Dolby Laboratories

Ladies and gentlemen, thank you for standing by and welcome to the Dolby Laboratories conference call discussing fiscal second quarter results. During the presentations, 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 re-draw your question, again, press the star 1. As a reminder, this call is being recorded Thursday, May 2, 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 Laboratory's second quarter 2024 earnings conference call. Joining me on the call today are Dolby Laboratory CEO Kevin Damon and Dolby Laboratory CFO Robert Park. As a reminder, today's discussion will include forward-looking statements, including our fiscal 2024 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, 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 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. 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 I want to thank everybody for joining us on the call today. 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. Robert's 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. Today, I'd like to cover three topics. 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 21 on the strength of pandemic purchasing, device sales have been down each year since, and the resulting declines in foundational revenue have overshadowed strong growth in Dolby Atmos, Dolby Vision, and our imaging patents. Now, the upside of 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. Our foundational technologies make up about two-thirds of our highly profitable licensing revenue, at about 60% of our total revenue. The macro isn't 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. Industry adoption as measured by growth in content created in Dolby Atmos and Dolby Vision remains an important leading indicator of future device sales with Dolby technology. So even as the general economic environment remains somewhat underwhelming, we remain optimistic about our prospects over time. We continue to target foundational to return to low single-digit growth and Dolby Atmos, Dolby Vision, and imaging patents to grow at a three- to five-year CAGR of between 15% and 25%. So let me turn to some comments on Dolby Atmos and Dolby Vision, where the three most powerful growth drivers are mobile, TVs, and auto. I'll give you a brief update on each of these opportunities. 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. We see a meaningful and a durable opportunity to continue to expand our relationships to include value-added offerings such as Dolby Atmos, Dolby Vision, and Dolby Vision Capture. We see the greatest adoption of Dolby Atmos and Dolby Vision at the high end. In the second quarter, we announced a number of partnerships. Oppo introduced five new phones with Dolby Vision Capture. Xiaomi announced new models with Dolby Atmos and Dolby Vision. And Honor also announced new models with Dolby Vision. As it relates to the affordable end of the market, we had some nice wins. Lava Mobile in India and 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 is good for TV and soundbar adoption. In the same way that streaming movies in Dolby Atmos and Dolby Vision catalyzed device sales like TVs and soundbars from viewers looking for the most immersive movie experience, We think streaming sports in Dolby Atmos and Dolby Vision will have a similar impact. Max is the first streamer to offer all of their live sports content, including baseball, hockey, and basketball in 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. and there is an ever-growing slate of global sports content in Dolby Atmos and Dolby Vision, including tennis, rugby, and soccer. 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. We are particularly excited about the Olympics and the European Championship soccer this summer. Moving on to automotive, the pipeline of new partners remains strong, and our current partnerships continue to grow. We're seeing growth from new partners shipping new models. Xiaomi announced the launch of the SU7 with Dolby Atmos in the second quarter, and they're seeing much higher demand than expected. Also, new partner Hyundai is shipping the Genesis, initially in Korea, with Dolby Atmos. We're also seeing momentum and 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, NIO, and Lucid. So before I move on to my closing thoughts, I want to say that I'm proud of all the hard work and successes 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. Looking forward, foundational remains solid despite persistent softness and device sales. An improvement in the macro and a return to device sales growth will have a meaningful positive impact on our revenue and margins. 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. 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. And so with that, I'll turn it over to Robert, who will take you through the financials in a bit more detail.