Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories conference call, discussing fiscal third quarter results. As a reminder, this call is being recorded, Tuesday, August 9, 2022. I would now like to turn the call over to Ashley Schwenoha, Senior Manager, Investor Relations for Dolby Laboratories. Please go ahead, Ashley.

Good afternoon. Welcome to Dolby Laboratories Third Quarter 2022 Earnings Conference Call. Joining me today are Kevin Yeaman, Dolby Laboratories CEO; Robert Park, CFO; and Maggie O'Donnell, Head of Investor Relations. As a reminder, today's discussion will include forward-looking statements, including our fiscal 2022 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, COVID-19, ongoing supply chain issues, inflation, 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 new Interactive Analyst Center on the Investor Relations section of our website. So with that introduction behind us, I will now turn the call over to Maggie.

Thank you, Ashley, and thanks, everybody, for joining us today. For this call, we're going to try something a little bit different, and I'm going to be leading a conversation with Kevin, and then Robert is going to take us through the numbers after that. We welcome feedback on this new format, so please reach out to us at [email protected] if you want to have a discussion. With that, let's get started. So Kevin, let's start at a really high level. What's top of mind for you coming out of this quarter?

Sure. Well, what's always top of mind is focusing on our long-term strategy. And our top strategic priorities haven't changed. We're continuing to grow revenue from Dolby Atmos, Dolby Vision, and our imaging patents. Our focus is on continuing to bring Dolby experiences to more types of content and bringing Dolby experiences to more consumers around the world, and we're really excited about our wins this quarter. Our foundational audio technologies are deeply embedded in the ecosystem for entertainment audio delivery across a broad set of consumer devices. And while foundational is more sensitive to the near-term headwinds, it's a great position to be in. And so we're focused on strengthening that even further. And we're focusing on establishing Dolby.io as the platform for developers that are looking to build the most immersive online experiences. Now it's hard to talk about what's top of mind without also talking about the uncertainty in the macroeconomic environment, and these are all factors that we talked about last quarter: inflation, COVID restrictions, supply chain issues, ultimately, just uncertainty around the consumer spending environment as that relates to us, how many consumer devices are going to ship in the second half. So it continues to be a really dynamic environment. And at the end of each quarter, we look at all the data points available to us. We update our outlook to reflect what we're seeing at this point in time, and we've lowered our outlook for the remainder of the year to reflect those current estimates, but we're focused on the things we can control. Those are our strategic priorities because that's what determines our success in the long term.

Got it. Yes. So before we dig into the long term a little bit further, can you just elaborate a little bit more on the outlook?

Yes. So Robert is going to talk about this in quite a lot of detail in just a moment, but at a high level, the revisions to our outlook are primarily in our mobile, broadcast, and PC end markets. And there are two things that are driving that. First is the revised estimates for how many consumer devices are going to ship in the second half of the year, and that affected a number of our end markets. And then also, as it relates specifically to mobile, we are seeing some longer transaction cycles on some of our deals, particularly in Asia. So coming back to the high-level foundational, which is more sensitive to the macroeconomic headwinds, that's now expected to be down just over 10% for the fiscal year. Dolby Atmos, Dolby Vision, and imaging patents, while not immune to the macro environment, are much less sensitive, and we're expecting strong growth through the year, roughly 35%, and we're happy with the progress we're making there. So while the environment is uncertain, we're just going to continue to stay focused on our strategic priorities. We have a strong business model, strong cash flow, healthy balance sheet, and an attractive set of growth opportunities. And I'm confident in our long-term strategy and the opportunities that are in front of us.

Cool. Well, what is it that makes you feel confident in this long-term strategy?

When I reflect on the future of Dolby, I feel more enthusiastic than ever. Our commitment has always been to innovate new methods for creating and delivering exceptional content experiences. Through this effort, we've gained the confidence of some of the most discerning creative professionals, leading media companies, and top device manufacturers globally. When these elements converge, artists are motivated to tell their stories using Dolby. We collaborate with content creators and device makers to elevate the quality standard, resulting in a more engaging experience for consumers. Increasingly, we're noticing that consumers are not only experiencing but also acknowledging the distinct value that Dolby adds. Historically, we have invested considerable time and energy persuading others that what is merely adequate is not sufficient. What stands out today is the growing number of industry participants eager to expand the definition of immersive experiences. We observe this trend across consumer devices, music, online interactions, games, sports, and more. This makes it an exciting time to provide top-notch audio and video capabilities.

Yes. We're in a really unique and great position now. I want to ask, how does that exactly turn into growth over the medium or long term?

Yes. Our goal is to achieve sustainable double-digit growth. And as it relates to Dolby Atmos, Dolby Vision, and our imaging patents, we're very confident in the growth outlook. This is incremental to our foundational revenue, and we believe that over the medium term, it has the potential to be at least as large as our foundational revenue is today. Given that it's already a significant portion of our revenue, and we continue to see strong growth even in this uncertain environment, this is a major contributor to our overall company growth rate over the midterm. With our foundational audio technologies, we're deeply embedded in the ecosystem for entertainment audio delivery across a broad set of consumer devices. These are technologies that are fundamental to the playback of content. They are now, and they will be for many years to come. It's a great position to be in, and we're continuing to strengthen it. So we believe that once we get past the uncertainty in the current environment and things kind of stabilize, then that's when we can return to what we were experiencing before all of this weighed on us, which is to say that, that should be flat to slightly up. On top of all that, we continue to be really excited about Dolby.io, which creates the opportunity to deliver new Dolby experiences to even larger audiences. While it's a small part of the overall pie today, we see this becoming a significant growth opportunity over the long term. When I step back from all that, there's, of course, more than one way to get to sustainable double-digit growth, but we believe we have the portfolio of growth opportunities that are needed to reach that goal.

Yes. You mentioned that one of these things that we can control is the adoption of Dolby Atmos and Dolby Vision. Can you talk about those two initiatives specifically?

Sure. The Dolby Atmos and Dolby Vision ecosystem initially came to life in the form of movie and television content. We start by working with storytellers to expand their audiovisual palette. We work across content distribution and device manufacturers to bring these ecosystems to life, and we've really become embedded throughout the movie and television ecosystem. That has led to our strong presence in the living room, specifically things like television, set-top boxes, sound bars, and all the ways we enjoy movie and TV content, along with a really good initial presence across high-end devices in mobile, PC, and other categories. That ecosystem continues to grow, and we see it as a growth driver in the future as we continue to get further into the lineups of televisions, sound bars, and all those devices. Over the last couple of years, we've also been really focused on extending Dolby Atmos and Dolby Vision into other forms of content, new forms of storytelling. We've always believed that Dolby Atmos and Dolby Vision can dramatically enhance content experiences across a wide range of genres and use cases. That's why we've been focused on extending our presence into areas like music, mobile media content, gaming, live sports because it's becoming a part of the experiences that creators and consumers care about the most and that they engage with most frequently. That's what increases demand for Dolby experiences. So that's what drives the opportunity for increased adoption whether it's the living room, on mobile devices, in cars, PCs, and more. We saw some good progress this quarter, particularly in Dolby Atmos Music and the ability for consumers to capture in Dolby Vision.

Yes. So let's double click on Dolby Vision capture for a second. What is the significance of this recent Xiaomi announcement? And why should investors care about it?

Well, this is our first Android win for Dolby Vision capture. Of course, Dolby Vision capture has been a part of the Apple ecosystem for nearly two years now. We're really excited that Xiaomi now enables Dolby Vision capture on its flagship smartphone in China. With Dolby Vision, every piece of content that people capture with their phone can be more lifelike and more realistic. This provides value in a lot of different contexts. One of my favorite examples is in South Korea, Naver, which is a large online e-commerce platform. They're using it in the context of live shopping. So consumers can see the merchandise in more detail. They can see that the colors are right before they make a purchase so that the color of clothes they see on their phone is the color that they're going to see when they open that box. We're beginning to see this new ecosystem that is coming to life around Dolby Vision, broadly speaking user-generated content. At the same time that Xiaomi launched, multiple Chinese messaging services began supporting the upload, transfer, and playback of Dolby Vision content. Social media platforms like WeChat, Bilibili, and QQ. All this means that anyone with the Xiaomi 12S can now create in Dolby. They can capture, they can edit, they can share, whether it's a professional, influencer, or people capturing their own home videos. This, of course, also creates more demand for playback in Dolby Vision across a wide range of devices.

It sounds like another thing that you're really excited about is music. Can you elaborate on these new announcements around Tencent and Melon, and what this means for Dolby?

Well, starting in July, Dolby Atmos Music became available on QQ Music. That's Tencent's music streaming service in China. That's one of the top five largest music streaming services in the world. It's also our first domestic Chinese music service to support Dolby Atmos. I'd also highlight Melon, which is the largest Korean music streaming service, is now also supporting Dolby Atmos. Of course, it's great to see more streaming services come to life, and it's also created some opportunities to introduce new genres to Dolby Atmos Music. Melon has started curating playlists from top K-pop artists like BTS and Blackpink. That's really exciting to see because building this ecosystem starts with that passion from the artists who really want to create in Dolby. We continue to see increased engagement from artists and studios, which is resulting in more music. We have two-thirds of the top 100 Billboard artists that have one or more songs available in Dolby Atmos. Also notable this quarter, we have Dolby Live now at MGM in Las Vegas, which is a live venue where artists can perform live in Dolby Atmos. Usher became the first to put on a live Dolby Atmos show at Dolby Live, kicking off a residency, which is going to have, I think, a 24-show run. What this does is bring in audiences to whom many of whom will have their first experience with Dolby Atmos. It's a great experience. We hope they will then go seek to enjoy their music that way all the time. It also gives us an opportunity to engage directly with artists who are coming through that venue for their residency, which fuels the pipeline for more content and more artists, which means more music, which means more streaming services, which means more people can experience it. That's another ecosystem that we see coming together really nicely, and that's what fuels the opportunity to increase Dolby Atmos adoption across all the ways that consumers enjoy their music, which could be in a car, mobile device, or living room.

Personally, I love enjoying some music in my car. It's absolutely my favorite place to enjoy a new album, but it makes sense that auto is going to be a big focus for us. So can you talk about that opportunity?

Yes. From the very early days of demonstrating Dolby Atmos Music, it was very clear that musicians, studios, and everybody cares about the car experience as it relates to music. It's just part of the experience. The music ecosystem is what's fueling that opportunity for us in automotive. We mentioned before that Mercedes and Lucid have both embraced the Dolby Atmos experience in high-end vehicles. More recently, Li Auto, which is an electric vehicle startup in China, has announced they will support Dolby Atmos. NIO, another Chinese EV company, has announced a new model in Dolby Atmos after already launching one. We're really excited about the reactions we’re getting from across the industry, and it makes for one of our best demo experiences. Our Dolby Atmos demo cars just blow people away every time. Whether it's an artist, a music executive, a car company executive, or a trade show attendee. It's been very handy during the pandemic because you can take that car wherever you need to. Even as we see traction at the high end, we're confident that this is an experience that people want to have and that just as we were able to do with TVs for Dolby Vision and sound bars for Dolby Atmos, we have an opportunity to transform the experience from the high end to mainstream with Dolby Atmos. Today, we are 100% focused on making Dolby Atmos successful in the car. In the long term, we think there's a lot more opportunity because the future of cars is evolving towards even more immersive experiences, which we believe creates opportunities for us across audio and video offerings.

So lastly, on Dolby.io, what are your goals there over time? And how should investors expect this to evolve?

Well, as we talked about earlier, I don't think there's ever been a better time to be in the business of raising the bar on immersive experiences, especially in the online world. So Dolby.io is a platform for the developers whose job is to build these online experiences and to make them immersive and engaging, bringing people to the experience, and enabling social engagement. Live events and webinars is an area where we're seeing strong engagement that's using our ability to deliver live interactive audio/video chat and the ability to live stream those experiences to larger audiences in high quality with ultra-low latency. These can be events like online corporate events, virtual concerts, premium education courses, and more. But it all starts with having a compelling and differentiated offering that addresses a problem that developers have. We've learned a lot since we launched the platform. Given our technology, relationships, and know-how, we believe there are some things we can do better than anyone else, especially around media quality. Things like media capture and spatial audio make for a much more lifelike experience. We enable developers to stream these experiences to large audiences at very high quality. All of these quality enhancements can be delivered natively in the browser, which is the primary platform that developers target. So that's also really important. We're confident that we have an offering that provides value and addresses a problem or desire that developers currently have. We have a strong roadmap for differentiation going forward because we're always thinking about what's next in raising the bar. So then, our attention turns to the go-to-market model and how we scale this. Developer models scale by starting with that differentiated value proposition, raising awareness with developers, making it easy for them to engage with the APIs and technologies, start building and trying things, and then ultimately going live and becoming paying customers because we're paid on a transactional volume. We've seen a very significant rise in the number of developers signing up for our platform. Beginning around the first quarter of this fiscal year, we've really been pleased with the amount of people coming to the platform, which has been followed by a similar rise in the number of developers engaging with the technology. We can see that they are building things, trying it out, and learning how to use it. So we're seeing this increased engagement, which translates into growth in paid accounts and increased revenue. I'm optimistic that these are early signs that we're on the right path toward increased revenue growth.

Great. So before I turn it over to Robert to walk us through the financials, do you want to share any final thoughts?

Well, I'll keep my final thoughts brief. I'm sure everyone wants to hear the numbers. The environment is uncertain. I think that's a consistent theme across all companies, but we are focused on the things that we control and that means continuing to grow the Dolby experience to more types of content, to more people around the world, and staying focused on those top priorities because that's what drives our long-term success.

Got it. Thank you, Kevin. I'm going to turn it over to the numbers guy. Robert, go ahead.

Great. Thanks, Maggie, of course. Let's start with Q3. Total revenue in our fiscal Q3 was $290 million, which was within the guidance range. Q3 total revenue was up 1% year-over-year, driven by increased adoption of Dolby Atmos and Dolby Vision, new licensees in imaging patents, and improved results for Dolby Cinema and our Cinema products business. This was offset by lower broadcast and PC unit shipments and lower recoveries, which are collections of royalties from prior periods, primarily in broadcast. We also saw a true-up in Q3 this year, a positive $3 million versus last year of positive $14 million. Licensing revenue was $269 million, down 1% year-over-year, driven by lower broadcast and PC unit shipments, lower recoveries, and a lower true-up, offset by increased adoption of Dolby Atmos and Dolby Vision and new licensees in imaging patents. Let's get into the year-over-year trends and licensing revenue by end market. All the detailed revenue by end market and the percentage of total licensing can be found in the new Interactive Analyst Center available on the Dolby IR website. Broadcast revenue was down 20% year-over-year, driven by lower recoveries and lower estimated shipments for TVs and set-top boxes, partially offset by growth of Dolby Atmos, Dolby Vision, and imaging patents. Mobile revenue was up 27% year-over-year, driven in part by timing of revenue associated with minimum volume contracts as well as higher adoption and new licenses for Dolby Atmos, Dolby Vision, and imaging patents. PC revenue was up 8% year-over-year, driven by higher recoveries and growth of Dolby Atmos, Dolby Vision, and imaging patents, partially offset by lower PC unit shipments. We are expecting lower PC unit shipments for the rest of fiscal year '22. Consumer Electronics revenue was up 2% year-over-year, driven by an increase in adoption of Dolby Atmos, Dolby Vision, and imaging patents. Other Markets revenue was up 17% year-over-year, driven by higher box office sales and growth of Dolby Cinema. Finally, products and services revenue was $20 million, up 33% year-over-year, driven by ongoing improvements in the cinema industry globally. Let's move on to the rest of Q3 financials. Non-GAAP total gross margin was 88% of revenue, down slightly from 89.7% in the third quarter of last year due to the shift in revenue mix. Non-GAAP operating expenses were $179 million, up 3% year-over-year, driven by an increase in T&E and marketing spend. Operating expenses were lower than our expectations for the quarter due to lower internal labor expenses and timing of program marketing spend, some of which is pushing into Q4. Non-GAAP operating income was $76 million or 26% of revenue compared to 29% of revenue in Q3 of last year. The non-GAAP income tax rate was 13.9% compared to 13.7% in Q3 of last year. The Q3 tax rate was lower than expected due to discrete items. Net income on a non-GAAP basis was $69 million or $0.68 per diluted share compared to $75 million or $0.71 per diluted share in Q3 of last year. Non-GAAP EPS was at the high end of our guidance range, primarily driven by lower-than-expected operating expenses and a more favorable tax rate. During the third quarter, we generated $173 million in cash from operations compared to $172 million generated in last year's fiscal Q3. We ended the third quarter with about $1.1 billion in cash and investments. During the quarter, we bought back about 2.5 million shares of our common stock. We ended the quarter with about $230 million of stock repurchase authorization available. We continue to execute our buybacks through a 10b5-1 trading plan. We recently received board approval to increase the existing share repurchase authorization by $350 million, bringing our total authorization to about $580 million. We also announced today a cash dividend of $0.25 per share. The dividend will be payable on August 31, 2022, to shareholders of record on August 23, 2022. Now let's get into the fiscal '22 outlook. First, we continue to see uncertainty in the marketplace. The combination of the macroeconomic climate, inflation, impact of COVID measures, supply chain, and unpredictability in consumer spending creates uncertainty for our customers, including estimating what they will ship to their customers. These factors impact our business, and this limited visibility makes it much more difficult to provide guidance, but we are providing an updated estimate based on the best information we have available. With all of that as a backdrop, we are adjusting our full year revenue estimate driven primarily by changes in our mobile, PC, and broadcast end markets. We now estimate total revenues to be plus or minus flat to last year's revenue, ranging from $1.27 billion to $1.3 billion. Within that, licensing revenues could range from $1.190 billion to $1.215 billion. Broadcast revenue is now expected to decline in the mid- to high single digits. Last quarter, we talked about softness in TVs, and we are still seeing incremental softness in TVs as well as lower unit shipments in set-top boxes. Mobile revenue is now expected to be down low single digits compared to the positive mid-single-digit growth we discussed last quarter. We are seeing that for some of the deals we've been working on, transaction cycles are taking a little longer in this environment, particularly in Asia. PC revenue is expected to grow mid-single digits, down from our previous guidance of high single digits. We are seeing softness in the PC market, and downward adjustments to unit shipments are impacting our second half. Consumer Electronics revenue is still expected to be up low single digits, driven by growth in Dolby Atmos, Dolby Vision, and imaging patents. Other licensing revenue is still expected to grow around 15%, driven by Dolby Cinema. Within this, we are now expecting our foundational audio revenues to decline just over 10% year-over-year, and Dolby Atmos, Dolby Vision, and imaging patents revenue to grow roughly 35%. Products and services revenues could range from $80 million to $85 million, which is within the range previously provided, as we still expect improvements in Cinema products and growth of Dolby.io. Non-GAAP gross margin is estimated to range from 89% to 90%. Non-GAAP operating expenses are estimated to range from $740 million to $750 million for fiscal year '22, which is lower than the previous guidance due to lower internal labor expenses. Non-GAAP operating margins are now estimated to be 30% to 32%. Our effective tax rate for the year is projected to range from 17% to 18% on a non-GAAP basis. Fully diluted earnings per share on a non-GAAP basis is estimated to range from $3.22 to $3.37.

Great. Thanks for the color, Robert. Operator, let's open up the line for analyst questions. But before we do that, Robert, can you just summarize your outlook for Dolby?

Sure, Maggie, of course. As we're now getting continued uncertainty in this near term, that's for sure. At the same time, we remain excited about the long-term growth opportunities ahead. The fundamentals of Dolby's business remain intact. Dolby is an enduring company that has always been a leader in the advancement of sight and sound. We've gone through several technology shifts and come out stronger each time, making consumer experiences better for device makers, content creators, content distributors, and now developers. We have a durable business model with high gross margins, positive cash flows, and a strong balance sheet. We are moving into a very exciting phase with robust opportunities for growth ahead of us.

Great. Operator, I'm turning it over to you.

Our first question comes from Steven Frankel from Rosenblatt.

I just want to dig in on the mobile situation for a minute, Kevin. Earlier in the year, you talked about some confidence in the back half because you had some deals that had minimum upfront guarantees. Are you referring to some of those now stretching out? Or did you get those deals in this quarter and it's things in the pipeline that you thought you would close in Q4 that are stretching out?

Yes. So, Steve, to remind you, most of our revenue is generated from device-based royalty revenues. We primarily have three types of deals that can affect revenue timing. One is when we have minimum volume commitments. Another is when we have recoveries for back royalties. And the third is when we sign new patent licensees, which often includes past-use revenue. At any given moment, we anticipated more of these deals in the pipeline that we believe will close, particularly in Asia. This situation cannot be linked to any single factor. For instance, in China, we haven't been able to send anyone from headquarters for the past three years due to the macro environment, which likely distracts our customers. Overall, we still observe significant activity in the pipeline, but we are expecting a lower close rate in Q4. Looking ahead, we see potential growth drivers in Mobile, including Dolby Vision capture, which I had mentioned earlier. Dolby Atmos Music is also a contributor for Mobile, among others.

Okay. And what about the pipeline in mobile in the next tier down in automobile? What does that pipeline look like? What is your confidence level on being able to get there?

Yes. Well, we're happy to have brought on a new partner this quarter and to have NIO extending us to another model. Like I said earlier, the music proposition with Dolby Atmos is very strong across all of our constituents. So we feel very good about our pipeline of engagements, and we're confident that we'll be able to continue to bring the Dolby experience to more and more cars. Our goal is to have this be a mainstream experience for the car.

Okay. And then one last quick one. Given the lower outlook in the current environment, and that's something that may stick around for a while, have you either pulled back potential investments in areas? Or are you rethinking how you might be spending money as you get into the new fiscal year?

I would say, Steve, at the highest level, this thing is really sharpening our thinking on where the highest impact opportunities are to drive that long-term growth and getting even more focused on those things. Approaching the end of our fiscal year, this typically is about the time we start taking stock of everything we've learned over the last year. While we strive to do this daily, this is a time we tend to reflect on that and get even more focused on what's working, what's not working, and how we want to realign our resources. In the meantime, while we go through that process, we have paused our hiring activities except for some of the most critical roles.

Our next question comes from Ralph Schackart from William Blair.

First one, just maybe on the macro. Kevin, as you sort of sit here today versus last quarter, obviously, a lot has changed. Maybe if you could walk through from your perspective what's changed most from Dolby from what we're seeing today? And perhaps if you could also reflect on some of the conversations that you're having with your licensing partners. And then I have a follow-up.

Yes, Ralph, that's a great question. The second part of your question takes me in a different direction than the first. It relates to what I mentioned earlier about many of our partners across various categories pushing the limits of immersive experiences. When we demonstrate and discuss future possibilities, whether regarding cars, Dolby Vision capture, or live sports, we remain focused on our long-term goals, despite the current economic environment. While I won’t reiterate the factors affecting us, they have made near-term visibility challenging. To summarize what's changed since last quarter, we've observed that TV and gaming console shipments are trending lower than we initially anticipated for the year. We have noticed more signs of this in TV shipments, and now, this quarter, we're seeing similar trends with PCs. We're monitoring all developments closely. Essentially, we're tracking the macroeconomic landscape to understand how it will influence near-term device shipment activities, while at the same time, we feel optimistic about the engagement surrounding more Dolby experiences across our strategic priorities.

Great. And maybe just one on expenses, Robert. G&A came in quite a bit lower than at least we were forecasting and down sequentially. I know expenses can bounce around quite a bit, but maybe what were the factors as it relates to G&A? And perhaps how should we think about that spend going forward? I know you talked about pausing hiring, but any color there would be helpful.

Yes. The main factor for G&A is the decrease in personnel costs. We were already lagging in hiring before we paused it, which contributed to the lower costs.

Our next question comes from Paul Chung from JPMorgan.

On io, can you expand on the integration with Millicast and how that's going? You have a lot of new partners here, more logos on the website. Are you expanding io with those new partners as well? And then how do we size the kind of Millicast opportunity? I also saw UnitedMasters looks like a new logo. What's going on there?

Yes. So I'll start where you ended. UnitedMasters is using our music mastering to improve the professional mix, giving you professional mixing quality against music recording. That's a great add for the quarter. Millicast brought us the ability to live stream these experiences to large audiences with ultra-low delay, so sub-second delay. What we're finding already is that we have a lot of customers that are doing both the interactive audio/video chat experiences and wanting to live stream those to very large audiences. These could be things like we have one developer doing EDM music production in a virtual club-like environment. You could be in that experience with your headset or watching as they stream it to large audiences. The examples go on and on. The beauty of a developer platform is that developers from different corners of the world can discover your technologies, and we see good use cases come to life. We've seen that in areas like auctions where ultra-low delay is very valuable. Sotheby's has been using it. We have some car auction companies, which is not something I think I foretold when I was talking to you a year ago, but the high quality, low delay is valuable there. Remote production and content production is something we've talked about. We continue to see demand there. Customers like NBC, CBS, and again, that ability to interact and collaborate with high quality and low delay is extremely valuable. The product is being used together and is further integrated. The website has now gone live as a single website, and we're in the process of bringing the rest of the pieces together. From a product market fit, that's the first criteria, and it's already proving to be a really nice fit, evidenced by the increasing number of developers using the core Dolby.io real-time interactive audio/video combined with the Millicast live streaming capability.

Okay. Great. And then a follow-up on Dolby Vision capture. How do we think about the kind of incremental ASP you get with the adoption of this feature? Given the expansion into Android, how does this accelerate across multiple OEMs running Android? Are those discussions accelerating? Can we see some progress on Dolby Vision across the Samsung platform? Are they taking notice here just on the whole Vision opportunity as well?

Yes, of course. The reason we're excited about the win with Xiaomi and Dolby Vision capture is that we do think it's a very compelling experience on mobile devices. It addresses a primary use case for the mobile device, whether applied to social media, live shopping like Naver, or just your own video. We see it as a big opportunity, and we think it's an important step to get the first within the Android ecosystem. It's significant that we have these other ecosystem partners coming along with it. We see good progress. Like I said, WeChat, Bilibili, QQ. The fact they're engaging with strengthens the value proposition for the next OEM to come along and gives them more reasons to work with us. I'm not going to discuss any specific engagements, but yes, we're encouraged by the reaction to the Xiaomi announcement and we have a good pipeline of engagement.

Our next question comes from Jim Goss from Barrington Research.

Robert, you went through the licensing revenue changes, but didn't give the licensing revenue mix. I wonder if you might give a quick run-through of those percentages just to true up our model. In that, I was wondering, too, about the chips bill and what the impact and timing could be, and any political risk to the China relationships you have.

Jim, the percentage of revenue for each of the end markets is in the 10-Q as well as in the Interactive Analyst Center.

Okay. I'll check it from there.

As it relates to the geopolitical element, can you just repeat that?

I was wondering about the chips bill that just passed, and what impact there may be and how long before there would be any effect? Also, I'm wondering how the political climate could affect your China relationships.

Yes. In the context of what we've been talking about today, it relates to uncertainty in the environment. Those issues have long lead times, so I don't think that will play into our near-term view of the environment. Geopolitical uncertainty, including the war in Ukraine or China relations, is part of the long list of factors that create uncertainty. For now, our engagements in China are really strong, as evidenced by some things we've talked about today. It's something we pay very close attention to and stay very closely engaged with both in the U.S. and in China.

Okay. Then one separate thing. The Atmos Music segment, many theaters are discussing alternative music content in theaters as a potential opportunity. I would imagine it would tie you into Atmos. I'm just wondering how you're looking at this as a possible opportunity for you, or is there no additional opportunity as you're already embedded in those theaters?

I believe there is significant potential here, and you are correct in your observation. This isn't entirely new, but there is currently more enthusiasm around these ideas than ever before. This results in two key benefits for us: firstly, making Dolby Atmos more widely accessible, whether at Dolby Live events, through live-streamed concerts in Dolby Atmos, or in cars and cinemas. This enhances awareness and excitement for the Dolby Atmos Music ecosystem and increases demand for its applications. In cinemas, this creates a greater incentive to incorporate Dolby Atmos in theaters or within Dolby Vision experiences, as experiencing a concert in both Dolby Vision and Dolby Atmos would be even more impressive than just in Dolby Atmos alone.

This concludes our Q&A. I'll now hand back to the management team for any final remarks.

I want to thank everybody for joining us today, and we look forward to speaking with you again soon.

Today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.