Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories Conference Call discussing Fiscal Third Quarter Results. During the presentation, all participants will be in a listen only mode [Operator Instructions]. As a reminder, this call is being recorded, Wednesday, August 7, 2024. I would now like to turn the conference over to Mr. Peter Goldmacher, Vice President of Investor Relations. Peter, please go ahead.

Thank you, operator. And good afternoon, everyone. Welcome to Dolby Laboratories third quarter 2024 earnings conference call. Joining me today are Kevin Yeaman, Dolby Laboratories CEO; and Robert Park, our CFO. As a reminder, today's discussion will include forward-looking statements, including our fiscal 2024 fourth quarter and full year outlook and our assumptions underlying that outlook. These statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today, including, among other things, the impact of macroeconomic events, supply chain issues, inflation rates, changes in consumer spending and geopolitical instability on our business. A discussion of these risks and additional risks and uncertainties can be found in the earnings press release that we issued today under the section captioned forward-looking statements as well as in the Risk Factors section of our most recent quarterly report on Form 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 to non-GAAP financial measures is available in our earnings press release and in the Interactive Analyst Center on the Investor Relations section of our Web site. With that, I'd like to turn the call over to Kevin.

Thank you, Peter. And thanks to everyone joining us on the call today. Revenue for the quarter came in just above the midpoint of the range that we provided you on the last earnings call and earnings were above the high end of the range. For the full year, we now expect revenue to be down approximately 1% to 2%, which is at the lower end of what we've been expecting throughout the year. We are not making any changes to our non-GAAP EPS guidance for the year. Our foundational audio revenue is coming in lower than we expected as global device sales in aggregate have been soft all year and we are seeing lower than expected units in set-top boxes and gaming consoles for the second half of the year. In products and services, cinema products are coming in lower than we expected as the box office remains sluggish and exhibitors continue to push out CapEx. Dolby Atmos and Dolby Vision are performing slightly ahead of our expectations as strong content growth continues to drive device attach rates. Dynamics remain stable and ongoing engagement from the broader ecosystem of creators, distributors and device manufacturers are driving a steady stream of product launches across all device families. We continue to be confident in our growth opportunity with Dolby Atmos and Dolby Vision and we have a strong position with our foundational audio technologies, which are well positioned as our end markets return to more normal cycles. Moving on to the highlights for the quarter. We continue to enjoy momentum in content for Dolby Atmos and Dolby Vision, which is driving growth in autos, TVs and mobile, our three biggest areas of opportunity. Starting with content, I'm happy to share that as of this spring, over 25,000 TV shows and movies…

Thanks, Kevin. And thanks to everyone joining us on this call today. Before we review the quarter in some detail, I'd like to hit the highlights. First, revenues for Q3 were above the midpoint of the range we laid out on the Q2 earnings call and profitability came in above the high end of the range. Second, the environment remains uncertain and dynamic. Our revenue guidance for the full year is skewing towards the lower end of what we've been describing as roughly flat all year and our non-GAAP EPS range is unchanged. And third, as I have said before, we feel good about our long term growth prospects and our value proposition remains strong and our financials are solid. Q3 revenue was $289 million, down 3% compared to the year ago quarter but above the midpoint of guidance we shared with you on the last earnings call. Licensing revenue of $267 million was down 2% year-over-year. Products and services revenue was $22 million, down 14% year-over-year. Detailed licensing performance by end market is on our IR Web site, but I'd like to point out some noteworthy details. As a reminder, timing of recoveries, minimum volume commitments and true-ups can drive volatility between quarters. For example, mobile, which benefited from minimum volume commitments this quarter, was up 25% year-over-year but will still be down slightly for the full year. Similarly, consumer electronics revenue was down 18% year-over-year in the quarter but we expect revenue to be down slightly for the full year. We expect Broadcast revenue to be down year-over-year for the full year, driven by tough comps in terms of timing and size of deals and lower set-top box revenue. On the flip side, we continue to expect solid growth in other markets, driven by imaging patent admin fees…

[Operator Instructions] Our first question comes from the line of Ralph Schackart with William Blair.

Kevin, just on the macro, just to kick it off. Just curious what you observed this quarter in relation to what you observed last quarter. Was it sort of within bounds maybe at the lower end, given sort of the slight tweak to guidance but anything you could add on the macro? And then I have a follow-up.

Yes, I would say that as far as the macro goes, we're seeing much the same we've been seeing all year. I think that it's been -- I think it's fair to say, it's been a tough environment for our OEM customers over the last several years, but we see them I think, cautiously optimistic that things are stabilizing, looking for opportunities for growth. And we continue to have really strong engagement on content distribution devices for Dolby Atmos and Dolby Vision. What we did see this quarter, Ralph, that was a little more specific is we -- as I mentioned some softness in set-top boxes and gaming consoles. So as it relates to set top boxes, the industry analysts and our customers and partners were expecting set top boxes to begin to tick up through the year, they'd worked through a pretty big inventory level last year and we're not seeing that. We're seeing it stay kind of flattish. And so we had a negative true-up in Q3 of $8 million, which was -- set-top box with the biggest part, also continued weakness in gaming consoles, and we see that continuing through the year. At the same time, there's always puts and takes in the quarter. So we had a few things come in early in Q3, which is why you didn't see it show up relative to our guidance for Q3. And then I would say on top of that, the box office continued to be pretty soft through the end of Q3. So we continue to see the pushing out of cinema product purchases. So I would say those two specific things were what contributed to the slight adjustment, but I wouldn't characterize it as a big macro change.

And just one more, just on the new patents that you acquired from GE. Curious if you could leverage these patents either into existing products or potentially for future products? I know it's in part that they've applied a video compression. So overall curious perhaps could this help your Dolby.io efforts as well.

This is really -- so first of all, we're always looking for opportunities that can expand or accelerate our existing business initiatives. And this is very much focused on our imaging patent business where we license our -- through patent pools, which are collaborative licensing structures. And this is a really -- for us, this is a pretty unique opportunity in terms of the ability to bring on a very attractive portfolio -- patent portfolio in the -- particularly in the video codec technology space. So it expands our presencing in imaging patents. It's a very attractive and durable set of revenue streams, and we expect it to be accretive to both nonoperating -- non-GAAP operating income and EPS in the first year. We also did -- as it relates to io, we did also this quarter, acquire a start-up by the name of THEO Technologies, which does enhance the Dolby.io offering. As you know, we're very much focused on sports and entertainment companies that are looking to offer real time, more interactive digital experiences. We really refocused our efforts around that coming into the beginning of this fiscal year. THEO has a video player and features and functions that increase interactivity. They serve a very similar customer base. And so on the one hand it's a buy versus build because it's a very complementary set of technologies, it allows us to provide a more complete solution. And we also think it can increase sales momentum because the ability to cross-sell. In fact, we have number of customer prospects in common we're getting very positive feedback. And so we’re excited about that one as well.

From the line of Jim Goss with Barrington Research.

First, I'd like to ask about Atmos in cars. You gave a number of usage points, including Cadillac OPTIQ, Rivian, Genesis. In the Genesis, with five different models being used, that's pretty rare, I think, to this point. But I'm wondering if you're seeing that in a number of the other applications. And do you feel you are picking up momentum in broadening the usage within cars?

Very excited to have Cadillac on board with the first model. And also, you would have seen that we had Rivian. Hyundai is now offering five models in Korea. And we continue to see -- we now have 20 OEM partners, and we continue to see many of them expanding into additional models and get deeper into lineups. And so this is an area where in Dolby Atmos and Dolby Vision for -- Dolby Atmos for automotive, we're doing better than we expected coming into the year, it's a function of going deeper into lineups, continuing to bring on new models and some of those doing -- just exceeding their unit projections.

And the way you're monetizing this is payment for -- it's not a royalty base but it's more of an installation base in the products area. Is that correct?

It's our typical model. We get an amount for each car.

And the movie business is at a low point, obviously, but it's been starting to recover and expectations are pretty high for '25 and '26. I'm wondering if that's prouding you to increase the number of theater installations either domestically or international or both? And just any comments you might have on that. But also the real monetization has been via TV applications, other consumer products. And I wonder if you might also elaborate on just how that penetration continues to go and whether you're getting similar royalties as you move to expanded lower priced SKUs?

So of course, as you know, we came into the year expecting that box office this year would be affected by the lingering effects of the strikes and the scheduling and the release schedule. And if anything through the end of June that was probably a little softer than most expected. But at the same time we and the industry are optimistic about ‘25 and ‘26 because a lot of those titles are -- there's a lot of great titles that will be ready to come out. And it's nice to see this quarter, the September quarter, off to a really strong start. So to answer your question, even as we've seen people pushing product sales later into the year or into next year, we're seeing increased engagement as it relates to Dolby Cinema and also the ability that we announced at CinemaCon to incorporate Dolby Vision and Dolby Atmos into existing exhibitor branded [PLF]. And that's because even throughout this period of time beginning with the pandemic, and it's continued to be strong, the percentage of the box office that is going to premium large format experiences, including Dolby Cinema is significantly increased as a percentage of the box office. So exhibitors see that and we have increased engagement as they look to increase their premium experience footprint as they -- and with optimism as they look at the potential for box office in '25 and '26.

Within the United States, though, your contract is still an exclusive with AMC, I believe, with the full vision Atmos package. So are you -- and I don't think that's changing. Are you finding a number of other areas around the world where you are increasing that penetration and hoping to do the same in terms of spurring device shipments in those other markets as well?

You said device shipments, are we still on Dolby [Multiple Speakers] did you mean Dolby Cinema [Multiple Speakers]. So yes, AMC is our partner in the US and they're well over 150 screens, so it's a great partner with us. We also have a number of partners in Japan, in Europe, in Korea, where Megabox recently announced that they would expand with us. So we have a pretty good footprint across the globe and demand around the globe. So I think as we go into next year, and it's -- like I said, it's a positive sign that Q4 is off to a good start, we're optimistic that we can begin to increase the number of Dolby Cinema and Dolby Atmos, Dolby Vision installations.

We have no further questions at this time. With that, we will conclude today's conference call. Thank you all for your participation. You may now disconnect.