Dolby Laboratories, Inc. Q1 FY2026 earnings call

• CES Highlights: Showcased Dolby Atmos and Dolby Vision shaping entertainment across various content types. Hosted demos at Dolby Live focused on in-car entertainment and Dolby Vision 2 for TVs. - Automotive Progress: Partnerships with over 35 OEMs (up from 20 last year). Mahindra released first SUV in India with Dolby Atmos and Vision, Hyundai launched car with Dolby Atmos in China. - TV进展: Dolby Vision 2 had enthusiastic response at CES. Peacock supported Dolby Vision 2 across movies, originals, live sports; TP Vision announced support for Dolby Vision 2 across upcoming models. - Mobile: Meta supports Dolby Vision on Facebook following Instagram, Douyin supports Dolby Vision on iOS and rolling out on Android. - Imaging Patents: Roku became licensee of video distribution patent pool. - OptiView: Continued partnership with NFL, achieving record streaming quality, bringing in customers like Veikkaus and SIS.

Revenue for the quarter was $347 million. Licensing revenue was $320 million and Products and Services revenue was $27 million. Mobile grew by over 20% year-over-year, while Broadcast revenue was down mid-teens year-over-year. Mobile and Broadcast are still expected to be up mid-single digits for the full year. Revenue contribution: Licensing revenue accounted for a significant portion, around 320/347 ≈ 92.2% of the total quarter revenue, and Products and Services revenue was approximately 7.8% of the total.

• Full year fiscal '26: Raised revenue range to $1.4 billion to $1.45 billion. Licensing revenue expected between $1.295 billion and $1.345 billion. Target non-GAAP operating expenses between $780 million and $800 million. Non-GAAP earnings per share between $4.30 and $4.45. - Q2 '26: Expect revenue between $375 million and $405 million. Licensing revenue between $350 million and $380 million. Non-GAAP gross margin approximately 91%, non-GAAP operating expenses between $195 million to $205 million. Non-GAAP earnings per share between $1.29 and $1.44.

• Impact of macroeconomic events, supply chain issues, inflation rates, changes in consumer spending and geopolitical instability on the business.

Q: So on this notion of some of the upside was driven by deal timing, with deals coming in earlier than expected. Do you read into that? Any change in the environment or customers' sense of urgency? Or this is just the other side of the coin that you experienced over the last couple of years where deals tended to slip?

A: Yes. I wouldn't extrapolate to any generalization in the macro. I think that we're pleased to have had some of our deals come in earlier. It has the effect of kind of derisking some of the outlook for the year. But things are coming in about what we expected, raising guidance some to reflect the true-up in Q1, one of the deals coming in a little bigger and that's -- all the normal adjustments we typically do as we come into a new quarter.

Q: And on that large true-up, could you help us understand, was that in Mobile and that's part of the Mobile upside? Or was it another area?

A: The true-up was about $7 million. And it was primarily gaming and broadcast, Steve.

Q: The strong growth in Mobile, was that in part due to signing of new deals or renewals that drove that?

A: The Mobile -- you tend to want to look at these end markets for the full year because the timing of deals, recoveries, minimal volume commitments, particularly in Mobile, can fluctuate quarter-to-quarter. We still expect the full year for Mobile to be up slightly?

Q: Kevin, the spin-off of the Sony TV venture into a partnership with TCL, does that present an opportunity over the next couple of years for you to gain some material share if Sony ends up behaving like TCL, where you're basically on every SKU?

A: Yes. I mean I don't want to comment on their pending transaction or where they might go with it, but we have very strong relationships with TCL. We also have a strong relationship with Sony. So they're both good partners. And of course, we're really focused across the board on increasing attach for televisions and yes, we're very excited about Dolby Vision 2 and the reception it got at CES from content providers, OEMs, really everybody who came by and we're looking to bring those first Dolby Vision 2 televisions to market by the end of this fiscal year. So as we go into next year, that's when we see that adoption cycle beginning and that's a good opportunity for us as adopting Dolby Vision 2 for those who already have Dolby Vision that's increased royalties. But we also think that it's a real opportunity to bring Dolby Vision 2 and the Dolby experience to those midrange TVs because there's a lot of discrete features of Dolby Vision 2, which upgrade the experience. But when you see two midrange TVs again at CES, we had $300 TV side by side, it's just significantly better. So we're excited about that as we approach the end of the year here.

Q: Ralph, maybe if you could just give us an update on the new sort of patent pool monetization strategy. I think last time on the call, you said it could be 10% of revenue from a collection made within 3 years. Just maybe kind of confirm if that's still the current view? And maybe more importantly, Roku is obviously a nicest customer to have. They're largely $100 million or so active accounts. Maybe kind of give a sense of after you have Roku here, how those conversations progress as you look to commercialize with other partners? And then I think there might be some discounts available, if I'm not mistaken in the market up until midyear, maybe June 30 from recollection. And how is that sort of influencing some of the conversations you're having along those lines?

A: Yes. Let me start with the reference to the 10%. So remember that one of the things that we're excited about is the opportunity to expand our addressable market to content service providers -- for 60 years, we provided technology know-how, experience to content creators, content distributors and OEMs monetizing, of course, at the OEM level. And so we have a couple of areas where we're adding new value that we're providing to content service providers, and that's based on more of a consumption-based revenue model. So it was the combination of the video distribution program, which is reported in imaging -- image patent licensing, which your -- the rest of your question is about. And Dolby OptiView which is the 10% of revenue coming from content service providers in 3 years. Now as it relates to your -- the video distribution program question, so yes, so remember that the pool was introduced because of the growth of the streaming industry and the recognition that modern video codecs are critical to the future success of these providers. And we feel it's off to a good start with a handful of licensees last quarter, including some large ones in China. As we said this quarter, the pool signed its first U.S. streamer in -- with Roku. So that is -- we've obviously seen a lot of these patent pools develop over the years. So we feel good about the progress, good engagement across the industry. And yes, it sounds like you've maybe been doing some good research on our website or elsewhere. There are some pricing incentives to -- that the pool that we go through is -- offers to incent early sign-ups.

Q: Vikram, I guess I'll start first on CES. I'm curious if you can just talk more about your takeaways from the event this year. Obviously, you talked about all the demos that you had available there. I guess what was some of the feedback from the partners and customers throughout the event? And what do you think resonated the most from some of your latest innovation?

A: Yes. Well, first of all, it's just a great opportunity for us to engage with partners from across our ecosystem. I mean, of course, we had OEMs coming through, but also our content service partners and content creators. And, as you know, we're -- we have our own space at Dolby Live, which is pretty well equipped to demo the Dolby experience. And it's just a great opportunity to show them what are -- what's new and we were really focused on the automotive in-car entertainment experience in Dolby Vision 2. But of course, it's also an opportunity to talk to them about what they're seeing, what their -- how they see their opportunity and how we can partner together. So we had hundreds of groups of customers and partners coming through. On the floor, it was mostly about the automotive experience, a lot of energy, a wide variety of cars and use cases. We also saw at Dolby Atmos, Dolby Vision car. So whereas we started with -- our story several years ago when we started was music in the car. Now it is fully the complete in-car entertainment experience with Dolby Atmos, early days of Dolby Vision, but you're seeing examples of gaming content in the car, TV and movies. Audiobooks is also a really attractive use case for our Atmos partners. Dolby Vision 2 was just -- has just been -- we were already getting a good reception. We got to show it to a lot more people. And as I said earlier, you can just really see the difference. So there's a lot of excitement about that. So we're heads down, working with our partners to get those first TVs out the door toward the end of this year so that we can then begin to increase the availability of that in the marketplace. So that's some of what we were -- that's kind of what we say good -- it was a really good show for us.

Q: Patrick, Maybe just another question on the guidance. Can you talk about like whether on the foundational of the Atmos and Vision side of things. Just how you're seeing OEMs respond to any kind of the macro issues, whether it's on tariffs or on memory in terms of how they're kind of adjusting their time shipment views?

A: Yes. Yes, thanks for that. I think -- look, I think everybody is probably on a daily basis trying to find the signal through the noise because there's obviously a lot of things going on. As it relates to our adjustments, there weren't -- not material adjustments, but we update our outlook every quarter. The reference to memory pricing, in particular, obviously, that's a hot topic. I would say -- that was some -- like I said, it wasn't a significant adjustment, and we ended up raising guidance given the true-up and some of the strengths in the pipeline. As it relates to memory pricing and our end markets, it looks to us like the Mobile end market is the one that's most directly impacted. As that relates to us, it varies quite a lot by customers. Some customers have done more forward purchasing or other things to kind of hedge the impact. And then, of course, most of our Mobile business is driven by minimum volume commitments. So the timing of renewal cycles also plays into that. So it's not a material effect overall, but there were some adjustments there. In terms of TVs, memory is not as much of a percentage of the bombs. We don't see a lot of impact. And one other area where we've heard more noise around what the impact would be, would be PC and that's one of the markets that Robert highlighted as being down for the year for us.

Q: Patrick, And then you addressed in the press release that the continued progress on adoption in audio manufacturers. So I'm just kind of curious with changes around U.S. policy, if you're seeing any sort of impact and how that flows through to -- like around EVs, if that has any impact on the adoption of the various in-car offerings?

A: Well, because of the stage of the opportunity we're at, which is getting a lot of new wins and getting a lot of new models. We haven't noticed any impact. It's still -- it's one of -- it's our highest growing area and within, the other is licensing. And I would also say that we are beginning to see more diversification geographically. We were -- we started very strong in China with EVs. We've expanded to Mercedes, Audi, Porsche, Cadillac and the top 3 manufacturers in India, and we're also beginning to see more gas-powered vehicles coming with Dolby Atmos as well. So far, that's not been top of mind for us. We're continuing to focus on getting more manufacturers, help them get deeper into lineups. And as I said earlier, really excited about the opportunity now to expand into the full in-car entertainment experience with Dolby Vision and all the types of content that people are going to enjoy in their car.