Ladies and gentlemen, thank you for standing by. Welcome to the Dobie Laboratories conference call discussing second quarter fiscal year 2025 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 during this time, simply press star, follow the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. As a reminder, this call is being recorded Thursday, May 1st, 2025. I would now like to turn the call over to Mr. Peter Goldmacher, Vice President of Investor Relations. Peter, please go ahead.

Good afternoon. Welcome to Dolby Laboratory's second quarter 2025 earnings conference call. Joining me today are Kevin Yeaman, Dolby Laboratory's CEO, and Robert Park, our CFO. As a reminder, today's discussion will include forward-looking statements, including our fiscal 2025, third quarter, and full-year outlook, and our assumptions underlying that outlook. These statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today, including, among other things, the impact of macroeconomic events, supply chain issues, tariffs, and other trade barriers, inflation rates, changes in consumer spending, and geopolitical instability on our business. A discussion of these and additional risks and uncertainties can be found in the earnings press release that we issued today under the section captioned forward-looking statements as well as in the risk factor section of our most recent quarterly report on Form 10-Q. Dole B 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, and 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.

Thanks, Peter, and thanks to everyone for joining us on our second quarter FY25 earnings call. In the second quarter, both licensing revenue and total revenue came in at the midpoint of the range of guidance we provided on our last earnings call, and non-GAAP earnings for the quarter came in at the high end of the range. As we approached the end of the quarter, all indications were that we were on track to be at or above the midpoint of our revenue guidance for the full year. As we speak today, there is, of course, a significant amount of uncertainty in the macroeconomic environment. We don't have the degree of visibility that we normally have as we develop our outlook for the remainder of the year. Given the variability in potential outcomes, we are revising our revenue range from $1.33 billion to $1.39 billion to a range of $1.31 billion to $1.38 billion for the year. Our current assessment, based on limited data points, is that we are likely to experience slight headwinds as a result of the macroeconomic environment. This could change quickly, and there are a broad range of scenarios based on how things evolve going forward. On the one hand, if we see progress in trade deals and increasing clarity in the macro environment, we could be at the mid to high end of this range. On the other hand, if lack of certainty drags on or even escalates further, that would point to the mid to low end of our range. We are monitoring the situation closely, and Robert will walk you through the details on these numbers in a few minutes. In the meantime, we are staying focused on the things that drive growth in the long term. We continue to have strong engagement across our broad ecosystem of content creators, distributors, and OEM partners, and we are performing well on the partnerships that drive growth by bringing more Adobe experiences to more people around the world. I'd like to spend a few minutes on some highlights in the quarter, starting with automotive. We continue to see high demand for raising the bar on the quality of the in-car entertainment experience. This quarter, Porsche announced that Dolby Atmos will be available in the 2026 Taycan, Panamera, Cayenne, and 911 models. And Cadillac announced that it will include Dolby Atmos throughout its entire 2026 lineup of EVs. Also, Volvo, Xiaomi, and Hyundai all announced new models coming to market. Additionally, two more auto manufacturers, NIO and Zeker, have decided to deploy Dolby Vision for a total of three brands and nine car models offering Dolby Atmos and Dolby Vision. Automotive is an increasingly important part of our business, and the momentum continues to build. In mobile, we are focusing on bringing the Dolby Atmos and Dolby Vision experience to all the ways that consumers enjoy content on their smartphones. User-generated content, primarily on social media and short-form video platforms, represent an important opportunity for us to drive further adoption of Dolby Vision into the mobile phone market. Apple has supported Dolby Vision and Dolby Vision Capture across its iPhone lineup for a while, and we continue to make progress in expanding Dolby Vision into the Android device ecosystem. In China, where we already have strong adoption across social media and video sharing services, we added two new partners. Xiao Hongxiu, also known as RedNote, is a Chinese social media platform and an e-commerce marketplace, primarily focused on lifestyle, beauty, fashion, and travel. And Kuaishou is a popular Chinese social media platform specializing in short-form video content, similar to TikTok. We are also seeing increased support across popular video editing apps, reflecting increased interest in Dolby Vision for user-generated content. Filmora has announced plans to support Dolby Vision, and CapCut, which currently supports Dolby Vision for iOS, is expanding its support to include Android. This ecosystem's support is an important part of the virtuous cycle that drives OEMs to adopt Dolby Vision deeper into their device lineups. Earlier this year, Oppo launched its first Android device with Dolby Vision Capture as the default mode, and about a month ago, added three more phones and a tablet with Dolby Vision Capture and playback. Realme and Xiaomi also launched new models that support Dolby Vision. We are focused on working with these partners to expand Dolby Vision deeper into their lineups and on expanding our presence with global social media and video sharing platforms. Moving on to the living room and the TV ecosystem, we continue to focus on bringing Dolby to more content and more devices. This past quarter, both the Super Bowl and March Madness were available in Dolby Atmos and Dolby Vision, continuing our momentum in sports. Waipu TV, the market leader in IPTV in Germany, announced support for Dolby Atmos and Dolby Vision. And TOD, the leading streaming platform for sports and entertainment in the Middle East and North Africa, launched a 4K set-top box with Dolby Atmos and Dolby Vision. More content in Dolby gives consumers a reason to upgrade their TVs and more reasons for OEMs to adopt Dolby further into their lineups. This quarter in the UK, Sky released the popular Sky Glass Gen 2 TV with Dolby Vision and a Dolby Atmos soundbar built into the TV. Also, LG, Sharp, and Hisense all announced new TV models with Dolby Vision. And a quick update on cinema. Filmmakers, studios, and moviegoers all value a premium movie experience, and exhibitors are focusing their investment dollars on rolling out more high-end theaters, which are garnering a higher share of the box office. At CinemaCon, we announced that AMC and Dolby will add an additional 40 Dolby cinemas at amc locations in the united states through the end of 2027. we've also announced that we will be adding dolby vision and dolby atmos to theaters in india this year beginning with six exhibitors in major cities and we also added a handful of new dolby atmos and dolby vision theaters in south korea stepping back while there's uncertainty in the economic environment we had a strong quarter and we had great wins across our main focus areas we are well prepared to operate across a wide range of scenarios and we are in a solid financial position we continue to have strong engagement from content creators distributors and our oem partners across our ecosystems

and we will remain focused on the things that we can control and that drive long-term growth with that i'd like to turn the call over to robert to discuss the financials in more detail thanks kevin and good afternoon to everyone on the call before we get into the details i'd like to point out three important takeaways first q2 revenue came in at the midpoint of the range and earnings came in at the high end of the range we communicated last quarter second we are adjusting the full year revenue range to reflect the current environment and i'll give you some color on that and third dolby is a durable business we have strong financial fundamentals and we've successfully navigated difficult times before with that as backdrop let's get into the details q2 revenue was 370 million in line with the midpoint of guidance and up one percent year over year and license to revenue of 346 million was up two percent year over year products and services revenue was 24 million slightly below the midpoint of guidance and down 10 year over year detailed licensing performance by end market is on our IR website. And as a reminder, timing of recoveries, minimum volume commitments, and true-ups can drive volatility between quarters. In Q2, these timing factors contributed to an 11% decline in broadcast and a 17% increase in PC revenue on a year-over-year basis. For the full year, we still expect strong growth in mobile and other markets, broadcast in PC to be flattish, and CE to be down mid-single digits. Moving on to the bottom line. In Q2, we earned $1.34 per diluted share on a non-GAT basis, up 5% year-over-year, and at the high end of our guidance, largely due to some OPEC spend that was pushed out to the second half. We generated $175 million in operating cash flow and finished the quarter with $701 million in cash-in investments. We repurchased $35 million worth of common stock and have about $352 million remaining on our repurchase plan authorization. We declared a $0.33 dividend, up 10% from our dividend a year ago. Now, I'd like to turn my comments to how we're thinking about Q3 and the full year. To reiterate some of the important context Kevin shared with you in his opening comments, the lack of visibility brought about by the current economic situation has limited our ability to forecast the business with the degree of precision we are used to. There are a wider range of scenarios in front of us than there usually are at this point in the year. So we have adjusted our revenue outlook to reflect this. Let me walk you through this in a little more detail. The outlook for consumer spending on devices is a key factor in our forecast. It is difficult to make general statements about the impact of any broad-based weakness in the economy on our overall business, or how the uncertainty will affect consumer spending on devices for the remainder of the year. Even if we make high-level assumptions about potential impacts of the macro environment and device shipments, the details matter. For example, which types of devices are most impacted, which Dolby technologies are on these devices, and are high-end or low-end devices being disproportionately affected? These are just some of the many factors that could impact our revenue. With that in mind, and to help you think about potential scenarios for the second half of the year, we estimate that if there were a 5% change in overall device shipments for the remainder of the year, it could have an approximate impact on our revenue of roughly two percent to four percent or 15 million to 25 million for the remainder of this year as a reminder most of our licensing revenue is based on unit shipments in general we estimate revenues from unit shipments each quarter and true it up the following quarter based on actual reported shipments from our partners our role here reporting is generally about one quarter in arrears because device shipment data is not real time i would also like to share a few more endpoint specific factors to keep in mind as the macroeconomic situation evolves. Mobile tends to have a higher concentration of minimum volume commitments, so it is less sensitive to near-term changes in device shipments relative to, say, broadcast, PC, or CEN markets. We are still in early days in the opportunity for auto, and currently, the majority of our auto revenue is from non-US OEMs shipping to non-US markets. The last point I'd like to make is that as you think about the impact of U.S. trade deals, we estimate that approximately 25% of our licensing revenues from consumer device shipments are from those sold into the U.S. These are some of the things to keep in mind as the environment continues to evolve. Now, moving on to our outlook for Q3 in the full year. Our outlook for Q3 is for revenue to be between $290 million and $320 million. Within that, licensing revenue ranges from $265 million to $295 million. Gross margins are expected to be approximately 88% on a non-GAAP basis. Our outlook for non-GAAP operating expenses is between $190 million and $200 million. And with our effective tax rate for Q2 at about 20.5% on a non-GAAP basis, non-GAAP EPS is expected to come in between $0.62 and $0.77 per diluted share. For the full year, we have widened and lowered the range of revenue to be between $1.31 billion and $1.38 billion. Our outlook for licensing revenue is to be between $1.21 billion and $1.28 billion. We see non-GAAP operating expenses between $760 million and $775 million, and non-GAAP earnings per share to be between $3.88 and $4.03. In closing, I'd like to remind you that Dolby has successfully navigated many technological and economic cycles. We have a resilient business model with a diversified global revenue base, deep partner relationships high gross margins and a healthy balance sheet we are well positioned to manage the business and we will continue to focus on things that put us on a path of long-term growth with that i'd like to turn it back to the operator to open the line for your questions operator thank you as a reminder to ask a question please press star follow the number one on your telephone keypad your first question comes from the line of ralph shackart with william blair Your line is opened.

Good afternoon, and thanks for the extra color on the call today as it relates to the outlook. Just maybe first, as you're talking to your OEM partners, just curious, those that may be in less, I guess, lower tariff regions, I guess what's sort of the ability for them to increase capacity if that should play out? That's the first question, then I'll have a second.

Yeah, so thanks, Ralph. Of course, it varies by end market. One data point I would share on that note is the location of manufacture for TVs. Mexico is the largest location of manufacture, generally exempt under the exempt from tariff status. It's about 10% in China. Across the rest of our portfolio, it really varies by OEM. So, you know, I think ultimately, as Robert said, you know, when we model our forecasts about how many devices are going to ship, and, you know, it's happening in real time, people deciding whether to increase prices because of any tariffs, whether it's going to affect consumer spending, whether they're adjusting supply chains. But at this point, especially given that mobile is less sensitive to unit shipments, as Robert said in the short term um tvs are mostly in mexico um from where we sit today we think it's likely that we'll experience some slight headwinds but that could change quickly depending on how it evolves from here great and robert i missed this in the compared remarks maybe we can just clarify you talked about 25 of the units sold in the u.s was that in reference to the total volume of of products that Dolby reports as revenue.

Maybe can you just kind of clarify that, please?

Yeah, hey, hi, Ralph. So while our ship to and ship from data is limited, we estimate that approximately 25% of our licensing revenue from consumer device shipments are from those sold into the US and a large portion of that is, yeah.

So for all our licensing revenue, about 25% is related to purchases in the U.S., consumer devices in the U.S.

I'll just give you a last one, maybe a little bit bigger picture. You know, you've obviously been getting good traction with Vision and Atmos. You know, as it relates to some of the economic noise that's going on right now, has that stalled any conversations there, I guess, maybe lost momentum? I'm just kind of curious, you know, the momentum you're seeing on those two growth products.

No, we continue to have really strong engagement with partners across the ecosystem. um you know we i talked about some of those today you know automotive in particular where we continue to see people leaning in to really investing in the in-car entertainment experience dolby atmos music is leading the way you saw us announce uh porsche has announced plans to launch four of its models with dolby atmos cadillac announced its plans to expand into the entirety of its ev lineup for 2026 and we also are now up to three dolby vision customers so we're excited to move from Dolby Atmos music in the car and expanding that into the entire audiovisual experience.

That's helpful.

Our next question comes from the line of Stephen Frankel with Rosenblatt. Your line is open.

Good afternoon, and yes, thank you for the extra insight.

In terms of the overall environment, to what extent, if you see the environment continuing to deteriorate might you adjust uh opex for the back half of the year or or is that expense level pretty much locked in at this point well the first thing i would say steve is is given the uncertainty we're going to stay focused on what we know to drive long-term value so we're not making any quick we're not making any fast changes to our operating plans um on the other hand you know through periods of uncertainty we've learned to make sure and be you know very attuned to whether there are any changes in the environment which has any impact on any one of our individual growth opportunities to the upside or the downside so we would make adjustments we'll look to be quick to adjust to that if and when that happens right now we're we're staying the course um and we're always and i think you've seen us over the last couple of years looking for opportunities to you know, be as efficient as we can everywhere we can.

And you continue to make great progress in the car with that most music. What do you think it takes to get to the tipping point? Is it hitting a particular car brand at a mainstream price point? Is it just getting a couple more wins?

What do you think the catalyst will be that will really tick this market? well look i think we're doing um we're really pleased with the momentum we have now and and you know we continue every quarter to bring on new manufacturers we see new and existing customers of ours expanding deeper into their lineups um they are as you would expect um from us usually starting they're starting at the higher ends of their lineups and so you know we're also working with them and looking forward to when we start to get into high volume mainstream models so that would be another big milestone. But in the meantime, we're very happy with the momentum.

Okay, great. And for Robert, what were true ups in the quarter?

True ups for Q2 is about a million. Okay, great. I'll jump back in the queue. Thank you.

Our next question comes from the line of Patrick Schall with Barrington Research. Your line is opened.

Hi. Good afternoon. Another question on auto. I'm just curious in terms of like the the type of vehicles that you're getting adoption from Vision as well as Atmos, if that's more focused on EV or, like, a specific dash screen size or anything like that.

And then on products and services, I was wondering if you could detail any, like, tariff exposure on that side. yeah so on automotive um uh our uh the the our first three customers are chinese ev manufacturers we also an onset of atmos on china move fast and i think it's just a function of their they move fast and and i think that we also are seeing concentration in evs because those models are are designed in a way which allows for faster implementations and and people are being aggressive about investing in the in-car entertainment experience they also tend to have more screens but this is really um you know there are some interesting stats about how much time people spend in their cars when the car isn't moving at all and so you know for some uh you know some parts of the world or really anywhere in the world if whether you're you're kind of you know you're waiting for to pick up somebody from somewhere or you have time in that car then people are using their their cars as moving entertainment centers and and and communication centers so so I think overall that's what's driving it and it'll start with you know the ability to stream movies and shows and and other types of content on the second part of the question do you want to take the impact yeah yeah hi the question on impact on our products business fairly small the impact of the

tariffs you know yeah there are we do manufacture our products overseas but a large portion of those products are shipped in on US markets and the impact on the the tariff rates for those are pretty marginal okay thank you there are no further questions at this time I will hand things back over to Peter for closing remarks thanks operator thanks everyone for joining the call we'll talk to you next quarter thank you for joining us you may now disconnect