Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories Conference Call discussing Fiscal First Quarter Results. As a reminder, this call is being recorded on 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 Yeaman, 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 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 thanks to everyone for joining us today. Revenue for the quarter came in about where we expected, and earnings were better than we anticipated. 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 concluding 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 fiscal year '24 guidance for mid-single-digit declines in foundational licensing revenue. Regarding 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, along with imaging patents, to grow at a 3- to 5-year compound annual growth rate (CAGR) of between 15% and 25%. 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 are 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 incorporate our technology into 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 that 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 award 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 Grammy's used Dolby Atmos. Ninety-two percent of the Billboard 2023 year-end top 100 artists are available in Dolby Atmos. Additionally, over 100 shows utilizing 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 audiovisual experience possible. We are focused on making these experiences available on as many devices as possible. We 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. We continue to be featured in lineup announcements from our partners, including TCL, LG, and Hisense. We also have 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, automatically providing 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 significant focus of the show for us was our growing presence in automotive. We received positive feedback from our Dolby Atmos-enabled demo car, which delivers a fully immersive Dolby Atmos experience in an affordable midsized car with a standard 4-channel, 8-speaker sound system. Additionally, 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 Zeekr, the premium electric vehicle 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 will enable 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 multiyear 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. While it's early days, we just closed our first seven-figure deals. I'd like to wrap up my comments with some concluding 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.

Thanks, Kevin. Before we get to the detailed financials, I'd like to share three thoughts. First, revenue for Q1 was within the range we laid out in the Q4 earnings call, and profitability came in higher than guidance, primarily due to the timing of spend. Second, while the environment remains uncertain, our guidance for the full year remains unchanged. And third, as I've said before, we feel good about our long-term prospects as our value proposition remains strong, and our financials are solid. Q1 revenue was $316 million, down 6% compared to the year-ago quarter and just above the midpoint of the guidance we shared with you on the last earnings call. Licensing revenue of $294 million was down 5% year-over-year. Products and services revenue was $22 million, down 19% year-over-year, driven by lower cinema product sales, and came in lower than expected due to timing of orders now expected later in the year. Detailed licensing performance by end market is on our Investor Relations website, but I'd like to point out some noteworthy details. Timing of recoveries, minimum volume commitments, and true-ups can drive volatility between quarters, and we saw that dynamic in mobile this quarter as we expected. In Q1, mobile revenue was down about 45% year-over-year due to these factors, but we still expect mobile to decline only slightly for the full year. Our end market outlook for the full year is unchanged from last quarter's call. We continue to expect solid growth in other markets, and PCs should benefit from slightly higher units, higher revenue in imaging patents, and recoveries. This increase will be offset by slight declines in broadcast, consumer electronics, and mobile. While we see growth in Dolby Atmos and Dolby Vision in these markets this year, the overall revenue declines are primarily due to tough comparisons in terms of timing and size of deals and true-ups in foundational and imaging patents. Moving to the bottom line; in Q1, we earned $1.01 per diluted share on a non-GAAP basis, above the high end of our guidance, primarily due to lower operating expenses related to timing of patent program spend, higher other income, and lower taxes. We generated $8 million in operating cash flow. Over time, operating cash flow will correlate to non-GAAP net income, but this quarter we had a variety of timing issues working against us. Moving on; we repurchased $8 million of common stock and have $132 million remaining on our repurchase plan authorization. We declared a $0.30 dividend, up 11% from our dividend a year ago, and ended the quarter with cash and investments of just under $900 million. We recorded a $6 million non-GAAP restructuring charge in the quarter, in line with the restructuring plan we communicated last quarter and completed in November. Turning to guidance; there is still uncertainty in the market, and our guidance assumes no material change in the macroeconomic environment. While we continue to see steady growth of content created and distributed in Dolby technology and strong engagement from our partners, device shipments remain soft, and things are taking longer to accomplish. For Q2 '24, we expect revenue to be between $345 million and $375 million. Licensing revenue is estimated to range from $320 million to $350 million. Gross margin should be approximately 90% on a non-GAAP basis. We expect non-GAAP operating expenses to be between $180 million and $190 million. Our effective tax rate for Q2 is projected to be around 20% on a non-GAAP basis. As a result, we estimate that non-GAAP EPS should be between $1.14 and $1.29 per diluted share. Our full-year guidance for fiscal year '24 is unchanged at roughly flat revenue. Embedded in this guidance is an assumption of a mid-single-digit decline in foundational audio licensing revenue, offset by high single-digit growth in Dolby Atmos, Dolby Vision, and imaging patent licensing revenue, and flat product and services revenue. Non-GAAP gross margin should be roughly 89%. Non-GAAP operating expenses for the full year should be in the $740 million to $750 million range, which will result in about a 1% to 2% improvement in operating margins on a full-year basis. On the bottom line, we are expecting non-GAAP EPS between $3.60 and $3.75 per diluted share. To wrap things up, the creation and distribution of Dolby-enabled content continues to grow nicely. Our partners are still very engaged. Our financials remain strong, and we are well positioned for growth when economic conditions improve. With that, I'd like to turn it back to the operator to open the line for your questions.

Your first question comes from the line of Ralph Schackart with William Blair.

Kevin, maybe kind of go back to some of your introductory comments on macro. I think you talked about some of the macro being the same as last call but maybe just kind of taking a step back as you look out into 2024 this year and if you compare where you are today versus if you looked out into 2023. Maybe just sort of give an assessment of the relative macro, I guess, this year versus last year when you were looking out.

Yes, thanks for the question, Ralph. As it relates to our foundational revenues, the biggest macro factor is the number of device shipments. As we said, we haven't seen anything that would cause us to change our outlook for that. Regarding the overall environment, I would remind you that we didn't say we saw a couple of big deal delays. What we did see was that there have been a couple of years of an uncertain and changing economic environment. A lot of companies are devoting attention cycles to make their adjustments to focus on that. This has had the overall effect that some deals might take another month or two to achieve a device win. It could take another month or two for a partner to transition from a device win to a product in the market, or sometimes they have their product ready to go and might, for a number of reasons, decide to launch it a few months later. So all of this was the dynamic we discussed that we were seeing cumulatively last quarter when we guided to high single-digit growth in Dolby Atmos and Dolby Vision, and we are still seeing high single-digit growth. We continue to have very strong engagement across the ecosystem. We are confident that with the engagement we have and the wins we are securing, we can return to the 15% to 25% CAGR over that mid-term 3- to 5-year period.

Great. And then maybe just circling back a little bit to CES; you had some comments in the prepared remarks. So maybe just give an assessment of how CES went this year, perhaps versus last year? Any momentum you're seeing at least perhaps with initial conversations coming out of this year?

Yes, I think one highlight for us was that as you walk the show floor, Dolby is presented prominently. We were featured in a number of our partners' lineup announcements. We had a strong presence in the living room devices overall. So that was a real highlight throughout the show. Within the Dolby space, we were showcasing everything we do, but automotive is where we had a lot of engagement and activity. We presented a demo car that effectively showcases the full power of the Dolby Atmos experience for a car at an affordable price point with 4 channels and 8 speakers, generating significant interest. People were eager to experience Dolby Atmos in the car firsthand. We had a robust pipeline, with strong engagement, as almost every major auto manufacturer was represented at the show. Those were some of the highlights for us, Ralph.

Great. Maybe one last one and I'll turn it over. Historically, Dolby has been sort of a professional consumer strategy. A lot of times, your newer products start at a high price point in devices and make their way into more mass-market prices. Anything you're observing in the auto market that would suggest that this might alter? Things may be picking up where you might see Atmos move to less expensive vehicles. Just would love your thoughts on that.

Yes, it's a great question because, as you know, our goal is to have Dolby Atmos be the experience everyone has in the car. It's early days; we're at 13 OEM wins, up from 10 last quarter. We've only been at this for a couple of years. Just over half of those are shipping in the market, and many of them will be coming to market this year. We've already seen partners like Mercedes extend to 10 models. This quarter, I mentioned Zeekr by Geely in China; that model is going to be at a price point just under $30,000. There is something about the Dolby Atmos experience, combined with the importance of music in the car, and the engagements we’re experiencing, lead us to believe we can reach the mainstream even as we started at the high end here. Demonstrating the experience in an affordable car is a big part of this equation because many of those first models, if you're at the highest end luxury models, could have 20, even 30 speakers. So having people experience it at a price point that mainstream models will have is a significant step forward for our team.

Your next question comes from the line of Steven Frankel with Rosenblatt.

Let me start with a couple of Robert questions to get him off the sideline and then we'll go to you, Kevin. So, Robert, on mobile, which obviously was down sharply, a lot more than the market. Maybe give us some insight into the timing differences behind that? And does the timing difference there explain most of the cash flow difference on a year-over-year basis?

Yes, Steve, I'll answer those two separately. So regarding mobile, if you take a step back, it's about where we expected it to be for the full year. We expect it to be down slightly, really due to market trends, and that will be partially offset by growth in Dolby Atmos and Dolby Vision and imaging there. It is down for the quarter due to timing, as you mentioned, of minimum volume commitments and recoveries, which can swing from quarter-to-quarter. We do expect it to be up significantly sequentially next quarter, so you will see timing differences both ways. Regarding cash flow, in terms of just setting the stage, Q1 is usually a weak quarter due to seasonality, and you can see that. This quarter was atypically soft, with working capital balance timing issues working against us. Over time, operating cash flows will fluctuate but correlate closely with our non-GAAP net income, and you will continue to see that.

Okay. And then, Kevin, thanks for the update on IO. Can you give us any more color and just to clarify, you said multiple seven-figure deals? And what could you tell us about those customers or use cases?

Yes, thank you, Steve. As we mentioned last quarter, we are focusing on where we are seeing increased demand, particularly in the sports and entertainment space. Our customers want to innovate around the digital experience and aim to offer real-time experiences that are interactive and more personalized. Many of these new opportunities revolve around our capability to deliver ultra-low latency streaming, which means just a few hundred milliseconds of delay compared to the 7–8 seconds that may happen otherwise. We are excited about applications in areas like iGaming and sports betting, where the value proposition for real-time content is clear. We signed a couple of seven-figure deals, signaling the shift we've made from a self-service developer platform to focus on these larger opportunities. We feel that we’re on the right path and are excited about the future prospects. It’s still early days, but we are making good progress.

Okay. Then to pick up on Ralph's question about reaching more mass-market platforms with Atmos Auto, are you encouraged by that, especially seeing that success in China? Domestically or in Europe, do you think those companies are waiting for increased consumer demand? Or do you think other factors are holding back today and that they don’t necessarily need consumer pull-through to be convinced there's value in doing this?

I think it's just that we've been marketing Dolby Atmos for about 2 years now. We've added 13 OEMs, which we believe is significant progress in that timeframe. Each of those OEMs will begin with their higher-end models, and we able to see them continue to expand their lineups. Looking at our pipeline, we can see strong interest not only in high-end models but also in mainstream models, which is why we wanted to demonstrate to our partners that the experience can be realized at an affordable price point with appropriate hardware. Our teams have received strong reception based on this demonstration.

Your next question comes from the line of Jim Goss with Barrington Research.

I'd like to talk a little more about the music in cars idea. Also, did I understand it correctly that you had some over-the-air updates enabling usage on some devices with new technologies? If so, how much of that is possible? How prevalent is it? And how do you benefit economically?

Yes, what you picked up on is indeed the Zeekr announcement. They indicated that their customers will get Dolby Atmos updates via over-the-air updates. This requires the right hardware and specifications to enable that experience. Economically, the model is unchanged; we still charge per device, which in this case is per car. What’s exciting about this approach is that it allows us to enable more cars to experience Dolby Atmos if they possess the appropriate hardware requirements. This ultimately expands our addressable market.

So, it primarily involves electric vehicles, and not a lot of the other types, even if they are high-tech cars?

In this case, it’s indeed an electric vehicle. However, many vehicles are capable of receiving over-the-air updates for their entertainment systems or other aspects. The key takeaway is that we have secured another OEM win, and they will be introducing our technology in a car priced under $30,000. It’s significant that our partnerships span many device categories and that if they’ve met the hardware requirements, they can bring Dolby Atmos and Dolby Vision to consumers through over-the-air updates.

Okay. Maybe one other thing. You've been very good at pursuing increased penetration for Atmos and Vision in rolling out additional SKUs in various devices. At what point does it shift, in your view, to being foundational technologies rather than growth technologies? How do you evaluate that as you progress through the cycles?

The concept of foundational compared to Atmos, Vision, and imaging patents was intended to help the investment community understand how to interpret the macro environment. Our foundational offerings, which include our audio patents and branded audio codecs, possess such significant penetration across various devices that factors such as consumer spending or the number of devices shipped during a quarter strongly influence foundational revenues. Conversely, Dolby Atmos and Dolby Vision, even in TVs where we hold some of our highest penetration rates, still have many devices to pursue. In automotive, as discussed, we are still in early stages. In mobile, we've achieved considerable penetration regarding Dolby Atmos while there's a significant opportunity to extend our reach based on early successes in Dolby Vision and Dolby Vision Capture. Consumer demand, along with the volumes of devices shipped, will affect us, but our focus this quarter has been on achieving significant growth in Atmos and Vision. We have set a target for achieving a 15% to 25% CAGR over the midterm. Therefore, we are not quite determining when it will shift to being foundational just yet.

There are no further questions at this time. I will turn the call to Peter for closing remarks.

Okay, great. Everyone, thanks for dialing in on our call today, and we'll talk to you next quarter. Operator, thank you.

Thank you. This concludes today's conference call. We thank you for joining. You may now disconnect your lines.