dividend up. 10% from our dividend a year ago.
Moving on to guidance, Q4 revenue is expected to be between $288 million and $318 million. Within that, licensing revenue ranges from $263 million to $293 million.
Gross margins are expected to be approximately 88% on a non-GAAP 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 21% on a non-gaap basis, non-gaap EPS is expected to come in between 61 cents, and 76 cents per diluted share.
For the full year, we expect revenues to be between $1.33 billion and $1.36 billion, and for licensing revenue to be between $1.23 billion and $1.26 billion.
We expect non-gaap operating expenses to be between 765 million and 7775 million, and non-gaap earnings per share to be between 3.88 and $4.33.
In closing the creation and distribution of Dolby enabled content continues to grow and our partners are still very engaged as we have a number of new and market wins this year.
Our financials remain solid, with high growth margins, healthy cash flows, and a strong balance sheet.
With that. I'd like to turn it back to the operator to open the line for your questions.
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Your first question comes from line of Patrick skal of Berrington research, your line is open,
Hi. Uh thanks for taking the question. Um, I was just curious on the broadcast side of with the uh I guess comment period open on like a transition to atsc 3.0. I was curious how you view.
That potential transition and acting like the adoption on uh Atmos and vision within broadcast and the range of devices.
Um, we don't anticipate any impact of that. I mean, um, our um, our our codecs are, are supported within the standards. Uh, typically the, um, uh, Technologies like Dolby Atmos sit on top of the codec. And that's really a value based sale to the to the customer and we continue to build on that ecosystem across music Sports, uh, me movies and TV increasingly, uh, other forms of content, um, across all device types, including the TV. So I wouldn't expect that to
Not not a top factor in our mind, as it relates to continuing, to expand the presence of Dolby Atmos.
Okay, uh, and then just within the, uh, Q4 guidance, you mentioned, um, shipment value and expectations on Ce. I was just wondering if you could provide any more uh, color just on like shipment volumes more broadly within the Q4 guidance.
Yeah, hi Patrick, it's Robert here. Um, as we said in our last call, we expect some slight headwinds for the year and then in queue, um, Q3 we saw, um,
You know, some softness in your shipments, particularly in set, top boxes and to a lesser extent, consider electronics and get a negative true up of 4 million for the quarter. And um, yeah, that's what we anticipate full year. But our our guide for the full year is still within the range week. Um, we talked about last quarter.
Okay, thank you.
Your next question comes from the line of Ralph Shack art of William Blair. Your line is open.
The question, just on the macro now that there appears to be some more Trade Agreement, certainty, uh, that are being announced. And I know it's fluid, but you know, how much does this help with adoption of Atmos or Vision to the extent? There may have been any hesitation, you know, when there was uh previous uh, I guess more tariff on certainty.
Yeah, I think at the highest level Ralph, I mean, certainly we've seen some more have seen a few more trade deals and and hopefully that is a path to people having better certainty to plan around. I would say, as we sit here today, it doesn't feel very different than where we were last quarter. There's still uncertainty around some of the trade deals and for that, those are in place around what impact they might have. Um, but at the same time, I would also point out that we, we continue to see strong engagement for Dolby, Atmos, and Dolby Vision. So I haven't seen um, the uncertainty affecting the desire to have higher quality experiences. Um and so, you know, where the uncertainty is around, how many of those devices will ship depending on how all of this plays out and um, uh, you know, as Robert said, we're we're maintaining our guidance, keeping it the same, which um, you know, allows for a few slight headwinds. But um,
Uh, path stability would be good. Um and we still are focused on uh, what we can control which is bringing more Dolby experiences to more people around the world. That's what will drive growth in the long term.
Great. And just as it relates to Dolby vision and Autos, I know the Chinese oems have been sort of the early adopters there. But just if you could provide some perspective on how you would frame that opportunity and potentially, you know how that would broaden out uh outside of uh what's I think currently just the Chinese oems thanks.
Practice. It could be charging the car, it could be looking for a quiet moment before you go into that meeting. Um, and we do think that that is uh, that that will extend into the rest of the world were, you know, we have engagements, uh, you know, within and outside of China. And so we're optimistic that that um, uh, is a, will be a good opportunity for us.
Great. Thanks. Kevin
And again, if you would like to ask a question press star and the number 1 on your telephone keypad. Your next question comes from the line of Steve Franco of rosenblad Securities. Your line is open.
And good afternoon. Thank you. Uh, Kevin, maybe I want to revisit the statement, you guys have made in the past about being able to return to double digit growth. Let's even recast it in the current environment of high single digit growth. I mean, is that still something achievable with your current products that
Yeah, we believe it is and, you know, leading up to, uh, the pandemic. We were in that high single digit and and as you know what, we we believe that Dolby, Atmos, Dolby, Vision Imaging patents, uh, has uh, great expansion opportunity. Um, that category as a whole grew, a compound to Daniel growth rate of about 20% over the last 4 years. Our Target going forward is 15 to 25%, and we're excited about the opportunities that, you know, we're pursuing right now. We're excited about our pipeline of innovation and
Our ability to continue to uh, build on those experiences and extend into new ones. Um, and then of course you know, on the foundational side that's where we've been far more sensitive to the the, what we've been seeing in the economic environment. Um, but we do believe that, you know, once that stabilizes, um, and we have we see that settle into, you know, low single digit growth, that's the formula for for double digit growth. And and in the meantime, the part of the, the business that the part of the categories that are growing Dolby, Atmos Dolby, vision and imaging, patents is grown to, you know, 40% of the total. So we're getting a lot more contribution from from those categories. Uh, and then of course we continue to to to to look to create new growth drivers as well.
and, and just to confirm,
That the the the trends you laid out in the beginning of the year, in terms of the relative share of, uh, Imaging patents vision and Atmos relative to foundational.
is that played out pretty much uh,
How you predicted year to date, or given the weakness and foundation and uh, the foundational business has this other piece done a little better than you thought year to date.
Um, we're seeing it playing out more or less as we expected for the year so far.
And then on that negative true up. Uh, could you tell us what piece of the business accounted for most of that?
Yeah, hey uh Steve the um negative 4 million true up for the quarter was uh, primarily set top box.
And broadcast.
Okay. Uh,
thank you for that. Um,
That's all I have for now. Thank you.
All right. Thank you.
With no further questions. This concludes today's conference call. We thank you for participating and look forward to speaking with you on the next quarter.
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