Dolby Laboratories

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. Afterwards, 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, 2024. I would now like to turn the conference over to Mr. Peter Goldmacher, Vice President of Investor Relations. Peter, please go ahead.

Good afternoon. Welcome to Dolby Laboratories' first quarter 2024 earnings conference call. Joining me today are Kevin Yehman, 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. 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 report on Form 10Q. 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.

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. 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, not much has changed. Spending on consumer electronics is the largest factor impacting our foundational offerings. 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%. So let me turn to the business. 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 with 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 wins in automotive is with Dolby Atmos Music. For TV, it is TV shows, including sports and movies. And for mobile, it is videos via user-generated content. 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. 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 side 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 awards 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. 92% of the Billboard 2023 year-end top 100 artists are available in Dolby Atmos. And over 100 shows in Dolby Technologies were nominated across 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 Z5, 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 artists and streaming communities in their quest to deliver the best audio-visual 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 in 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 FlexConnect on their TVs. 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 auto. 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. 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 Zeekr 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. 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% 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 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 deals. I'd like to wrap up my comments with some closing thoughts. 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 IO, 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.