Dolby Laboratories

question, press star one again. As a reminder, this call is being recorded Wednesday, August 7th, 2024. I would now like to turn the conference over to Mr. Peter Goldmacher, Vice President of Investor Relations. Peter, please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to Dolby Laboratories' third quarter 2024 earnings conference call. Joining me today are Kevin Yehman, Dolby Laboratories' CEO, and Robert Park, our CFO. As a reminder, today's discussion will include forward-looking statements, including our fiscal 2024 fourth 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 businesses. A discussion of these risks 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 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 joining us on the call today. Revenue for the quarter came in just above the midpoint of the range that we provided you on the last earnings call, and earnings were above the high end of the range. For the full year, we now expect revenue to be down approximately 1% to 2%, which is at the lower end of what we've been expecting throughout the year. We are not making any changes to our non-GAAP EPS guidance for the year. Our foundational audio revenue is coming in lower than we expected, as global device sales in aggregate have been soft all year. And we're seeing lower than expected units in set-top boxes and gaming consoles for the second half of the year. In products and services, cinema products are coming in lower than we expected as the box office remains sluggish and exhibitors continue to push out CapEx. Dolby Atmos and Dolby Vision are performing slightly ahead of our expectations as strong content growth continues to drive device attach rates. Dynamics remain stable and ongoing engagement from the broader ecosystem of creators, distributors, and device manufacturers are driving a steady stream of product launches across all device families. We continue to be confident in our growth opportunity with Dolby Atmos and Dolby Vision, and we have a strong position with our foundational audio technologies, which are well positioned as our end markets return to more normal cycles. Moving on to the highlights for the quarter, we continue to enjoy momentum in content for Dolby Atmos and Dolby Vision, which is driving growth in autos, TVs, and mobile, our three biggest areas of opportunity. Starting with content, I'm happy to share that as of this spring, over 25,000 TV shows and movies have been made available in Dolby Vision, a significant milestone considering that we launched Dolby Vision in October of 2015 with just 13 movies from one studio and one TV OEM. Since that initial launch, Dolby has worked across the ecosystem on a global basis to add studios, production companies, product partners, content service providers, and device partners to the Dolby Vision story. And we are taking that Dolby Vision momentum in TV and movies into live sports. Comcast Xfinity in the U.S. and a variety of global partners are making the Olympics available in Dolby Atmos and Dolby Vision, which builds on the momentum we've seen throughout this year. In Q3 alone, the Cricket World Cup, European Championship Soccer, Wimbledon, the NHL and NBA postseasons were all available in Dolby Atmos and Dolby Vision. And of course, we aren't stopping there. In May, Tencent Music cited Dolby Atmos music on their earnings call, mentioning that we helped them to drive 20% year-over-year growth by making their music offerings more attractive and stickier, which is something we love to hear. And Audible recently announced that they will continue to expand their library of Dolby Atmos content with full-cast audio productions of all seven Harry Potter books, scheduled to premiere in late 2025. Moving on to automotive, GM announced this quarter that the 2025 Cadillac Optic will feature Dolby Atmos, our first car with GM. And also this quarter, Rivian announced that the second generation of its flagship vehicle, the R1, will support Dolby Atmos. And Hyundai announced that its luxury brand, Genesis, will make Dolby Atmos standard across five models, starting in Korea. We now have 20 OEM partners for Dolby Atmos, and the momentum continues to build. In TVs, we are seeing a slight uptick in attach rates. Hisense and TCL, which are both strong adopters of Dolby Atmos and Dolby Vision, continue to gain market share, and we continue to get incremental wins as other TV OEMs look to bring Dolby Atmos and Dolby Vision deeper into their lineups in order to compete more aggressively in certain markets. Also contributing to the momentum are additional drivers, like the growth in sports content that we just covered. Lastly, in mobile, in addition to the steady rollout of new models from most of our mobile OEM partners, Transient added a Dolby-enabled low-cost phone to consumers in Malaysia, as the company continues to sell affordably priced higher-end phones aggressively into Africa, the Middle East, India, and Southeast Asia. Moving on to M&A, I'd like to briefly discuss our pending acquisition of GE Licensing, which complements, strengthens, and expands Dolby's patent offerings. particularly in imaging, and represents a compelling financial profile of durable, reoccurring, high margin revenue. This transaction adds a significant portfolio of video codec technologies that provide best-in-class video compression while also enabling better overall picture quality and higher resolution, which is particularly important in applications like streaming and video conferencing. In addition to strengthening our current video patent licensing programs, this acquisition continues to position us well for new licensing opportunities. These patents are primarily monetized through patent pools, which are collaborative licensing structures that enable industry efficiency and promote long-term growth by facilitating the adoption of next-generation standardized technologies. We expect the transaction to close by the end of the fiscal year and expect it to be accretive on a non-GAAP basis to operating margins and EPS in fiscal 2025. Also on M&A, We recently enhanced our Dolby IO offering with the acquisition of Theo Technologies for $55 million. As we've talked about, we are seeing demand from companies in sports and entertainment who are looking to create real-time and personalized experiences. Theo addresses a similar customer base with complementary technologies. This acquisition gives us more momentum from both a product and customer perspective and a stronger foundation to build on. Neither of these deals will have a material impact on FY24. In summary, we continue to operate in an uncertain and dynamic market environment with lower unit shipments and cinema box office weighing on revenues this year, particularly in foundational. At the same time, we continue to grow our Dolby Atmos and Dolby Vision content ecosystems across movie, TV, sports, and music, and to grow device adoption, particularly in automotive, TV, and mobile. We remain committed to growing earnings faster than revenue while investing in a healthy portfolio of innovation and we are strengthening our imaging offerings with a financially attractive acquisition. I continue to be very excited about the opportunities in front of us and the opportunity to deliver revenue and earnings growth. And with that, I'll turn the call over to Robert.