Dolby Laboratories

Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories conference call discussing Q3 fiscal year 2026 financial 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 would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. As a reminder, this call is being recorded Thursday, July 30th, 2026. 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' third quarter fiscal year 2026 earnings conference call. Joining me today are Kevin Yeaman, Dolby Laboratories' CEO, and Robert Park, CFO. Thank you for joining us. Thank you very much. Thanks, Peter, and thanks to everyone joining us on the call today.

Thank you for joining us. Dolby has maintained its leadership position for over 60 years by innovating and raising the bar on the entertainment experience. We do this by working with creatives, content distributors, and device makers, giving us a unique perspective on the collective needs, challenges, and opportunities of the entertainment ecosystem, which enables us to deliver experiences that come to life in the highest possible quality. This quarter, I would like to start with our focus on expanding our total addressable market beyond device licensing. We are working with a growing number of content partners that are looking to differentiate on experience and drive deeper engagement with their audiences. And we are making good progress on our target for 10% of revenue from these partners by the end of FY28. Let's start with the Video Distribution Program, the patent pool that licenses imaging patents to content streamers. Thank you for joining us. In less than one year since inception, 45 licensors have already attracted some of the biggest names in streaming as licensees to the pool, including ByteDance, Kwai Shao, Meta, Roku, Tencent, and Alibaba. We remain excited by the early momentum from this pool and we expect it to continue. Moving on to Dolby OptiView, we closed a number of key deals in the quarter, including a multi-year agreement with Roberts Communication Network, the largest provider of horse racing content in the U.S., for ultra-low latency video streaming. Also in the quarter, Google announced that Dolby OptiView Ads, our ad insertion engine, was the first product certified through their Ad Manager Technology Partner Program. This certification recognizes the performance and monetization improvements that Dolby OptiView Ads delivers when integrated with Google Ad Manager. While this partnership is early days, we are looking forward to working with Google to win new customers. Last quarter, Thank you for watching. We believe that the Dolby OptiView platform, which brings together these capabilities with ad monetization, low latency streaming, and cross-platform playback, is a unique system that will lead the future of the live sports experience. We are excited by the progress we are making in expanding our addressable market to include content platforms where we earn revenue based on usage. Moving on, Dolby Vision and Dolby Atmos continue to bring the most immersive experiences to life. and all three World Cup host countries were able to enjoy the World Cup in Dolby through partners including Peacock and Comcast in the U.S., Bell in Canada and TV Azteca in Mexico. Fans in some of the most passionate football countries like Brazil, Colombia, Germany and Spain were also able to enjoy the World Cup in Dolby. On TVs, Dolby Vision 2 is now in market with some Hisense TVs, and by the end of this calendar year, TCL and Philips will also be shipping televisions with Dolby Vision 2. Moving on to auto, we have announced agreements with over 40 auto OEMs since the program started. A few of our new OEM wins this quarter include Volkswagen in China launching its first Dolby Atmos vehicle, and Buick announcing pre-sales for the Electra E7, a plug-in hybrid SUV with Dolby Atmos, also in China. Also this quarter, Google announced support for Dolby Atmos through Android Auto with launch partners including BMW, Genesis, Mahindra, Mercedes, Renault and Skoda. With Dolby Atmos supported across Apple CarPlay and now Android, it has never been easier for users to stream Dolby Atmos to their car. It also makes it easier for dealers to demo and sell the Dolby Atmos experience in the car. We're excited about the continued momentum in in-car entertainment, which continues to be a top focus for the industry. Moving on to user-generated content and social media, high-quality user-generated content is an important factor in driving engagement, and we have strong adoption of Dolby Vision on many of the world's largest social media platforms, like Instagram, Facebook, and Joy-In. In addition to driving demand for Dolby on mobile phones, we are starting to make our way into new device categories like smart glasses and video cameras. Rayneo, the leading provider of augmented reality glasses, launched the Rayneo GT Max, the world's first AR smart glasses equipped with Dolby Vision. And Insta360, the market share leader in action and panoramic cameras, launched the Luna Ultra, which supports Dolby Vision Capture. We are pleased by the momentum behind user-generated content in Dolby and expect it to continue to grow as a priority for device OEMs. Wrapping up, we remain confident in our opportunity to drive growth beyond device licensing with progress on both the video distribution program and Dolby OptiView. And we continue to bring more Dolby experiences to more people around the world with the growing adoption of Dolby Atmos and Dolby Vision across a wide range of devices and use cases. All of this gives us confidence in our ability to drive long-term growth. With that, I'd like to turn the call over to Robert to cover the financials.

Thank you, Kevin, and thanks to everyone joining us on the call today. Revenue for the quarter came in at $305 million, which was within the guidance we shared last quarter. We saw better-than-expected revenue in Dolby Atmos, Dolby Vision, and imaging patents, offset by deal timing and foundational audio revenue. Non-GAAP earnings per share was 69 cents, just above the middle of the range of guidance, Thank you for joining us. We declared a $0.36 dividend, up 9% from our dividend a year ago, and ended the quarter with a cash and investments of $756 million. Q3 GAAP operating expenses include a $4 million restructuring charge for organizational changes made as we align our resources to focus on the most impactful areas. Detailed licensing performance by end market can be found on our IR website. As a reminder, end market growth rates are typically smoother on an annual basis, as the timing of recoveries, minimum volume commitments, and true-ups contrived quarterly volatility. End market performance for the quarter came in mostly as expected with no significant outside moves. Turning to guidance. For Q4 fiscal 26, we expect revenue to be between $362 million and $392 million. Within that, we expect licensing revenue to be between $335 million and $365 million. Gross margins should be approximately 90% on a non-GAAP basis, and we expect non-GAAP operating expenses to be between $195 million and $205 million. Non-GAAP earnings per share is expected to be between $1.13 to $1.28. Let me provide more context on Q4. Our Q4 revenue guidance at the midpoint represents a 23% year-over-year increase in revenue. This reflects momentum we are seeing and key growth areas we have been prioritizing. namely the Video Distribution Patent Program, including a large deal with Meta that's signed early in Q4, higher units from Dolby Atmos in the car, and revenue from new device categories like wearables. In addition, Q4 is also benefiting from timing of deals like minimum volume commitments. For fiscal year 26, we expect total revenue to range from $1.41 billion to $1.44 billion. Within that, licensing revenue is expected to be between $1.31 billion and $1.34 billion. We are targeting non-GAAP operating expenses to be between 785 million and 795 million. We expect non-GAAP earnings per share to be between $4.25 and $4.40. This reflects the higher tax expense from discrete items in Q3. We are expecting an annual operating margin improvement of approximately 100 basis points for the year on a non-GAAP basis, up from the range between 50 basis points and 100 basis points we guided to last quarter. For the full year, we are expecting other revenue to be up high teens driven by auto and VDP. Broadcasts to be up mid-single digits due to higher recoveries and energy patents. Mobile, which includes wearables, is expected to be up mid-single digits driven by adoption of Dolby Atmos and Dolby Vision. And CE should come in flattish with lower unit volumes offset by higher recoveries and Dolby Atmos adoption. PC is down low single digits primarily due to lower unit shipments and lower recoveries. We expect foundational audio revenue to be down slightly for the year, and Dolby Atmos, Dolby Vision, and Imaging Patents revenue to be up roughly 15% year over year. In summary, the team has executed well, and our performance reflects the operational focus on our key growth areas, despite an environment that has remained dynamic all year. As we have demonstrated over multiple economic cycles, our approach is to control what we can control. We remain focused on our growth strategy, driving innovation and allocating resources to the areas that will have the greatest impact. Our financials remain solid with organic revenue growth, high gross margins, expanding operating margins, healthy cash flows, and a strong balance sheet. With that, I'll turn it over to the operator to open the line for any questions. Operator?

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ralph Shakar with William Blair. Your line is open. Please go ahead.

Good afternoon. Thanks for taking the question. Robert, I want to circle back on your Q4 commentary with Extra Color. They talk about 23% year-over-year growth. and you called out some momentum, I think, in video distribution program. I think it was signed early in the quarter, building a car and wearables. Historically, this business has been difficult for, at least for analysts to forecast on a quarterly basis, but that growth rate is sort of a standout. And I know you could have revenue sort of move in and move out of quarters, a little bit long-winded, basically ask, you know, Can you talk about maybe the sustainability or durability of this growth rate and how much of this could also be impacted by maybe some quarterly, you know, revenue shifting out of Q3 into Q4?

Yeah, hi, Ralph. Those are the areas driving the growth and the momentum we're seeing, mostly GDP, including the large sale assigned at the beginning of this quarter. Higher units from Dolby Atmos in the car and new device categories like wearables. But also mention that there are... Q4 also benefits from timing of things like minimum volume commitments, particularly mobile, that tend to be a little bit more back-end loaded than they were last year. Last year's Q4 was a little softer if you look at the quarterization and just happens to be timing of certain things that come in.

Great. And then, you know, you have some large licensees on the BDP part, Meta, and I think you talked about Alibaba. Maybe we could talk about, you know, After signing these sort of larger companies, what that does in terms of encouraging, you know, participation from future licensees, it seemed like pretty, you know, standout announcements this quarter.

Yeah, thanks, Ralph. It is one of the things that's giving us confidence in the program and our long-term growth. You know, it's about a year into the program, and we've seen a lot of these programs come together. and this one's coming together really well, both in terms of, you know, the pace of it and the breadth of it. We're at 45 licensors. We've got a number of high-profile licensees. You mentioned, you know, Meta and Alibaba signing this quarter and the impact that has is, yeah, it does tend to make it easier to get the next yields. You know, at any given point in time in a program like this, there's a group of customers that are looking for a solution to the problem of operating in a fragmented IP environment for which patent pools are a very helpful solution. There's a group of companies that are doing their homework. They want to know, is the pool comprehensive enough? Is it the right pool? Is it the right price? More people coming along starts to get them to move faster along their process. And, of course, in any given program, there's always going to be some holdouts, and you keep working each of those phases of the pipelines. but clearly for one year this program is coming along very nicely and great to see some really nice wins this quarter. Great. Thank you.

Your next question comes from the line of Stephen Frankel with Rosenblatt Securities. Your line is open. Please go ahead.

Good afternoon. Thank you for the opportunity. Kevin, when you first introduced the concept of VDP, you talked about targeting some of the large domestic streaming networks, and that is a great win, and hopefully we'll get more like that, but what's the level of discussion with these targets in the streaming space today, and do you still feel like that's a realistic goal? potential win on the horizon.

Yeah, thanks, Keith. Well, first of all, yeah, I mean, Meta is one of the largest streamers of video content on the planet. And the pipeline is strong, and it includes streamers of all types of video content. And I'm not going to go into the details of the pool's discussion with any one customer. but again I think for one year we feel really good about how this program has come along and every time you get another licensee on board it makes it that much easier to get the next licensee. So we are I mean relative to a year ago given the way that that execution is done I would say we're feeling increasingly confident in that program.

Great and Given the strength in other, auto seems to be continuing its ramp and you're announcing new customers and now you've expanded to Android Auto. Are we getting closer to a point where the auto business might get broken out?

Yes, we're getting closer. And as you know, we've typically done that when it's 10% of licensing. And I think certainly as we go into the next year, that's something we're going to have a close look at because it is It is the highest growing end market for us and it's the largest within other.

Great. And Robert, a couple questions on the numbers. What were true ups and were any of the buckets affected by large catch-up payments?

Yeah, the true up was really negative this quarter, Steve. It's less than a million dollars positive, so really, really small. The second question regarding any true-ups, we have got recoveries every quarter. No, nothing notable this quarter in terms of outside movements.

Okay. Great. And then from a macro perspective, there's been a lot of fear that the rising memory cost was going to impact how What can you tell us as you look to what's coming down the pipeline using your technology? Do you feel like the plans they talked about at CES are still going forward or have they been impacted in any way?

So, I think, you know, CES, we were, you know, largely focusing on the big focus areas for us at CES were automotive, where, as you noted, we continue to see really strong adoption, strong pipeline, things continue apace. We also were highlighting Dolby Vision 2, where we saw there are now Hisense customers that have Dolby Vision 2 on their TVs, and we are on track for them to have more than Philips and TCL. by the end of this year. I think backing up, because memory is obviously a hot topic, Steve, I think as it relates to our end markets, mobile is by far the market that is impacted the most by memory prices. Our largest device market is TV. That's one of the lesser impacted markets in terms of a percentage of BOM. Second most impacted market would be PC in terms of the memory impact on them. So for this year, all that's factored into our guidance. As I've said before, as it relates to mobile, because of the prevalence of minimum volume commitments, that has a kind of a mitigating, or I guess you might even say sort of a delaying effect. And so all that's factored into our guidance. It kind of falls into the category, we've got some ups and we've got some downs. As we look into next year, the longer this goes on, the longer it starts to, the more it starts to flow through. Now, you know, we do expect to grow with strength and video distribution program, automotive, the new categories like wearables. We've got some exciting new products coming in Dolby OptiView. But how much that is in part offset is, you know, memory chip is something we're watching closely. So, again, TV is not affected as much, mobile and PC the most. There's no uniform answer as to how that impacts Dolby. Each customer approaches this quite differently. So, you know, on the one hand, you might get customers that have room to absorb this into their gross margins. and that may not have any impact on unit volumes and so minimal impact to Dolby. Others are raising prices. Some are doing accommodation and we are raising prices and it really is a matter of how much pricing power do they have and what's the price sensitivity but it's not necessarily a one-for-one impact on Dolby. And then in other cases, particularly in mobile where at the low end memory cost has gone from my understanding it's gone from plus or minus 15%, even over 50% of BOM. It's really significant. We're seeing some customers that are just eliminating one of their lower lines because they just can't solve that equation. Then what they're doing is trying to get people to move up a level, and they're also investing in trying to maintain those higher-end lines. And so, again, that does, in fact, of course, that lowers device shipments, but on the other hand, for Dolby, it's not proportionate in the sense that We have higher attach and we have higher technology content the further you go up those lines. So there's very dynamic. We're watching it really closely. And again, we expect to grow with the strength we have in our focus areas. But we're definitely watching memory prices and how much of an offset that might be.

Great. Thank you so much.

Your next question comes from the line of Patrick Scholl with Barrington Research. Your line is open. Please go ahead.

Hi, thanks for taking the question. Within, you know, Dolby Vision 2, I was wondering if there was any sort of differentiation in terms of the pace of adoption between the various tiers on that new technology.

I would say there's no change in pace from what we've talked about. We've got those three customers that are, you know, Hisense has some of its in-market TVs updated. We expect TCL and Philips to be shipping by end of year. We're kind of at that point in the year where I think that, you know, that CES will become the focal point for most of our customers that will be adopting it going forward. And on the content side, Canal Plus and Peacock are both on track to, they're integrating now and getting ready to be able to provide content in Dolby Vision 2.

Okay, and then on the VPP, is there a content type focus within that and how you expect the pace of getting licensees to be a part of that program or is it kind of I certainly understand it's more broad, but is how you're seeking to generate growth on that focusing on a specific type of content initially first?

Well, really at the center of it is companies that are at scale taking advantage of the best and video codec technology's in order to achieve their business objectives. And that is a broad range of content. You can tell from some of our first licensees from Meta to Roku, ByteDance to Alibaba has coverage including e-commerce. So it really is a function of anybody who is relying on the IP covered by this patent pool, which is growing with more licensors joining with the success it's had over the last year to deliver video at scale.

Okay, thank you.

Your next question comes from the line of John Rigotti with FAIR. Your line is open. Please go ahead.

Hey, thanks for the question. This is John on for Vic Pescovola. A couple for me. I wanted to start with auto. I'd be interested to hear if you could unpack what you think has driven some of the faster adoption with your technology and some of the international autos and then What needs to change in the U.S. market for you to be able to unlock more of that segment there? And I have a couple follow-ups.

Yeah, I think, I mean, I think, you know, if I go back to the beginning of the program, a lot of our initial momentum was in China where they were becoming the, you know, the leading innovators in EVs and they were putting a really high focus on the in-car entertainment experience. and China also happens to be the largest vehicle market in the world. And so that got the attention of auto manufacturers around the world to be able to compete in China, at which point then it makes you just a step away from then shipping those cars throughout the world. And so that's what, you know, and so in Europe we've got Mercedes and BMW. In India we now have the Hindra and Tata. The U.S. we do have Cadillac. So, I think, well, I mean, we're pleased with how the pace and how it's grown. Like I said, 40 OEMs since the program began. And I think, you know, the next big milestone for us is looking to get further penetration into mainstream. And, you know, we've got, we've talked about some cars in the past, like the Hyundai in China and some of the cars in India. but people always start with the high end and now it's a matter of really focusing on getting that into the mainstream higher volume models and that will benefit us in the U.S. and around the world.

Yeah, great. And then maybe on Octaview, if you could talk a little bit more just about the vision there and obviously it's still very early days but just a couple of examples on maybe what's resonating most as you've taken that out to partners.

Yeah, thank you. So Look, at the highest level, the vision is this, which is that we're no longer in a world of one-to-many where we all have to experience the exact same sports experience at the exact same time. We're in a world of streaming where we ought to be able to understand what engages you and be able to personalize that experience and to do that in real time in a way where you can interact with your friends around the experience. So the vision for Dolby OptiView is to provide a solution that allows and these sports organizations and streamers to be able to do that. And so we started, of course, with the ability to stream in ultra-low latency. That's important so that you're not seeing the touchdown, you know, 15 seconds before I am, which is no fun for either of us. Maybe it's fun for you, it's not fun for me. We've got the player that's integrated with that. and we have some, now you're beginning to see some new, some additions to the portfolio which get closer to that more personalized experience. So one of the things we talked about today was OptiView ads which is something we mentioned a couple of quarters ago but we've now been in market with the first couple of customers. They're in the process of testing the third generation of the product and once that testing is complete we're planning to really begin to scale this to our customer base in the fall. And the big difference there from the customer perspective is the revenue generation potential. One of our customers is seeing increases of 75%. It's because we have a server-guided technology which requires far less lead time than competing solutions to kind of pick the ad and deliver the ad, which means that by filling that ad slot just before it's needed – We can do a better job of targeting that ad to the viewer. It's more likely that the viewer is still there, and ultimately just increases the fill rate. And then the solution is also integrated with the player, and that prevents the ads from being blocked. So we're pretty excited about that. As I said, it became one of the – well, at the time, it was the first technology to be certified by Google Ad Manager as a partner technology, and that's because – it's designed to slot right into their workflows work seamlessly with Google Ad Manager so as we get to the fall and are looking to scale this we're also looking forward to working with them to highlight the benefits to their customers and then I talked about last quarter about how at NAB we were previewing our sports intelligence platform and so we continue to get really good engagement from customers on what we're doing with that. We look forward to having some specific solutions in market next year. And this is really focused on now moving toward really being able to understand how engaged a fan is or when their interest is waning. But importantly, being able to do something about that with the audiovisual experience that keeps them engaged. So again, The vision is simply to provide our customers with the ability to better engage their fans and audiences with real-time personalized experiences. And we are really excited about how the portfolio of solutions is coming together to make that happen.

Yeah, that's great. Thank you. I guess the last one for me is just You touched a little bit on the Dolby Vision 2 and some of the, that's obviously in market now, some of the demand you're seeing there. I'd be interested if you could talk a little bit as well about the impact that Dolby Vision 2 being in the market is having on adoption of Dolby Vision 1 and possibly kind of the segmentation or the tiering that OEMs are able to do across both of those. And then also maybe just for Robert on capital allocation. If I look at kind of the repurchase activity on a quarterly basis, it looks like so far in 26 you're going at about twice the rate of 2025. Just any kind of color you could give on how you're thinking about capital allocation for the balance of this year and then going forward would be great. Thank you.

Yeah, I think, so as it relates to Dolby Vision 2, I would say it's early days. I mean, again, we're focused on getting these first three customers in market, and these are all examples where they're moving from Dolby Vision 2, Dolby Vision 2, as you would expect, starting with some of their higher end. We do have strong engagement, and like I said, I think, you know, CES is probably about the time we'd expect for our customers to say more about their go-forward plans with Dolby Vision 2. And Robert?

Oh, yeah. Hi, John. Yeah, thanks for noticing that we have increased the velocity and volume of our buyback activity, and we'll continue to do – execute on our policy of at least offsetting dilution of stock based comp. But we do look at this quarterly, make our decisions quarterly based on facts and circumstances and needs of the business. But yes, we have been stepping up year to date every quarter. Great. Thank you, guys.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.