Dolby Laboratories, Inc. Class A Stock

Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories Conference Call discussing Q3 fiscal year 2026 financial results. [Operator Instructions] As a reminder, this call is being recorded, Thursday, July 30, 2026. 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 Third Quarter Fiscal Year 2026 Earnings Conference Call. Joining me today are Kevin Yeaman, Dolby Laboratories CEO; and Robert Park, CFO. As a reminder, today's discussion will include forward-looking statements, including our fiscal 2026 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 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 annual 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.

Thanks, Peter, and thanks to everyone joining us on the call today. Revenue and earnings for the third quarter were within the range of guidance we provided on the last earnings call. We are narrowing the range of guidance for the full year and keeping the midpoint of revenue the same. We expect strong sequential growth in Q4, driven primarily by momentum in a number of our key growth areas. We have strong visibility into the pipeline of deals for the quarter, and many of them have closed early in Q4.

Robert will share more details on this and on the financials overall in a few minutes. Dolby has maintained its leadership position for over 60 years by innovating and raising the bar on the entertainment experience. We do this by working with creatives, content distributors, and device makers, giving us a unique perspective on the collective needs, challenges and opportunities of the entertainment ecosystem, which enables us to deliver experiences that come to life in the highest possible quality.

This quarter, I would like to start with our focus on expanding our total addressable market beyond device licensing. We are working with a growing number of content partners that are looking to differentiate on experience and drive deeper engagement with their audiences. And we are making good progress on our target for 10% of revenue from these partners by the end of FY '28. Let's start with the video distribution program, the patent pool that licenses imaging patents to content streamers.

Meta, one of the world's largest streamers of video content, became a licensee of the program covering its Facebook, Instagram, and WhatsApp platforms. Also, Alibaba became a licensee this quarter to cover its video operations, including e-commerce, entertainment, and digital media platforms. We are encouraged by the early traction and the quality of the participants joining the pool. In less than 1 year since inception, 45 licensors have already attracted some of the biggest names in streaming as licensees to the pool, including ByteDance, Kuaishou, Meta, Roku, Tencent, and Alibaba.

We remain excited by the early momentum from this pool, and we expect it to continue. Moving on to Dolby OptiView. We closed a number of key deals in the quarter, including a multiyear agreement with Roberts Communication Network, the largest provider of horse racing content in the U.S. for ultra-low latency video streaming. Also in the quarter, Google announced that Dolby OptiView Ads, our ad insertion engine was the first product certified through their Ad Manager technology partner program.

This certification recognizes the performance and monetization improvements that Dolby OptiView ads delivers when integrated with Google Ad Manager. While this partnership is early days, we are looking forward to working with Google to win new customers. Last quarter, I talked about how at the NAB show in Las Vegas, we showed new solutions for fan engagement and live sports. These solutions use AI to predict viewer behavior and to generate compelling stories for individual fans based on the action and their interests.

Fan engagement is a top focus for the sports industry, and we have seen strong interest in these new solutions, which we will be shipping in the coming months. We believe that the Dolby OptiView platform, which brings together these capabilities with ad monetization, low-latency streaming, and cross-platform playback is a unique system that will lead the future of the live sports experience. We are excited by the progress we are making in expanding our addressable market to include content platforms where we earn revenue based on usage.

Moving on, Dolby Vision and Dolby Atmos continue to bring the most immersive experiences to life. Starting with the World Cup, viewers in all 3 World Cup host countries were able to enjoy the World Cup in Dolby through partners, including Peacock and Comcast in the U.S., Bell in Canada and TV Azteca in Mexico. Fans in some of the most passionate football countries like Brazil, Colombia, Germany, and Spain were also able to enjoy the World Cup in Dolby.

On TVs, Dolby Vision 2 is now in market with some Hisense TVs. And by the end of this calendar year, TCL and Philips will also be shipping televisions with Dolby Vision 2. Moving on to auto. We have announced agreements with over 40 auto OEMs since the program started. A few of our new OEM wins this quarter include Volkswagen in China, launching its first Dolby Atmos vehicle and Buick announcing pre-sales for the Electra E7, a plug-in hybrid SUV with Dolby Atmos, also in China.

Also this quarter, Google announced support for Dolby Atmos through Android Auto with launch partners, including BMW, Genesis, Mahindra, Mercedes, Renault, and Skoda. With Dolby Atmos supported across Apple CarPlay and now Android, it has never been easier for users to stream Dolby Atmos to their car. It also makes it easier for dealers to demo and sell the Dolby Atmos experience in the car. We're excited about the continued momentum in in-car entertainment, which continues to be a top focus for the industry.

Moving on to user-generated content and social media. High-quality user-generated content is an important factor in driving engagement, and we have strong adoption of Dolby Vision on many of the world's largest social media platforms, like Instagram, Facebook, and Douyin. In addition to driving demand for Dolby on mobile phones, we are starting to make our way into new device categories like smart glasses and video cameras. RayNeo, the leading provider of augmented reality glasses, launched the RayNeo GT Max, the world's first AR smart glasses equipped with Dolby Vision. And Insta360, the market share leader in action and panoramic cameras, launched the Luna Ultra, which supports Dolby Vision capture.

We are pleased by the momentum behind user-generated content in Dolby and expect it to continue to grow as a priority for device OEMs. Wrapping up, we remain confident in our opportunity to drive growth beyond device licensing with progress on both the video distribution program and Dolby OptiView. And we continue to bring more Dolby experiences to more people around the world with the growing adoption of Dolby Atmos and Dolby Vision across a wide range of devices and use cases. All of this gives us confidence in our ability to drive long-term growth.

With that, I'd like to turn the call over to Robert to cover the financials.

Thank you, Kevin, and thanks to everyone joining us on the call today. Revenue for the quarter came in at $305 million, which was within the guidance we shared last quarter. We saw better-than-expected revenue in Dolby Atmos, Dolby Vision and imaging patents, offset by deal timing and foundational audio revenue. Non-GAAP earnings per share was $0.69, just above the middle of the range of guidance as lower-than-expected operating expenses offset lower-than-expected revenue and higher taxes.

Licensing revenue was $282 million and products and services revenue was $23 million. We generated approximately $167 million in operating cash flow and repurchased 1.2 million shares or $65 million of common stock. We recently received Board approval to increase the existing share repurchase authorization by $350 million, bringing our total authorization to about $427 million. We declared a $0.36 dividend, up 9% from our dividend a year ago and ended the quarter with cash and investments of $756 million.

Q3 GAAP operating expenses include a $4 million restructuring charge for organizational changes made as we align our resources to focus on the most impactful areas. Detailed licensing performance by end market can be found on our IR website. As a reminder, end market growth rates are typically smoother on an annual basis as the timing of recoveries, minimum volume commitments and true-ups can drive quarterly volatility.

End market performance for the quarter came in mostly as expected with no significant outsized moves. Turning to guidance. For Q4 fiscal '26, we expect revenue to be between $362 million and $392 million. Within that, we expect licensing revenue to be between $335 million and $365 million. Gross margin should be approximately 90% on a non-GAAP basis, and we expect non-GAAP operating expenses to be between $195 million and $205 million. Non-GAAP earnings per share is expected to be between $1.13 to $1.28.

Let me provide more context on Q4. Our Q4 revenue guidance at the midpoint represents a 23% year-over-year increase in revenue. This reflects momentum we are seeing in key growth areas we have been prioritizing, namely the video distribution patent program, including a large deal with Meta that signed early in Q4, higher units from Dolby Atmos in the car and revenue from new device categories like wearables. In addition, Q4 is also benefiting from timing of deals like minimum volume commitments.

For fiscal year '26, we expect total revenue to range from $1.41 billion to $1.44 billion. Within that, licensing revenue is expected to be between $1.31 billion and $1.34 billion. We are targeting non-GAAP operating expenses to be between $785 million and $795 million. We expect non-GAAP earnings per share to be between $4.25 and $4.40 -- this reflects the higher tax expense from discrete items in Q3.

We are expecting an annual operating margin improvement of approximately 100 basis points for the year on a non-GAAP basis, up from the range between 50 basis points and 100 basis points we guided to last quarter. For the full year, we are expecting other revenue to be up high teens driven by auto and VDP, broadcast to be up mid-single digits due to higher recoveries and imaging patents. Mobile, which includes wearables, is expected to be up mid-single digits, driven by adoption of Dolby Atmos and Dolby Vision.

And CE should come in flattish with lower unit volumes offset by higher recoveries and Dolby Atmos adoption. PC is down low single digits, primarily due to lower unit shipments and lower recoveries. We expect foundational Audio revenue to be down slightly for the year and Dolby Atmos, Dolby Vision and imaging patents revenue to be up roughly 15% year-over-year.

In summary, the team has executed well, and our performance reflects the operational focus on our key growth areas despite an environment that has remained dynamic all year. As we have demonstrated over multiple economic cycles, our approach is to control what we can control. We remain focused on our growth strategy, driving innovation and allocating resources to the areas that will have the greatest impact. Our financials remain solid with organic revenue growth, high gross margins, expanding operating margins, healthy cash flows and a strong balance sheet.

With that, I'll turn it over to the operator to open the line for any questions. Operator?

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

Robert, I want to circle back on your Q4 commentary with the extra color. I think you talked about 23% year-over-year growth. And you called out some momentum, I think, in video distribution program. I think it was signed early in the quarter, building a car and wearables. Historically, this business has been difficult for -- at least for analysts to forecast on a quarterly basis, but that growth rate is sort of a standout.

And I know you could have revenue sort of move in and move out of quarters, a little bit long-winded to basically ask, can you talk about maybe the sustainability or durability of this growth rate? And how much of this could also be impacted by maybe some quarterly revenue shifting out of Q3 into Q4?

Yes. Ralph, those are the areas driving the growth and the momentum we're seeing, both the VDP, including the large deal was signed at the beginning of this quarter. Higher units from Dolby Atmos in the car and new device categories like wearables. But also mentioned that there are -- Q4 also benefits from timing of things like minimum volume commitments, particularly in mobile that tend to be a little bit more back-end loaded than they were last year. Last year's Q4 was a little softer if you look at the quarterization and just happens to be timing of certain things that come in.

Great. And then you had some large licensees on the VDP part, Meta, and I think you talked about Alibaba. Maybe talk about after signing these sort of larger companies, what that does in terms of encouraging participation from future licensees. They seem like pretty standout announcements this quarter.

Yes. Thanks, Ralph. It is one of the things that's giving us confidence in the program and our long-term growth. It's about a year into the program, and we've seen a lot of these programs come together. And this one is coming together really well, both in terms of the pace of it and the breadth of it. We're at 45 licensors. We've got a number of high-profile licensees. You mentioned Meta and Alibaba signing this quarter.

And the impact that has is, yes, it does tend to make it easier to get the next deals. In any given point in time in a program like this, there's a group of customers that are looking for a solution to the problem of operating in a fragmented IP environment for which patent pools are a very helpful solution. There's a group of companies that are doing their homework. They want to know is the pool comprehensive enough? Is it the right pool? Is it the right price?

More people coming along starts to get them to move faster along their process. And then, of course, in any given program, there's always going to be some holdouts and you keep working each of those phases of the pipeline. But clearly, for 1 year, this program is coming along very nicely and great to see some really nice wins this quarter.

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

Kevin, when you first introduced the concept of VDP, you talked about targeting some of the large domestic streaming networks. And Meta is a great win, and hopefully, we'll get more like that. But what's the level of discussion with these targets in the streaming space today? And do you still feel like that's a realistic potential win on the horizon?

Yes. Thanks, Steve. Well, first of all, yes, I mean, Meta is one of the largest streamers of video content on the planet. And the pipeline is strong, and it includes streamers of all types of video content. And I'm not going to go into the details of the pool's discussion with any one customer. But again, I think for 1 year, we feel really good about how this program has come along. And every time you get another licensee on board, it makes it that much easier to get the next licensee. So we are -- I mean, relative to a year ago, given the way that, that the execution has gone, I would say we're feeling increasingly confident in that program.

Great. And given the strength in other, auto seems to be continuing its ramp and you're announcing new customers and now you've expanded to Android Auto. Are we getting closer to a point where the auto business might get broken out?

Yes, we're getting closer. And as you know, we've typically done that when it's 10% of licensing. And I think certainly, as we go into the next year, that's something we're going to have a close look at because it is the highest growing end market for us, and it's the largest within other.

Great. And Robert, a couple of questions on the numbers. What were true-ups? And were any of the buckets affected by large catch-up payments?

Yes. The true-up was really negligible this quarter, Steve. It's less than $1 million positive. So really, really small. The second question regarding any true-ups, we have got recoveries every quarter.

Recovery?

No. As I noted on the call, nothing notable this quarter in terms of outsized movements.

Okay. Great. And then from a macro perspective, there's been a lot of fear that the rising memory cost was going to impact how CE customers thought about new product introductions. What can you tell us as you look to what's coming down the pipeline using your technology? Do you feel like the plans they talked about at CES are still going forward? Or have they been impacted in any way?

So I think at CES, we were largely focusing on the big focus areas for us at CES were automotive, where, as you noted, we continue to see really strong adoption, strong pipeline, things continue at pace. We also were highlighting Dolby Vision 2, where we saw -- there are now Hisense customers that are -- that have Dolby Vision 2 on their TVs, and we are on track for them to have more and then Philips and TCL by the end of this year. I think backing up because memory is obviously a hot topic, Steve.

I think as it relates to our end markets, mobile is by far the market that is impacted the most by memory prices. Our largest device market is TV. That's one of the lesser impacted markets in terms of a percentage of BOM. Second most impacted market would be PC in terms of the memory impact on them. So for this year, all that's factored into our guidance. As I've said before, as it relates to mobile, because of the prevalence of minimum volume commitments that has a kind of a mitigating or I guess, you might even say sort of a delaying effect.

And so all that's factored into our guidance, it kind of falls into the category. We've got some ups and we've got some downs. As we look into next year, the longer this goes on, the longer it starts to -- the more it starts to flow through. Now we do expect to grow with strength in video distribution program, automotive, the new categories like wearables. We've got some exciting new products coming in Dolby OptiView. But how much that is in part offset memory chip is something we're watching closely.

So again, TV is not affected as much mobile and PC the most. There's no uniform answer as to how that impacts Dolby. Each customer approaches this quite differently. So on the one hand, you might get customers that have room to absorb this into their gross margins, and that may not have any impact on unit volumes and so minimal impact to Dolby. Others are raising prices. Some are doing a combination and you're raising prices, then it really is a matter of how much pricing power do they have and what's the price sensitivity, but it's not necessarily a one-for-one impact on Dolby.

And then in other cases, particularly in mobile, where at the low end, memory cost has gone from -- my understanding is it's gone from plus or minus 15% to even over 50% of BOM. It's really significant. We're seeing some customers that are just eliminating one of their lower lines because they just can't solve that equation. Then what they're doing is trying to get people to move up a level, and they're also investing in trying to maintain those higher-end lines.

And so again, that does, in fact, of course, that lowers device shipments. But on the other hand, for Dolby, it's not proportionate in the sense that we have a higher attach and we have higher technology content, the further you go up those lines. So there's very dynamic. We're watching it really closely. And again, we expect to grow with the strength we have in our focus areas, but we're definitely watching memory prices and how much of an offset that might be.

Your next question comes from the line of Patrick Sholl with Barrington Research.

Within Dolby Vision 2, I was wondering if there was any sort of differentiation in terms of the pace of adoption between the various tiers on that new technology?

I would say there's no change in pace from what we've talked about. We've got those 3 customers that -- Hisense has some of its in-market TVs updated. We expect TCL and Philips to be shipping by end of the year. We're kind of at that point in the year where I think that CES will become the focal point for most of our customers that will be adopting it going forward. And on the content side, Canal+ and Peacock are both on track to -- they're integrating now and getting ready to be able to provide content in Dolby Vision 2.

Okay. And then on the VDP, is there a content-type focus within that like -- and how you expect like the pace of getting licensees to be a part of that program? Or is it kind of -- as you said, more -- I certainly understand it's more broad, but is how you're seeking to generate growth on that focusing on a specific type of content initially first?

Well, really at the center of it is companies that are at scale, taking advantage of the best and video codec technologies in order to achieve their business objectives. And that is a broad range of content. You can tell from some of our first licensees from Meta to Roku, ByteDance to Alibaba's covering -- has coverage, including e-commerce. So it really is a function of anybody who is relying on the IP covered by this patent pool, which is growing with more licensors joining with the success it's had over the last year to deliver video at scale.

Your next question comes from the line of John Rigatti with Baird.

This is John on for Vikram Kesavabhotla. A couple for me. I wanted to start with auto. I'd be interested to hear if you could unpack what's driven -- what you think has driven some of the faster adoption with your technology in some of the international autos? And then what needs to change in the U.S. market for you to be able to unlock more of that segment there? And I have a couple of follow-ups.

Yes. I think, I mean I think if I go back to the beginning of the program, a lot of our initial momentum was in China, where they were becoming the leading innovators in EVs, and they were putting a really high focus on the in-car entertainment experience. And China is -- also happens to be the largest vehicle market in the world. And so that got the attention of auto manufacturers around the world to be able to compete in China, at which point then it makes it -- you just to step away from then shipping those cars throughout the world.

And so that's what -- and so in Europe, we've got Mercedes and BMW. In India, we now have Mahindra and Tata. The U.S., we do have Cadillac. So I think -- well, I mean, we're pleased with how the pace and how it's grown. Like I said, 40 OEMs in -- since the program began. And I think the next big milestone for us is looking to get further penetration into mainstream. And we've got -- we've talked about some cars in the past, like the Hyundai in China and some of the cars in India, but just -- but people always start with the high end, and now it's a matter of really focusing on getting that into the mainstream higher volume models. And that will benefit us in the U.S. and around the world.

Yes. Great. And then maybe on OptiView, if you could talk a little bit more just about the vision there. And obviously, it's still very early days, but just some of the -- a couple of examples on maybe what's resonating most as you've taken that out to partners.

Yes. Thank you. So look, at the highest level, the vision is this, which is that we're no longer in a world of one-to-many where we all have to experience the exact same sports experience at the exact same time. We're in a world of streaming where we ought to be able to understand what engages you and be able to personalize that experience and to do that in real time in a way where you can interact with your friends around the experience.

So the vision for Dolby OptiView is to provide a solution that allows these sports organizations and streamers to be able to do that. And so we started, of course, with the ability to stream in ultra-low latency. That's important so that you're not seeing the touchdown 15 seconds before I am, which is no fun for either of us. Maybe it's fun for you. It's not fun for me. We've got the player that's integrated with that. And we have some -- now you're beginning to see some new -- some additions to the portfolio, which get closer to that more personalized experience.

So one of the things I talked about today was OptiView Ads, which is something we mentioned a couple of quarters ago, but we've now been in market with the first couple of customers. They're in the process of testing the third generation of the product. And once that testing is complete, we're planning to really begin to scale this to our customer base in the fall.

And the big difference there from the customer perspective is the revenue generation potential. One of our customers is seeing increases of 75%. And it's because we have a server-guided technology, which requires far less lead time than competing solutions to kind of pick the ad and deliver the ad, which means that by filling that ad slot just before it's needed, we can do a better job of targeting that ad to the viewer. It's more likely that the viewer is still there and ultimately, it just increases the fill rate.

So -- and then the solution is also integrated with the player and that prevents the ads from being blocked. So we're pretty excited about that. And as I said, it became one of the -- well, the first -- at the time was the first technology to be certified by Google Ad Manager as a partner technology, and that's because it's designed to slot right into their workflows work seamlessly with Google Ad Manager. So as we get to the fall and are looking to scale this, we're also looking forward to working with them to highlight the benefits to their customers.

And then I talked about last quarter about how at NAB, we were previewing our sports intelligence platform. And so we continue to get really good engagement from customers on what we're doing with that. We look forward to having some specific solutions in market next year. And this is really focused on now moving toward really being able to understand how engaged a fan is or when their interest is waning.

But importantly, being able to do something about that with the audiovisual experience that keeps them engaged. So again, the vision is simply to provide our customers with the ability to better engage their fans and audiences with real-time personalized experiences. And we are really excited about how the portfolio of solutions is coming together to make that happen.

Yes, that's great. I guess the last one for me is just -- you touched a little bit on the Dolby Vision 2 and some of the -- that's obviously in market now, some of the demand you're seeing there. I'd be interested if you could talk a little bit as well about the impact that the Dolby Vision 2 being in the market is having on adoption of Dolby Vision 1 and possibly kind of the segmentation or the tiering that OEMs are able to do across both of those?

And then also maybe just for Robert on capital allocation. If I look at kind of the repurchase activity on a quarterly basis, it looks like so far in '26, you're going at about twice the rate of 2025. Just any kind of color you could give on how you're thinking about capital allocation for the balance of this year and then going forward would be great.

Yes. I think -- so as it relates to Dolby Vision 2, I would say it's early days. I mean, again, we're focused on getting these first 3 customers in market, and these are all examples where they're moving from Dolby Vision to Dolby Vision 2, as you would expect, starting with some of their higher end. We do have strong engagement. And like I said, I think CES is probably about the time we'd expect for our customers to say more about their go-forward plans with Dolby Vision 2. And Robert...

John, yes, thanks for noticing that we have increased the velocity and volume of our buyback activity, and we'll continue to do -- execute on our policy of at least offsetting dilution of stock-based comp. But we do look at this quarterly, make our decisions quarterly based on facts and circumstances and needs of the business. But yes, we have been stepping up year-to-date every quarter.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

All right. Let's get going. Great. Well, thank you, everybody, for joining us today. My name is Vik Kesavabhotla. I lead our research coverage of Internet and media here at Baird. Very excited to be hosting the conference this week. And right now, it's my pleasure to welcome Dolby to the stage. Joining me up here is Robert Park, CFO of the company.

I think we have about 30 minutes scheduled for this fireside chat, plenty of things to get through. So we'll dive right in. And Robert, let me start off by saying thanks for joining us today. I appreciate you being here.

Great. Thanks for having me, and great to see you last night, too.

Yes. It was good.

Great.

Great day in New York. So let's start off with this. I mean when I think about Dolby, obviously, you touch a lot of different parts of the media ecosystem, creators, content distributors and then the OEMs as well.

Maybe to start off, for those who are not as familiar with the company, if you could start talking about how you work with those different partners in the ecosystem and the value proposition you provide to all these players.

Yes. Thanks, Vik. When you take a step back for Dolby, a lot of people have heard about the Dolby brand, but very few people know what we do and how we make money. So I'd like to start off with 3 things you need to know about Dolby. The first thing is we're a global trusted standard embedded in billions of devices around the world. That's with our foundational technologies, and I'll talk about that a little bit later. The second thing is we've got a deep technology moat rooted in decades of perceptual science. We're the leader in the science of sight and sound. And the third thing that's really good, that Vik just talked about, is our place in the ecosystem for entertainment for creators, distributors and end-market OEMs. That is the key to our success, and that's what's kept us durable for the last 60 years.

And what we do for creators, we help creators tell their stories with immersive entertainment experiences. They can tell their stories in a powerful way, bringing users and their audiences closer to the movie, to the TV shows, to the characters, to the songs and more recently, to live sports. And we help them do that through immersive sound and through immersive video with our Vision technology. For distributors, they want eyeballs. They want subscribers. They want the best audio and video quality there is for their subscribers, and Dolby Atmos and Dolby Vision provide that for them.

And then finally, where we make our money today is on the end market. And so for the end market devices for TVs, mobile phones, PCs and more recently, in your car, to be able to play back that Dolby Atmos and Dolby Vision experience, you need that license. You need that technology in your device, and that's what we do. And that's what we provide the OEMs, is providing that superior audio and video on that device.

Yes. When you look back over the last 60 years, so much has changed about technology and the way that we consume all these products. And one thing that stayed consistent, you guys have stayed relevant in the ecosystem throughout the time. What is it about the company, the processes you have in place that has allowed the technology to stay relevant throughout all these changes?

That's a great question. So Dolby has been around longer than I've been alive. I'm not going to tell you how old I am.

Barely.

Barely. Thanks, Peter. Barely longer than I have lived. It's been around for 60 years, pushing entertainment experiences for the last 60 years. And if you remember, I remember because I saw it in the theaters, 1977, Star Wars: A New Hope. Dolby revolutionized how audio is played in the theater by the first major movie using Dolby Stereo. It really changed how audiences listen to sound in a movie theater. And what changed and fundamentally changed how theater owners changed all their sound equipment to handle 4-channel audio. That's front, back, left, right.

And then if you remember the '80s -- I don't know how many of you were alive in the '80s. Do you guys remember this? This is -- this is called the Sony Walkman for those of you who don't know. You can't play Spotify on this. This had what's called the Dolby noise reduction. It says right on the front. They would put Dolby noise reduction. What that was is if you played a cassette tape back in the '80s, it had tape hiss. It's just analog. It's an awful hiss. It's kind of humming in the background. Dolby, using their signal processing, figured out a way to eliminate that analog hiss. And so when you turned on Dolby noise reduction, you could hear just the music. And it was so impactful that if you guys remember some of these devices had a button, Dolby noise on, Dolby noise off, that was only there for marketing. So you can hear how terrible it sounded without it, and you press the button, and it sounds better with it. Why would you not want to have it on, but it was a way to show the contrast of Dolby technology.

And so over the last 60 years, Dolby has gone through analog to digital, movies and film, to DVDs to Blu-ray, to streaming, to mobile, and it's always been on the forefront and enabling high-quality audio and video throughout that process. And we're always trying to be on the forefront. And if we think about our name, Dolby Laboratories, we spend a lot of money in R&D. People wonder why we spend so much in R&D. It's because we always want to be in the forefront of where entertainment is going and not be behind.

Yes. And so maybe we'll talk about the way you monetize all of this right now. You talked about that predominantly the way you do it right now is through licensing with the end market. And when I think about that licensing business, right, there's the foundational piece and then there's Dolby Atmos, Vision and imaging. Maybe for the benefit of those here, if we can talk about each of those components and talk about how you think about the growth rates of those different parts of the business right now?

It's a great question. So about 90% of our revenue, a little over 90% is licensing revenue. And so we came up with a construct, a framework to help people understand the different growth dynamics of that licensing. It's not a monolithic licensing model. So the thing I talked about before about being a global trusted standard embedded in billions of devices, that's called our foundational technologies, foundational audio technologies. These are audio patents, audio codecs that are standards across the world that are embedded across billions of devices. Think of that as an index for consumer electronics devices, 90-plus percent attach rates across devices around the world. In '21, that was about 50% of our licensing revenue. Today, it's only about 20% because the other part is growing much faster. And I think of that as growing low single digits, flattish. This year will be slightly down, but it kind of grows up and down with unit shipments -- unit shipment growth.

Dolby Atmos, Dolby Vision and imaging patents revenue is the second part that we broke out separately in this framework is because they're driven -- yes, they're tethered to device shipments, but growth is more on getting on more devices, more and more devices. For an example, for 4K TVs, we're about 30% penetrated with Dolby Atmos and Dolby Vision. That's 70% to go. We're highly penetrated at the high-end of 4K TVs, and we're getting more and more penetration in the mid- to lower end. We'll talk about that, how we're doing that in a little bit.

For mobile phones, we're on iOS deep and wide, trying to get on more and more Android devices. We're on 4 of the 5 top hand-makers in China and getting on more and more devices, again, starting at the high-end and wanting to get pushed down lower in the market. And then other, speakers and other things, we're trying to get attach rates on all those things.

Yes. And so when you look at all those different end markets...

Well, that's growing about 15% this year.

Yes. When you look at all those different end markets that you're involved in right now, what are some of the trends that are standing out to you across the different industries? And what does your end market exposure look like today across those businesses?

Yes. Our largest market today is broadcast TVs. I mean, TVs is a large piece of our business. We see that in terms of unit shipments kind of flattish, kind of stable. Our second largest market is mobile. Mobile is an area of 1.4 billion devices out there. And as I said before, our goal is to try and get more and more of the devices with Dolby Atmos and Dolby Vision and how we do that, we'll talk about that in a little bit.

And then our third largest end market is other. And then other has auto, Dolby Cinema, gaming, but auto is becoming a very larger component of our revenue as we just got started about 3 years ago, and we're about 40 OEMs in and growing and growing. And Atmos, Dolby Atmos in the car and also Dolby Vision are a natural place to fit, and auto for us is a market that's growing and getting more meaningful.

Yes. Maybe let's follow up on auto then because it does seem like it's becoming a more significant part of the business over time. What are some of the most significant points of progress in that end market for you recently, updates you have? And what's your vision for where auto can go over time for Dolby?

Yes. What's interesting about auto is, auto really came about our investment in the Dolby Atmos ecosystem with music, Dolby Atmos Music. And getting music created thousands and thousands of tracks, created in Dolby Atmos, well, you need a place to listen to it. And for auto, you think about auto today. Auto today, for most daily drivers, the in-cabin experience is the most important factor in buying a car. Horsepower doesn't really matter anymore because you get tickets. Range is not an issue because that's fairly solved pretty quickly. The in-car experience is more and more becoming a really big powerful piece of buying a car.

And cars are now differentiating that in-car experience with infotainment and infotainment is very important, and Dolby Atmos fits perfectly into that factor. It's hard to explain how much better. I mean, I'm sure you thought Dolby Stereos sounded pretty good. But once you hear Dolby Atmos, and we do these demos all the time for both creators, the likes of Jay-Z and others, labels to have them listen to it and also the carmakers. When I sit with the engineers, I sat with engineers from Mercedes, and they came to our lab, and they told me that they hit a ceiling. Even with all the audio engineers that they had, they hit a ceiling of how good the music could sound, not loud, any way we can make music loud. You have to make it sound transparent. It's coming through you, not at you. The clarity, no distortion. All the things audiophiles care about, they could not -- it was a math problem. They just could not get it any better. And with Dolby Atmos, they said, we just helped them break through that ceiling.

And they started with the Maybach. They started with the S-Class, and I'm sure all you guys own one of those. And since then, they've pushed it down to 15 different models to where most humans can afford. In the U.S., we have Lucid, Cadillac. In Europe, we just won BMW recently. We've got Mercedes, Volvo, Polestar. In Korea, we've got Hyundai and Genesis. And in China, we've got BYD, Li Auto, NIO, Zeekr. And we're adding more and more OEMs just about every quarter. And what they typically do is start at the top and then they start pushing with a premium because Dolby is considered a premium experience. But over time, what we want that -- we want to democratize that experience. We should -- I think everyone should experience it. Push it down to the lower-end cars.

Think about the rearview camera. When the rearview camera first came out, you only got that with the highest package with the highest models, but you can't buy a car today without rearview camera. It's just necessary. Our hope is that over time, of course, Dolby Atmos is the only way to listen to music, your podcast and sports in your car and watch it with Dolby Vision. We have Dolby Vision primarily in China because China has the infrastructure to stream video into the car. Don't have that yet in the U.S. or in Europe, but we believe over time, that will happen. And for those of you who sit shotgun or sit in a Waymo, you can watch video in your car with Dolby Vision and Dolby Atmos.

Yes. And so one of the things you referenced earlier in the discussion, too, is some of the changes that you're bringing to the TV experience. And specifically, you guys recently launched Dolby Vision 2. It'd be great if you could talk about what is different about Dolby Vision 2 and what's improved in that offering there?

Yes. So I talked about the fact that Dolby Atmos and Dolby Vision are about 30% of 4K TVs today, again, very highly penetrated at the high-end of TVs, not as much in the mid- to low-end. That's because a lot of TV OEMs want to maintain that Dolby Vision and Atmos experience at the top-end. They want you to buy the expensive TVs. Well, TCL and Hisense kind of changed that a little bit by implementing and adopting Dolby Atmos and Vision across their lineup. And that put a lot of pressure on the top-end.

Well, what we had to do was 2 things to solve the Dolby Vision 2. The first thing Dolby Vision solves is the technical ability to have Dolby Vision capabilities in a lower-end TV, lower components, lower chipsets, lower panels, lower components. We were able with our signal processing expertise and use of AI to make that happen and make a great experience with lower-end technical units. So they didn't have to change their BOM to upgrade it to the Dolby Vision standards. That was one thing technically. The second thing we offered was Dolby Vision 2 Max, which you put on the high-end, which still allows differentiation from the mid- to low- to the high-end. So for those manufacturers worried about cannibalization of someone buying a $2,500 TV now buying a $500 TV, with Dolby Vision 2 Max, the Max is even better, better color, brightness control, motion control, less judder, it's a technical term for shaky screen. The bigger the screen that gets, the more shaky you get, particularly with fast movement. And what Dolby Vision 2 does even for low-end TVs is eliminate that judder, especially for high-motion activity.

So the technical solve was for the ability to do it. And the marketing solve was the ability to still have differentiation at the high-end. And TVs should be launching at the end of this year. So there's some adoption, and TVs will start shipping at the end of this year.

Yes. And I think you announced some streaming partners that are already using Dolby Vision 2 or are committed to using Dolby Vision 2. Who are some of those so far? And how is that influencing your discussions with the industry?

Yes. So over time, we're going to get more and more distributors and streamers to adopt Dolby Vision 2 once it's out in market. We got Peacock doing that. Particularly if you're watching live sports, it's great because if you're watching live sports, of course, that's -- most of it is fast motion. You want that motion control to be really great on those large TVs, and we've got more in the pipeline to add. But the more -- again, this ecosystem is what makes our business so durable and our moat so wide is it's hard to replicate the entire ecosystem. It's not just a technology for technology's sake.

Yes. So one of the other things you guys have talked about is you've seen more and more adoption with the social media platforms as well. Can you talk about the latest updates there and why some of those platforms have really started to engage more with Dolby?

Yes. So for us, mobile is our second largest market, and it's a large market. And to strengthen that ecosystem, in order to have the value proposition, to have Dolby Vision on the phone, you need creators. And we've got creators, influencers creating content with Dolby Vision. And now we've got a great partnership with Meta, who adopted Dolby Vision, both on the Facebook and Instagram properties. And if you think about Meta on decision-making, it wasn't just because they like the name Dolby Vision. They did tests. There's a blog out there, if you want to see of what process they went through to determine what to use for these platforms. And you can read it, it's a lot of technical stuff.

But at the end of the day, what they found was that their influencers and -- not their influencers, their viewers, their users spent more time on a platform when it was in Dolby Vision than it was out on a large test, large-scale test. So for them, it's very compelling to have that. And there's many reasons why that might be. One of the reasons is Dolby Vision creates a consistent experience throughout. So if you've ever done reels or shorts -- I don't know if you guys do that eye-candy stuff. But as you scroll through, depending on the content that comes in, the brightness can be super bright or dark. And if you're in a room or in an airplane like I was today or yesterday, if it's bright, you're just going to get off. It's just -- it's annoying, it's in a dark room.

But Dolby Vision, it makes it more consistent. So your eyes don't have to adjust to dark, bright, depending on the content and the content type that comes in, and they thought that was very compelling. It was also a very hard problem to solve because of all the various types of content, where it comes from, the standards, all those things that come in, where Dolby is very good at doing that.

So having Meta with Facebook and Instagram and Douyin in China, which is the TikTok of China, adopting it creates that value proposition, and we call it -- should inspire more mobile OEMs to adopt Dolby Vision because they want their users to have the best experience possible.

Yes. So on that piece, I mean, when you get that kind of adoption from the social media platforms, from the streamers that you mentioned, what is that process of then having that translate into the business and getting the end markets to adopt this more broadly across these OEMs?

Well, it's twofold. One, we go to the OEMs and say, "You should adopt Dolby Vision into your phones all the way down the lineup because your buyers aren't going to have that experience. They're spending a lot of time on these platforms. And if they're spending a lot of time on these platforms, they should have the best experience or they'll buy this one over here that has it, and your users will really appreciate that." So it's that pressure for us to have them do it.

But also, I think there's going to be pressure for the platforms to go to the OEMs, particularly the big ones and say, "Hey, my users on your phone are not having a great experience. You need to put this in there. We're doing it, you should do it, too." And I think over time, and this is just -- these are recent announcements in the last couple of quarters. We think over time, and we're anything but patient, should get into the cycle of more and more adoption.

Yes. I mean it's only been a couple of quarters. Are you seeing any signs at this stage that it's starting to affect the discussions at all or move the needle on that front?

We have -- we're engaged with all of them.

Yes. So maybe taking a step back and thinking about the macro environment. Here it's a topic that we get a lot of questions about from investors. When you look at some of the factors out there, consumer spending. Right now, I think memory pricing is a big topic as well. What are you seeing out there in the market and how it's affecting the different environments that you operate in?

I read the same thing you all read. Consumer sentiment is low. Consumer sentiment is low, it's been low. It's been low due to persistent inflation, high oil prices. Yet consumer spending is surprisingly resilient. I don't know what that says about the consumer, but spending is still there. And what we found and we see this year is unit shipments are relatively flat in a market where you would think, with persistent inflation and low consumer sentiment that things would drop, things are relatively stable in terms of unit shipments. There's plus and minuses here and there.

In terms of memory prices, we don't see a lot of impact on TVs. For TVs, I think memory is a smaller component of the BOM where panels and other components are much more a bigger part. Where we see potential is in mobile. And mobile, obviously, memory is a larger component and an important component for mobile. And it depends on OEM to OEM, what their strategy has been, their ability to procure chips, make their own chips, what they're going to do, push the price to the consumer, eat the price. Every OEM has a different approach to the memory challenges coming up, and we'll see how that plays out.

For Dolby specifically, our Dolby end market, the way we do business with mobile is primarily through minimum volume commitments. So mobile handset makers will commit to a volume to get a price, and they'll commit to that for the year or longer. So these are ways for them to predict their costs and to get a better per unit rate. And so we haven't seen as much of an impact for our mobile. Our mobile is still going to grow this year despite the memory, but we are watching the headwinds. I think the takeaway is, yes, the factors point to turbulence, but we don't see things dramatically different than they were 3 months ago.

And when you look at the full year outlook that you guys have for this year, how have you gone about incorporating that into the guidance for the year?

Yes. So we incorporate all this into our guidance. If you recall, when we gave guidance for the rest of the year, we maintained our guidance for the full year, but we didn't change the range. Typically, when you have 6 months behind you, you would think you would shrink the range because you only have 6 months to go. But given the uncertainty and given the challenges in the marketplace, we kept the range the same, but maintaining what we see.

Yes. So when we started the conversation, you said the way you predominantly make money right now is through the OEMs. And I think that was alluding to some of these newer monetization initiatives that you guys have in place that I think have been gaining traction in the past few quarters. It'd be great if we could talk a little bit more about some of these newer ways that you're monetizing the technology that you have. One of those, I think, is Dolby OptiView. So great if you could talk a little more about what that is and how that's going?

Yes. So you're right. If you take a step back, over 90% of our revenue is licensing, and that's predominantly through device shipments. So people have to buy devices for us to grow in that respect. We have a couple of areas where we are diversifying and increasing the TAM for our revenue, and that's OptiView and the video distribution program. And those are 2 things that are not tethered to device units and allow us to grow revenue despite device revenue shifts.

I'll start with the VDP. The VDP is our way of licensing our imaging patent technology to streamers. And you'd say, "Why are you doing that?" Well, one, you can all see the growth in streaming. There's a growth in streaming, and there's increased recognition that high-quality modern codecs, video codecs are important and critical to their service and critical to their success, and we've created a structure to do that. Without the structure, what you would do with licensing patents is license patents one at a time. Those are called bilaterals. We have 30,000 patents. You can imagine the friction and inefficiencies of trying to license, both our licensors and licensees licensing those patents.

So we created a pool, with Access Advance, of about 40 licensors contributing their patents to this pool so that licensees can license this video technology through HEVC and kind of an all-you-can-eat. So they don't have to worry about individual patents coming at them at various times. Very efficient for licensees, I call them industry-friendly pricing, and very efficient for licensors as well. And so we're starting to see adoption. And now these programs generally start with, you have critical mass of licensors providing their assets into the pool, and we have that now. SK and Sharp joined last quarter. So more and more recognition that this is a real program. And then licensees start to go as we go to market and educate and inform and license this technology. And we've got half a dozen licensees so far, but we just got started just a couple of quarters ago, and the pipeline remains pretty strong on this.

The second thing you talked about is Dolby OptiView. Dolby OptiView is our ability to -- we have both the player and the back office to create ultra-low latency at high-quality audio and video, particularly in sports and sports entertainment. What we're focused on is creating customized views, highlights and content to the viewer based on needs. What does that mean? Well, with traditional broadcast, it's the one-to-many. Everybody sees the same view. Everybody sees the same content with sports. With streaming, you can do one-to-one. You can have your stream to that individual customized based on their user preferences, behaviors and other things.

Think about for those of you who play fantasy football, like I do, I'm terrible at it, but I still like it, is I only care about my local team, which is the 49ers, but I like to watch the other teams for my players. So Josh Allen is one of my players typically. And I don't really care about the team he plays on. I care about -- I don't care about the Bills. I care about how he's doing. So I'd like to see in my content more highlights from Josh Allen and whoever is on my team. You can do that with streaming.

And we've demonstrated this at NAB last year and got a lot of interest from football leagues, motorsports, think about your favorite F1 driver, think about your favorite GP Motorsports driver. If you like Haas, they're never on TV, but we can make it so you can see them on TV. They only see the top 3 typically who are in the race. We can help customize that using AI by creating -- getting the data to understand behavior, preferences and customizing that content for them real-time with low latency and high quality.

Yes. So you mentioned these really just started as initiatives for you. But where do you see those going to over time? How big of the part of the business can this more consumption-based monetization go? And what are the key blocking and tackling that's going to be required to get there?

Yes. So we see this -- we can anticipate both these parts of our business, which are not tethered to devices, being around 10% of licensing within 3 years. We've got the pipeline. We've got a lot of resonance, a lot of product-market fit. We've got big customers with OptiView, the NFL, NASCAR, SIS, Genius Sports. So the thing is to start at the top and then you start kind of land and expand. You start here, you add customization, you add services and add more layers, as we normally would, and build it over time.

Yes. So clearly, I mean, as we talked about throughout this conversation, a lot going on in the business right now. What would you say are the biggest investment priorities for the company right now? And when we think about this year's margin guidance, I believe, is 34%. What are the puts and takes that will affect margins as we go forward when you think about investments, but also things that can drive operating leverage in the business?

Yes. The nice thing about Dolby is there's a lot of operating leverage in our model. We've got 90% gross margins, 95% licensing margins. So when you see growth, a lot of it not -- we don't have to spend as much money as that growth -- as that revenue grows. Our focus now is focused on the areas of growth for us, which is auto, mobile, TV, Dolby Vision 2, OptiView and the VDP. So we're making sure we allocate resources to make sure increase the size of success and ensure we're on the right track.

Yes. And past few quarters, it's also -- not just the past few quarters, but you guys have been doing a fair amount of share repurchasing as well with your balance sheet. You guys have a reasonable amount of cash built up and no debt on the balance sheet. How are you thinking about capital allocation as you go forward from here?

Yes, I've been told I have a lot of cash and no debt, which is kind of a nice problem. And I think we throw off $350 million to $450 million a year in operating cash flow. Yes, we have a nice balance. I think of capital allocation in 3 ways. One, first, investing in the business. If that means investing in R&D, investing in new product, with 33%, 34% operating margins, if we wanted to compress this, we could. We have the option to do that. If we saw that there's a nice outcome for that. So we look at investing in the business first.

The second thing we look for is attractive M&A opportunities out there. We don't do a lot of M&A, but when we do, it's usually around patents or cloud technologies. We bought these imaging patents from GE a couple of years ago, and that's what helped drive that VDP program we have today. We have imaging patents, but we bought more. We're looking for other patents that are out there, the next-generation technology. These patents and standards migrate over time, if you will. It started with AVC a long time ago, which are still valid. HEVC today, which is high-efficiency video codec, which is driving the high-quality video at half the bit rate. The next one down the road is VVC, which is the same high-quality video at half the bit rate of HEVC. But these things take time for the ecosystem to adopt, and we want to get on the front of those and find those assets that are 5, 10 years out. That's how we became relevant today. If we just started buying assets today for what's relevant today, it would have cost a lot more than it was 10 years ago. So getting them while we know how to drive them at [ bargain ] is important for us.

And then for cloud, we bought a player for OptiView because with the player, we can impact what the viewer looks like for -- that's the front-end, what actually is playback. And using someone else's player has one more -- it's one more integration we have to do. So we don't need to do the integration. We own it. And our partners really appreciate that because we're end-to-end now. The viewer, which is what the subscribers see, and the back-end, to make the ultra-low latency audio and video happen.

So those are kind of the areas that we think of M&A. And then whatever -- giving back to shareholders through dividends and buyback. Yes, you did notice that I think I bought back in the first 2 quarters of this year as much as I did the entire prior year because we saw an opportunity of undervalued stock, and we wanted to take advantage of that. But we will continue to do that. We do that every -- we look at it every quarter. We've had a dividend program for 10 years. I think we increased it almost 10% every year except one. So we give back to shareholders their money as well.

Okay. I think we're just about up on time. So it's probably a good place for us to wrap. Robert, thanks so much for being here today. Thanks to everyone in the room as well, and we'll leave it there. Thanks, everybody.

Thank you.

[Audio Gap] internet analyst at William Blair. Thanks for attending our Annual Growth Stock Conference. I have tell you from compliance to check our website for disclosures.

We're really excited to have Kevin back as he usually attends our conference every year. I think what's different this year, we've been doing a lot of meetings in NDRs with Dolby. And it's probably the most exciting kind of growth story I've seen in a while.

Maybe take you back to Consumer Electronic Show, the first year, I'd say, in many years where they had a very expansive sort of corridors, that Europeans would say tons of products and tons of devices and I think what you'll hear today is Kevin talk about how they've made these investments, particularly in music, you'll hear talk about auto and the growth is starting to come back as they've been talking about for a while.

So I'll keep that brief. We're going to do a Q&A session. And I ask Kevin if you can maybe spend a few extra minutes on the overview of Dolby because I know there's varying levels of knowledge, kind of the evolution and kind of where we are today. And then from there, we'll start to talk about growth. It sounds like good jumping off point.

Sounds great.

So yes, I'll talk a little bit about who Dolby is. Hopefully, you've experienced Dolby in your lives because for over 60 years, Dolby has been a part of the movies, the music, the stories the moments that stick with people for a very long time, from Star Wars to Avatar, from the Grateful Dead to Taylor Swift. We were in the walk band, your home theater and now your car and your virtual reality headset. Whether you were getting content over a cassette tape or a DVD disk or now your famous streaming platform, it's in Dolby and we're continuing to invent and reinvent what it means to have a quality entertainment experience. And in fact, I get to say, a lot of people will come up to me and share their first experience with Dolby. And when I started Dolby 20 years ago, that was often the button on the cassette tape player or the first time they experienced surround sound in the movies. But increasingly, what I hear about is the first time somebody was wowed by Dolby Atmos in the car or how excited they are that they can capture Dolby Vision content on their phone and share that content in Dolby Vision over Instagram.

I was recently speaking to a group of college students and the #1 answer on the board was music over their phone and their headphones and how impactful Dolby Atmos music is. And so we're everywhere, we're movies, TV, gaming, sports, social media content, whether it's on your phone, your television, your gaming console, your PC, your virtual-ready headset and increase your car. Dolby is there.

And the way Dolby builds these ecosystems is that we do partner broadly across these ecosystems. We work with the concert creators. We work with the content owners and distributors. We work with the device manufacturers, we work with their supply chains, chipset companies, software companies to make all of this possible.

So for content creators that means we're working with them to provide the technology, the know-how, plugging into plug-in tools into their workflow to allow them to create in Dolby. And we're enhancing their audio/video pallet, which is what they use to tell stories. And the net result of that is that all 30 of the top grossing box office movies domestically last year were in Dolby Atmos and Dolby Vision. About 95% of the top 100 billboard musicians are mixing music in Dolby Atmos. And as I said earlier, you can now -- if you have an iPhone, you can capture content in Dolby Vision, and you could share that content over Instagram, we are all creators today.

As it relates to the content platforms, this ranges from traditional broadcast to all of your major streaming providers, Apple, Netflix, Disney, Amazon, Tencent in China, it's global, social -- increasingly social media platforms, including Meta and Douyin in China. And we're providing them with the technologies and tools to be able to take what this artist created in Dolby and to be able to distribute it efficiently, in this Dolby experience to get it to the devices, which is where we partner with device manufacturers to be able to offer these differentiated Dolby experiences, whether it's in your home or in your car or something that you're wearing. And this ranges from Apple to Xiaomi, from Samsung and LG, to Hisense and TCL, from Mercedes and Cadillac, to BYD and NIO. It really is a cast of thousands this very broad network of Dolby-enabled partners and customers that make these experiences possible.

Now where we generate the majority of our revenue is from those device at the point of playback, the device manufacturers. We're enabling these ecosystems to set up that business model where we're charging a royalty each time that a device or a car or something is selling with Dolby in it. That's the majority of our revenue. It's a high-margin, 98% gross margin, consistently profitable business with a lot of leverage. It's very defensible. It's -- you've got that network ecosystem that we've built over decades that I just talked about. We've got a portfolio of intellectual property that's been built up over decades. And then we have this position in the market where Dolby is embedded in billions and billions of devices.

So it's a very difficult model to replicate. And as Ralph talked about, we're really excited about some of the growth drivers that we have right here right now that are coming together that we've been investing in for a number of years. Auto, in-car entertainment experience, we're getting -- we have a lot of momentum and a lot of room for growth. We still have a lot of room to grow in the living room with the television experience. I've mentioned social media a couple of times. Obviously, the primary use case on mobile devices and many other devices and probably future use cases like wearables, that's a place where we're getting a lot of new adoption.

And beyond that, we're also now bringing new value to the content platforms where we're providing value to those content platforms as a paying customer. And so that opens up a whole new market opportunity for Dolby. And what's really driving that is that increasingly, these content platforms are differentiating on experience. Whereas not too long ago, the primary vector for differentiation was access to content, which content do you have, how much content you can create, it's about the experience. Well, that's Dolby's wheelhouse. That's what we do. That's what we wake up thinking about for over 60 years is how we make that experience more immersive, how we enable artists and creatives to create those experiences, how we make the experience more emotive, more visceral. And that's where we're seeing opportunities to provide new products, new offerings to content platforms, and that significantly opens up Dolby's opportunity as we go forward.

Great. A few years ago, you broke up the business to foundational and new products. Can you sort of frame that for investors provide the split and maybe mechanically help them think about how the business is growing again?

Yes. Thank you. So this was, I think, just after the onset of the pandemic that we provided this breakout. It was -- in response to everybody wanting to understand, everybody could see that it was affecting the macro environment and how would that affect Dolby. We broke it out between our foundational audio technologies which are the core audio tech codecs which are essential to the way most entertainment audio content is delivered.

And that was characterized by pretty high attach rates across a very broad range of devices, which is to say that the effect of the macro is -- there is an effect on that part of the business because it has such broad adoption that if you ask kind of what's affecting that part of the business, the macro trends are going to be one of the top factors.

On the other hand, we had and have Dolby Atmos, Dolby Vision, our imaging patents would still have significant room for increased adoption. So that part of the portfolio, I mean, of course, nothing is immune to the macro, but it's been able to grow through thick and thin. It's grown about 20% a year over the last 5 years through all of these changes in macro, whether we're talking about the pandemic or supply chain disruptions or trade policy or geopolitical developments.

But whereas foundational as it was off during the first year of the pandemic, 2020. I don't know if you all remember, in 2021, maybe you all contributed to this. Unexpected to us, everybody went out and bought TVs and PC. So 2021 was a great year for foundational. The next 3 years after that, we suffered from the hangover of all these pandemic purchases. Especially around PCs, also TVs. We were seeing -- coming off those highs, our foundational revenues were down. And at the beginning of that period, mind you foundational was making up like 80% of our business because these newer technologies were just kind of coming to market. So scroll forward to today, the last couple of years, not that the macro environment still doesn't have a lot going on, but we've stabilized the last couple of years because it really was that hangover that was really affecting us. We're through that.

And importantly, as I said, Dolby Atmos, Dolby Vision, the imaging patents, those have been growing 20% a year. So whereas that was 20% of the revenue at the beginning of this period of time we're talking about, now it's approaching 50%. So now you have that growth part of the business really contributing more significantly to the top line growth rate. That's how we've been able to get back, Ralph, to organic growth, and it's why we're excited going forward is because that continues to grow as a part of the business, and we continue to be really excited about the growth drivers for that part of the business.

Great. And then maybe kind of double click on the growth drivers. Can you walk us through auto success you've had -- initially sort of in China and how that's expanded to other parts of the world. Walk through mobile, if you could, and then as well as televisions. And then maybe when you're discussing mobile, sort of walk us through Meta and Xiaomi, if you could walk through those drivers to bring a finer point to how you're growing.

Absolutely. So automotive is really exciting. We brought -- and the breakthrough for us in automotive was applying Dolby Atmos to music. And for us, that starts with working with the creatives. It starts with working with the labels. It's in the -- started at Capital Records and Abbey Road, working with musicians to help them create in Dolby Atmos. And what we found was that they were just in awe of this experience.

So many of them were brought to tears the first time they heard their first song in Dolby Atmos, not even their song, just their favorite song from some other artists. And they consistently describe it as just a completely different experience to -- way to experience their music and put you in the music.

When we get that kind of reaction, we know we're really on to something. Now what they cared about was they care a lot about the car. They also cared about mobile and the home, but the car is just -- it's a classic way that we all experience music. And so that's what sets the stage around -- again, it's around at the same time at the beginning of the pandemic as when we were starting to do this, turn out, by the way that was a pretty good new product to be bringing to market during the pandemic. Because we would -- our engineers had kind of souped-up cars in their driveways that we have any commercial partners yet to be Dolby Atmos capable. And the beauty of it is we could drive it to the homes of -- I mean, using the royal we, our team could drive these cars to music executives, musicians, car executives and demo them outside their homes and people would welcome them as to open arms because we were all starved for attention. So that was kind of the backdrop.

Now scroll forward over the first 3, 4 years of Dolby Atmos being available to cars, we now have 35 auto manufacturers. To your point, really to take off first in China, where they just moved very quickly and aggressively, the product cycles are fast, and the in-car entertainment experience is very advanced. There's also a lot of research that says that in China, in particular, people spend a lot of time in their car while they're not driving their cars. So in effect, it could be the best like home theater experience you have is in your car.

And by the way, that's increasingly true we find here in the U.S. as well. And it could be simply you're waiting to pick up kids for practice. It could be that you're taken a few minutes as you wind down from work. But people do spend time in their car and the in-car entertainment experience, therefore, is a big focus. And Dolby Atmos is a really compelling offering as it relates to uploading that experience.

So 35 OEMs, we've now expanded well beyond China throughout the entire Cadillac EV lineup. Mercedes is one of our first customers outside of China. They've adopted across a very broad range of their models. Most recently, BMW announced that they're launching, Hyundai announced that they're launching in a -- with a kind of more of an affordable implementation footprint. So that was really good.

And then China is also spreading to the rest of the world. So at the Paris Auto Show, Denza launched its -- I'm sorry, BYD launched its Denza which is its premium auto model for Europe at all with Dolby Atmos as standard.

We're also seeing early traction with Dolby Vision. So we've got a handful of our first Dolby Vision customers in China. And ultimately, we think this goes beyond the music experience in the car to the entirety of the audiovisual experience in the car. One could argue transportation. And as we spend less time having to actually be focused on driving the car, that really, we think, opens up the possibilities for that audiovisual experience. That was automotive.

In TV, one of the things we're really excited about is a new product offering, Dolby Vision 2. So Dolby Vision came to market around 2016, '17 as of last year, it was on about 30% of TVs, as was Dolby Atmos, you're getting in Dolby Vision, Dolby Atmos experience on about 30% of TVs. Very high penetration at the high end of the television market. And then we have partners like Hisense and TCL that go pretty deep into the mid. But our opportunity is to get broader adoption in that mid- to low end.

So Dolby Vision 2 is a significant evolution beyond Dolby Vision in terms of the quality experience. We were demonstrating this at CES. There are a number of technical features and a number of things that improves. But I think one of the things that really stands out is for the midrange in particular, we had two $300 TVs one 4K Dolby Vision, the other 4k Dolby Vision 2. And it's just so stunningly better. Dolby Vision and Dolby Vision 2 do is all about contrast. You get darker dark, darker blacks, brighter highlights a broader range of color.

But Dolby Vision 2, we think is what will really reaccelerate increasing the adoption among television manufacturers because it really scratches the itch stay to come up with compelling reasons for people to go and upgrade their television, especially at that mid- to low-end tier.

And then mobile. Social media is an area that, again, started in China. So we have very broad support across platforms like Bilibili, Tencent. I mentioned Douyin. Red note is another notable provider. Started there and what that did was created the value proposition for wanting to be able to playback and capture content on your phone, opening up the market for Dolby Vision on phones. So we have most of the major mobile providers there, Xiaomi, Oppo, Honor. Starting at the high end as it usually does with still a lot of room to grow and expand deeper into those lineups.

Apple, I should note, was the first to adopt Dolby Vision Capture. So all in -- the entire iPhone lineup supports Dolby Atmos, Dolby Vision Playback, Dolby Vision Capture. What's new this year is that during the first quarter, Instagram began supporting Dolby Vision they quickly followed that up with adoption on Facebook. And so this is just supporting our ability to go sell this value proposition to mobile phone providers. To get Dolby Vision supported on more phones. I think it's also -- will create opportunities across wearables generally as we look forward.

And then we also have on the licensing front as it relates to the imaging patent portfolio. And this kind of begins to cross over into what I said about how we're providing value to the content platforms in addition to device manufacturers is we license -- our patent licensing business mostly operates through patent pools where we are one of many licensors who come together to offer device manufacturers, freedom to operate around, in this case, video codecs. And historically, those pools have been licensing device manufacturers. Now they are licensing the content platforms as well.

So that started about, again, coming in this year. There are about 40 licensors. They're up to about half a dozen licensees, paying customers. It includes -- it is global. We have -- they have ByteDance in China, they've got Roku here in the U.S. So this represents a significant expansion of the potential for that imaging licensing program. and we're really excited about the potential for that as well.

And maybe you can kind of frame that with a little bit more detail. I think on the call, you talked about that being potentially a new incremental 10% of revenue within 3 years. So I think you kind of went through the patent side, but maybe also if you could frame the streaming side as well with some of the new products on OptiView.

Yes. So as I said, most of our revenue, most all of our revenue today comes from device licensing and sales into a smaller amount of sales into the cinema. We do think that in 3 years, 10% of our revenue can be coming from content platforms. And we're doing everything we can to accelerate that and increase that opportunity. Part of that is what I just said, the imaging patent programs being now expanded to include those content platforms.

And the other is our new initiative around Dolby OptiView. Dolby OptiView, really the genesis of Dolby OptiView was a self-service developer platform that we stood out several years ago. putting up some capabilities that we thought would be valued to developers. The demand signal that we saw coming out of that was particularly around sports and sports betting, the ability to stream high-quality audio/video content in ultra-low latency and to be able to do it in a synchronized way, which is important if you're trying to do more real-time interactive offerings to increase audience engagement because if I see the touchdown 10 seconds before you see the touchdown. It's kind of not a very fun social experience, right? So we're doing it in so we can do it sub-second, and we can do it in a synchronized way.

So a couple of years ago, we refocused from the broad-based self-service program to, okay, we believe there's a real opportunity to lead the way in sports and sports betting, serving customers, which could be streamers, but it can also be the leagues, the teams, the apps and services that are promoting those sports.

So customers include NFL and NASCAR, more recently includes Sports Information and Genius Sports, which are technology providers to the sports betting industry. And so we have a player. We have this ability to stream in very low latency. We now have an ad insertion technology, which allows you to insert personalized ads at that pace and to be able to adapt in real time to the screen size. But our -- the way we see the opportunity, the way we've always seen the opportunity is the -- is here's how the world is changing, the world wants to change. For as long as I've been watching sports, we all see the same experience. We see -- we tune in to NBC, we see the same experience.

The promise of streaming has always been that we can personalize that experience to what most engages you. And while more and more sport is going the way of streaming, you're mostly -- we're just watching the same thing on a streaming platform. And so the promise now is we were -- we've been previewing this quarter starting at NAB, our sports intelligence platform, which takes us further, which is to be able to customize, which highlights you're seeing in between plays versus what I'm seeing in between plays. Or inserting content from -- that might be of interest to you as it relates to, geez, this moment in the game is a lot like this moment from 1982 when these teams faced each other. Or it could also be that maybe Peter is more interested in the technical aspects of the sport and I'm more interested in the energy and the emotion around the sport. And so that would inform the experience we're getting. The opportunities are really endless because really what we ought to have is the ability to understand whether you're engaged and if you're not engaged, what might engage you.

You think about the potential, for instance, with fantasy sports like that. It was obviously an opportunity where each of us might have a very different things that we want to focus on, even different camera shots within the same game. So early days, but -- this is getting really strong resonance from our customers. And like I said, we've got a good group of customers like the NFL, like NASCAR, Genius Sports, Sports Information Systems, who are still scaling the ultra-low latency streaming, synchronized delivery and are also interested everybody is interested in getting to this world where we're truly personalizing these experiences and increasing fan engagement.

So between Dolby OptiView and imaging patents, that's what I'm talking about when I say in 3 years, we could have 10% of our revenue coming from content platforms. So content platforms could be ByteDance and Roku, it could be NFL and NASCAR in this context. Obviously, that's a considerable expansion of our opportunity. So early days, we're really excited about where we're going with this. AI is accelerating it. It's enabling it. It's an important part of how we're building it. And so we're -- so we -- that's what's exciting us.

We got a few minutes left. I'll pause to see if there's any questions out here.

All right. Maybe just the balance sheet has always been, I guess, sort of a pushback by investors that Dolby carries a lot of cash, maybe too much and more recently at least from my observation, you've been using the balance sheet more about the GE patents. I think you've bought back more stock year-to-date than you have all of last year, but maybe philosophically, has something changed there in terms of like cash deployment?

So yes, last year, we did have a great opportunity to build on our imaging patent portfolio for a very accretive acquisition, which was a use of capital. We've always, of course, bought back stock to offset stock comp dilution. We have a recurring dividend that we've increased every year but one during the pandemic. And from time to time, we've bought back stock over and above what it takes to offset dilution.

Since 2020 that we've returned about $2 billion. And to your point, yes, this year. To date, we've bought back more stock than we had all of last year. And that's something that we continue to look at each quarter and with the Board and look at where the opportunities are to deploy cash and decide the balance of returning to shareholders.

No question. All right. No conversation to be complete without AI. So can you maybe talk about the tools you're developing today for the content creators and how you see AI sort of evolving both internally at Dolby and sort of the products you could offer to the end market?

Yes. Well, I mean, I would start by saying the foundation is everything that we've talked about, which is that Dolby has decades of research into how humans perceive sight and sound in the context of entertainment and how this network ecosystem of thousands of customers and partners come together to make that happen. And so AI creates the opportunity for us to create products and to train models that accelerate what we've always aimed to do, which is reinvent the entertainment experience.

And I'll give you two short examples given the time we have. One, we just talked about Dolby OptiView. I mean this whole not being able to personalize the experience is something that has been talked about for many years. We were demonstrating early versions of it 10 years ago at CES, but the technology just wasn't there to really make it happen. AI is what's making it possible. And we are very much developing our -- all of our products and technologies are being developed with the help of AI. And importantly, it's integrating that with data and AI models that allows us to do that kind of work.

But Ralph, also in just our core business. I mean, Dolby Technologies, our licensing technologies are essential to the way entertainment content is delivered today. And as our partners look to further avail themselves of the use of AI. We find that they are also looking to make sure that their infrastructure, their systems, which Dolby is a part of, is robust. And so AI is giving us the ability to introduce new features into that.

So one example is dialogue enhancement. This is the problem of with the increasing the professionalism of TV content where you've got huge explosions and then slight whispers and you struggle to find a comfortable listening volume or everybody is just using subtitles. But actually extracting the dialogue from that is a very difficult task. And we've built our own model based on data we've had, subjective data and a lot of other data to make that a part of the Dolby foundational offering. That's getting really good feedback.

Another model we've built is around mixing audio. So we can now capture audio on the phone, but not everybody can be a professional audio mixer. And obviously, if all you just capture it, it actually doesn't sound very good. You've probably experienced this. But we've built AI models, which we think are going to be able to help people to be -- get close to what an audio -- professional audio mixer would do with that. So these are all -- these are ways that we are building AI models and applying that to both our existing technologies and creating new opportunities in the future.

Unfortunately, we're out of time. I'd like to thank everybody for their interest in Dolby. Kevin, thank you for your time. And the breakout will be in Jenney B, which is on the second floor. Thank you very much.

Thanks, Ralph. Thanks, everybody, for joining us this morning.

Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories conference call discussing second quarter fiscal year 2026 results. [Operator Instructions] As a reminder, this call is being recorded. 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 Second Quarter Fiscal Year 2026 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 2026 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, 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 annual 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.

Thanks, Peter, and thanks to everyone joining us on the call today. Revenue and non-GAAP earnings for the quarter came in consistent with the expectations we provided on the call last quarter, and we are maintaining our full year guidance. Robert will share more details on the financials in a few minutes. Dolby occupies a unique position across the creator content platform device ecosystem. We continue to strengthen our position, creating growth opportunities across existing and new business areas.

Over the last few quarters, we have made great progress, bringing more Dolby content to more content platforms. Top-tier social media companies are increasingly recognizing the value of streaming content in Dolby Vision. Meta has adopted Dolby Vision for content streamed on iOS for both Instagram and Facebook, and Douyin in China has enabled Dolby Vision for content on both iOS and Android. In music, over 90% of the artists featured on Billboard's Year-End Top 100 artists for the last 3 years are creating music in Dolby Atmos. At the Grammys, Dolby Atmos was well represented in all major categories, including all nominees for best new artists.

In sports, more and more content is available in Dolby. Just this quarter, the Super Bowl and the Winter Olympics were available in Dolby Vision and Dolby Atmos. The T20 Cricket World Cup in India and the 2026 Formula 1 season streaming on Apple are available in Dolby Vision. HBO Max is streaming a wide variety of sports content in Dolby Atmos and Dolby Vision. And while not exactly sports, they also stream NASA's Artemis II mission in Dolby Vision. And Peacock is also streaming sports in Dolby Atmos with plans to begin streaming in Dolby Vision.

We also continue to expand further into mass market TV. Amazon recently announced that it has added support for Dolby Vision to its ad-supported tier. And TV Azteca, the second largest mass media company in Mexico, announced that it will bring Dolby Atmos to free-to-air broadcast. And finally, in the cinema, all of the top 30 grossing films domestically for calendar 2025 were in Dolby Atmos and Dolby Vision. And all major category winners at the Academy Awards in March and the BAFTAs in February were in Dolby Atmos and Dolby Vision, including F1, the movie, Sinners and One Battle After Another. All of this is simply to say high-quality content matters and more content in Dolby means more reasons to adopt Dolby Atmos and Dolby Vision across end markets and devices.

And it was another big quarter for automotive. At the Beijing Auto Show last week, BMW announced Dolby Atmos support in the 7 Series globally and the iX3 in China. Just 2 weeks before that at the Paris Auto Show, BYD launched its Denza line with Dolby Atmos, BYD's first car with Dolby Atmos in the European market. Also this quarter, Lexus announced their first Dolby Atmos-enabled cars and NIO expanded its Dolby Atmos adoption to the Firefly, a compact EV sub-brand for Singapore and Thailand. There is a broader shift across the automotive industry where the vehicle is now a place for high-quality entertainment, and we continue to benefit from this trend.

Turning to mobile. The progress we are making in music and with social media platforms continues to strengthen our value proposition across mobile devices. Dolby Vision capture and playback and Dolby Atmos are included across Apple's lineup, including the 17E, their latest iPhone starting at $599 that was launched this quarter. Xiaomi announced its flagship Redmi Note 15 Pro series with Dolby Vision, Dolby Vision capture and Dolby Atmos. Vivo released the X300 Ultra with Dolby Vision as well as their iQOO 15 Ultra, a gaming-focused sub-brand that has both Dolby Atmos and Dolby Vision. We continue to perform well in high-end phones, and we're excited that Douyin is now fully supporting Dolby Vision on Android, which should help us continue to work our way further into mid-range Android phones.

Moving on to the living room. As I mentioned earlier, our momentum in sports content is an important driver for new TV sales. In addition, we're excited about the first Dolby Vision 2 TVs coming to market by the end of this fiscal year. Hisense, TCL and Philips have announced plans to release a wide range of Dolby Vision 2-enabled TVs globally with Peacock and Canal+ committed to delivering content. We expect Dolby Vision 2 to increase ASPs and drive deeper adoption into TV lineups.

In addition to driving growth from the adoption of more Dolby technology on more devices, we are beginning to generate revenue from content platforms as content platforms are increasingly competing on experience, not just access to content. The video distribution program, the patent pool that licenses imaging patents to content streamers continues to bring on additional licensors, including this quarter, Sharp and SK Planet, bringing the total to 40. These new licensors bring important patents and validation to the pool, which generates incremental momentum. The licensee pipeline is strong.

With Dolby OptiView, we are bringing value to sports content platforms that are seeking to increase fan engagement with real-time personalized experiences. Our wins this quarter include Genius Sports, a leading data technology and broadcast partner that serves the global sports betting and media ecosystem. This win reinforces Dolby OptiView's positioning in the sports ecosystem where partners prioritize fan engagement and real-time experiences. In the U.K., William Hill is now using Dolby OptiView to deliver horse racing, providing consistent low-latency content across its online platforms in time-sensitive live workflows. At the NAB Show in Las Vegas this month, our vision for the future of live sports experiences resonated strongly with many of our key customer prospects. We are excited about the potential for Dolby OptiView.

Wrapping up, we continue to strengthen our position across the entertainment ecosystem. We have momentum across our key growth drivers for Dolby Atmos and Dolby Vision. We're excited about our opportunity to drive growth beyond devices with the video distribution program and Dolby OptiView. All of this gives us confidence in our opportunity to drive long-term growth.

And with that, I'll turn it over to Robert to cover the financials.

Thank you, Kevin, and thanks to everyone joining us on the call today. Revenue for the quarter came in at $396 million, which was within the guidance we shared last quarter. Non-GAAP earnings per share was $1.37, also within the range of guidance. Licensing revenue was $372 million and products and services revenue was $23 million. We generated approximately $93 million in operating cash flow, repurchased $65 million of common stock and have approximately $142 million remaining on our share repurchase authorization. We declared a $0.36 dividend, up 9% from our dividend a year ago and ended the quarter with cash and investments of approximately $675 million. GAAP operating expenses in Q2 include a $2 million restructuring charge related to actions initiated last year.

Detailed licensing performance by end market can be found on our IR website. As a reminder, end market growth rates are typically smoother on an annual basis as the timing of recoveries, minimum volume commitments and true-ups can drive quarterly volatility. In terms of end market performance for the quarter, it's worth noting that Broadcast was up 26% year-over-year due to the large recovery we mentioned on the last call, and mobile was down 6% year-over-year due to timing of deals. We still expect both broadcast and mobile to be up mid-single digits for the full year.

Turning to guidance. We are maintaining our full year guidance. Overall, we are pleased with our performance to date, and things are generally tracking as expected. We expect fiscal '26 total revenue to range from $1.4 billion to $1.45 billion. Within that, licensing revenue is expected to be between $1.295 billion and $1.345 billion. We are targeting non-GAAP operating expenses between $780 million and $800 million. This guidance implies operating margin improvement of between 50 and 100 basis points on a non-GAAP basis. We continue to expect non-GAAP earnings per share to be between $4.30 and $4.45.

Our expectations for foundational and Dolby Atmos, Dolby Vision and imaging patents full year growth rates are unchanged from what we communicated last quarter, with Dolby Atmos, Dolby Vision and imaging patents growing roughly 15% and comprising nearly half of our licensing revenue. We continue to expect foundational revenue to be down slightly. We also expect end market growth rates for the full year to be similar to what we communicated last quarter, with growth in other primarily driven by Dolby Atmos adoption in auto, the video distribution program and Dolby Cinema, partially offset by lower gaming. Growth in mobile and broadcast is driven by adoption of Dolby Atmos and Dolby Vision, growth in imaging patent programs and higher recoveries. We expect CE to be roughly flat and declines in PC primarily due to lower unit sales.

Now turning to Q3. For Q3 fiscal '26, we expect revenue to be between $295 million and $325 million. Within that, we expect licensing revenue to be between $270 million and $300 million. Gross margins should be approximately 88% on a non-GAAP basis, and we expect non-GAAP operating expenses to be between $200 million and $210 million. Non-GAAP earnings per share is expected to be between $0.56 and $0.71. In summary, the business remains healthy, and we are encouraged by the progress we're making across our key growth initiatives. Our financials remain solid with organic revenue growth, high gross margins, expanding operating margins, healthy cash flows and a strong balance sheet.

With that, we'll open the line for your questions.

[Operator Instructions] Your first question comes from the line of Vikram Kesavabhotla of Baird.

This is John Rigatti on for Vikram Kesavabhotla. I guess, first, if you could just talk about your consumption-based revenue streams that you've referenced over the last couple of quarters. I think you noted those should get to about 10% of revenue in the next 3 years. What should the shape of that ramp look like? Should we think about that kind of equal parts over the next 3 years? Or is that more back-end weighted? And then I have a follow-up.

Yes. Thank you. Well, we're really pleased with the progress with both Dolby OptiView and the video distribution program. As you know, Dolby OptiView, we're focused on creating live sports experiences that are tailored to the fan, where unlike broadcast where everyone sees the same thing, streaming technology enables us to customize what each viewer sees. And that's the promise of streaming, and we're yet to -- the world is yet to get there in sports. And at NAB, we were previewing our sports intelligence platform, and that platform uses AI to analyze viewer preferences, match them to what's happening in the action. It enables you to create a story that really resonates for each viewer. And so we were demonstrating this across motor, racing, football and other sports.

We also showed how we can use AI to generate highlights, reformat content to fit any screen size, shape and deliver it to whatever device a viewer happens to be watching on. And of course, it's Dolby OptiView. So all this is done -- it's essential that this is done at very low delay and synchronized at the same time for all the users. So these were resonating really strongly. We've got a growing roster of customers, NFL, NASCAR, sports information, solutions or services rather.

And this quarter, we're excited to add Genius Sports. So each of them are really in the early stages of rolling out what we have for Dolby OptiView today, but they're also really engaged in where we're going with the future, and they're looking for a company like Dolby who has decades of experience that they can trust to really move into this future.

And the video distribution program, we've seen a lot of these pools come together, and we're really pleased with the way this one is coming together. We announced it at the beginning of this year. We brought on 40 licensors. That's what brings together the value proposition. We brought on half a dozen licensees, and we expect that to continue to grow through the year.

Great. And I guess just the second one on memory pricing. I mean those dynamics have been pretty well documented. I think last quarter, you said kind of PC and mobile were the two end markets that were maybe most exposed to some of those dynamics. I guess just an update on what you're seeing on the memory pricing front, if you're seeing -- kind of what you're seeing as far as any impact on demand there, how that's factored into the guidance? And then outside of maybe mobile and PC, are there any other end markets where that's a particularly notable driver?

Yes. Of course, we're watching that very closely as we are all the macro factors, memory pricing, volatility in oil prices and how that might affect supply chain, consumer sentiment readings, all of which we're watching very closely. And yes, memory pricing where we see from an end market point of view, where customers are most -- seeing the most impact on that is in mobile and PC, less so in areas like TV, where memory isn't as much of the BOM. And like a lot of companies, like many of the banks said in their earnings, we're seeing all these macro factors on the one hand. But on the other hand, we've not seen a significant impact to our business to date.

We, of course, update all of our guidance to reflect what we're learning from our customers, what we're seeing from industry analysts. We do have a diverse set of end markets, and we're diversifying our revenue streams. So where we saw minor adjustments in some areas, we had other areas that we're doing well to offset that. And so we feel good about our guidance for the year.

Your next question comes from the line of Patrick Sholl of Barrington Research.

Maybe just following up on that last question. Like just in your discussions with customers, has there been any indication in terms of like SKUs that they're prioritizing within some of their devices on those that might be impacted on the memory prices?

Yes. So yes, thank you. If we focus on mobile, again, we do see a trend towards them wanting to, first and foremost, take care of the high end. And that benefits us as it relates to Dolby Atmos and Dolby Vision. But -- and this really varies by customer in terms of how they're approaching this, whether they are planning to raise prices, how that affects device volumes. But again, we haven't seen a significant impact to date. And remember that most of our mobile business is through minimum volume commitments, and we're just over halfway through the year. So we have pretty good visibility. And so that moderates the impact of kind of where they're going. And -- so to date, no adjustments worth noting to the extent we have minor changes, it's offset by strength in other areas.

Okay. And then on auto, can you provide any greater detail on, I guess, like market penetration in some of the early adoption markets, I guess, maybe specifically like in China? And I guess, maybe percentage of like the new car market in there that you're a part of and how you expect that to maybe roll out across other markets?

Yes. It was a big quarter for automotive, as I said in my remarks, we are getting pretty high penetration of having brought on board a lot of the premium lines. We still have a long way to go in getting those to market and the revenue growth that's going to come from that. We also have begun to see good progress kind of moving deeper into lineups. One that I didn't mention in my remarks is that in China, the Hyundai IONIQ was launched with Dolby Atmos, and that's significant because that's a 4-channel, 8-speaker implementation. So that's a hardware footprint that would be quite normal for a mass market car. So we're really pleased to see that. So we're continuing to bring on new customers, BMW, Lexus. We have very high -- a lot of penetration in China, and we're increasing progress outside of China with the wins we announced this quarter.

And we're also seeing progress with the Chinese companies expanding outside of China. So one of the things I mentioned is that at the Paris Auto Show, BYD launched its Denza line with Dolby Atmos. And so BYD has been a customer of ours, but that's the first car of theirs for the -- outside of China with Dolby Atmos.

[Operator Instructions] Your next question comes from the line of Ralph Schackart of William Blair.

Kevin, I think you just mentioned that Hyundai had a 4-channel Atmos implementation in China. Can you just remind us when that product was launched? And then maybe kind of building on that, what are the implications for Hyundai or other kind of mass market vehicles to expand outside of China with a similar implementation of the Atmos.

Yes. So that was announced very recently. I don't have the exact date, Ralph, I can get back to you on that, but that was very recent. I think it was announced at the Beijing Auto Show, which is just a couple of weeks ago. So we were at CES demoing the 4-channel implementation, which was really looking to show manufacturers the difference we could make at the mass market level. So we're excited to see this first launch. Obviously, we will work with each of our partners then to expand into different lines and different geographies. And we feel good about the pipeline and that we can continue to drive Dolby Atmos further into these lineups.

Great. And then I think on the call, you had mentioned in the prepared remarks, Douyin is adopting Dolby Vision. And then maybe kind of more broadly with that announcement and then your previous announcement with Meta also adopting Vision with all its properties or across some of its properties, maybe sort of an update how that might be steering some of the conversations with prospective mobile OEMs.

Yes. Thank you. So China is where, as you know, we have -- is really where we began with Dolby Vision and -- well, started with Apple. And then on social media platforms, we've had enormous success in China. And the significance of what I said about Douyin is they started a couple of quarters ago with iOS, and they've now completed rolling out Dolby Vision content across all of Android. And I also talked about a few of the wins we had in China with Xiaomi, with Vivo. So we continue to bring on new partners.

And with Instagram and Facebook adopting here in the U.S., we do see that increasing the pipeline for Dolby Vision and Dolby Vision capture across mobile devices. And it also gives us an opportunity as we form these relationships to really earn their trust that we can help them achieve what their priorities are as it relates to audio-video experiences, and that feeds our innovation pipeline and creates new opportunities to -- new growth opportunities in the future.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories conference call discussing first quarter 2026 results. [Operator Instructions] As a reminder, this call is being recorded Thursday, January 29, 2026.

I would now like to turn the conference over to Mr. Peter Goldmacher, Vice President of Investor Relations. Peter, please go ahead.

Good afternoon, and welcome to Dolby Laboratories First Quarter Fiscal Year 2026 Earnings Conference Call. Joining me today are Kevin Yeaman, Dolby Laboratories CEO; and Robert Park, CFO. As a reminder, today's discussion will include forward-looking statements, including our fiscal 2026 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 macroeconomic events, 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 annual 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.

Thanks, Peter, and thanks to everyone for joining us on the call today. FY '26 is off to a good start. Revenue and non-GAAP earnings came in above the high end of the range of guidance. We are making meaningful progress on the growth initiatives we discussed last quarter, and we're raising our guidance for the year.

Robert will share more details on the financials and guidance in a few minutes. Just a few weeks ago at CES, we showed how Dolby Atmos and Dolby Vision are shaping how people watch, listen to and enjoy their favorite entertainment content across movies, TV, music, sports and user-generated content. We hosted hundreds of customers and partners at Dolby Live, where we had demonstrations primarily focused on the in-car entertainment experience and Dolby Vision 2 for TVs.

Automotive has become a major focus of CES, and we were excited to have partners highlight how Dolby is helping them transform the future of in-car entertainment. Attendees were able to experience Dolby Atmos in cars ranging from a 2-seat Porsche, 911 to a Mercedes SUV, an Audi e-tron and a full-size Cadillac Escalade. We also showed how Dolby is playing an important role in expanding the scope of high-quality entertainment in the car.

SmashLabs demonstrated its immersive multichannel games in Dolby Atmos vehicles and attendees got a chance to listen to Audible's fully immersive Harry Potter audiobook series featuring Dolby Atmos. The Neon Horizon featuring Dolby Atmos and Dolby Vision demonstrated how the bar is being raised on the in-car experience well beyond music to include movies, TV, gaming, audiobooks and more. In addition, we announced that we are partnering with Qualcomm to integrate Dolby Atmos and Dolby Vision into Qualcomm's Gen 5 Snapdragon Automotive platform, further extending our reach into the auto ecosystem.

Also during the quarter, Mahindra released the first SUV in India with Dolby Atmos and Dolby Vision, and Hyundai launched its first car with Dolby Atmos, a crossover SUV in China. Overall, we continue to be excited about the momentum in automotive, where we now have partnerships with over 35 OEMs, up from 20 OEMs this time last year.

Moving on to TVs. Dolby Vision 2 was on full display at CES and was met with enthusiasm from partners, press and attendees. Building on the success of Dolby Vision, Dolby Vision 2 is designed to meet the evolving expectations of today's viewers and unlock the full potential of modern televisions from mainstream sets to top-of-the-line models. Dolby Vision 2 has a variety of features that are designed to enhance all the content consumers enjoy, including movies, sports and gaming with even more vivid pictures and brighter colors. When you see it, it just looks better.

We got an enthusiastic response at CES from the content providers with Peacock announcing its support for Dolby Vision 2 across movies, originals and live sports, joining Canal+ as an early launch partner. TP Vision, the maker of the Philips brand, announced support for Dolby Vision 2 across a variety of upcoming models, joining Hisense and TCL as launch partners. The first Dolby Vision 2 TVs will be available by the end of the year, increasing our revenue opportunity from TVs. Additionally, in the quarter, we continue to make progress on our other growth initiatives, including mobile, our video distribution program for imaging patents and OptiView.

Meta, which announced support for Dolby Vision on Instagram in November, has now begun supporting Dolby Vision on Facebook. Douyin, the Chinese version of TikTok has been supporting Dolby Vision on iOS and started rolling out support for Android devices this quarter. Content captured and played back in Dolby Vision drives higher engagement for social media providers and in turn, increases demand for Dolby Vision on mobile phones. In imaging patents, Roku became a licensee of the video distribution patent pool, marking the first U.S.-based streamer to sign up for the pool.

As we discussed last quarter, this pool increases the addressable market for imaging patents by expanding the available licensees from device manufacturers to also include streamers of content. On Dolby OptiView, we continued our partnership with the NFL with OptiView delivering RedZone through the NFL+ app and achieving record levels of streaming quality for the service. And we continue to bring customers onto the service. including Veikkaus, Finland's national lottery and sports betting operator and SIS, short for Sports Information Solutions, a service provider of about -- over 300 sports betting companies.

Veikkaus is using Dolby OptiView to reduce latency for live horse racing improving the real-time betting experience and strengthening customer engagement. SIS has adopted our video player and has made the ability to deliver content in subsecond latency available to its customers. We're encouraged by how Dolby OptiView is enabling our partners to increase audience engagement and revenue. So to wrap up, we have continued momentum in automotive, new growth drivers for Dolby Vision and TVs, and growing adoption of Dolby Vision and social media, an important use case for mobile devices.

And while it's early days, we continue to expand our addressable market to new customers with Dolby OptiView and the video distribution program. We're confident in our ability to grow Dolby Atmos, Dolby Vision and imaging patents at 15% to 20% per year over the next few years. And now that Dolby Atmos, Dolby Vision and imaging patents is approaching 50% of our licensing revenue, it is having a greater impact on our overall growth rate. We remain excited about our position in the market and confident in our growth opportunities.

With that, I'll turn it over to Robert, who will take you through the financials in a bit more detail.

Thank you, Kevin, and thanks to everyone joining us on the call today. Revenue for the quarter came in at $347 million above the high end of the guidance we shared last quarter, primarily driven by the timing of deals coming in earlier than expected and a $7 million favorable true-up for Q4 shipments. Non-GAAP earnings per share was $1.06 and also above the high end of guidance, driven by higher revenue and lower OpEx.

Licensing revenue was $320 million and Products and Services revenue was $27 million. We generated approximately $55 million in operating cash flow repurchased $70 million of common stock and have approximately $207 million remaining on our share repurchase authorization. We declared a $0.36 dividend up 9% from our dividend a year ago and ended the quarter with cash and investments of approximately $730 million.

GAAP operating expenses in Q1 included a $10 million of restructuring charge as we continue to streamline operations and align resources with our business priorities. Detailed licensing performance by end market can be found on our IR website. As we share with you every quarter, trends are typically smoother on an annual basis as the timing of recoveries, minimum volume commitments and true-ups can drive quarterly volatility. In terms of end market performance for the quarter, it's worth noting that Mobile grew by over 20% year-over-year and Broadcast revenue was down mid-teens year-over-year, both primarily driven by timing of deals. We still expect Mobile and Broadcast to be up mid-single digits for the full year.

Turning to guidance. For full year fiscal '26 guidance, we are raising the revenue range to $1.4 billion to $1.45 billion. This reflects the Q1 true-up and some of our deals coming in earlier and stronger than forecasted, partially offset by slight revisions to our outlook for the year, including potential impact of memory pricing, which varies by end market and customer. We expect fiscal year '26 licensing revenue to be between $1.295 billion and $1.345 billion, and we are targeting non-GAAP operating expenses between $780 million and $800 million.

This guidance implies operating margin improvement of between 50 and 100 basis points. We expect non-GAAP earnings per share to be between $4.30 and $4.45. Our expectations for foundational in Dolby Atmos, Dolby Vision and imaging patents full year growth rates are relatively unchanged from what we communicated at the beginning of the year. With Dolby Atmos, Dolby Vision and imaging patents growing roughly 15% and comprising nearly half of our licensing revenue, we expect foundational revenue to be down slightly.

We also expect end market growth rates for the full year to be similar to what we communicated last quarter with growth in other Mobile and Broadcast and declines in PC and CE. For Q2 '26, we expect revenue to be between $375 million and $405 million. Within that, we expect licensing revenue to be between $350 million and $380 million and includes a large recovery that settled in Q2. Gross margin should be approximately 91% on a non-GAAP basis and we expect non-GAAP operating expenses to be between $195 million to $205 million.

Non-GAAP earnings per share is expected to be between $1.29 and $1.44. In summary, we are off to a strong start in Q1, and we are encouraged by the progress we are making across our growth initiatives. Our financials remain solid with organic revenue growth, high gross margins, expanding operating margins, healthy cash flows and a strong balance sheet.

With that, we'll open the line for your questions.

[Operator Instructions] Your first question comes from the line of Steven Frankel with Rosenblatt.

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?

Yes. Thanks, Steve. 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.

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?

The true-up was about $7 million. And Robert, do you want to cover?

Yes, it was primarily gaming and broadcast, Steve.

And the strong growth in Mobile, was that in part due to signing of new deals or renewals that drove that?

Steve, yes, 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?

Okay. And then one big picture question, 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?

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.

Great. And one more quick one for Robert. Cash flow generation, this Q1 looked more like Q1 of 2024 than 2025? Is this just timing and we shouldn't read anything into it. And the expectations for full year cash flow generation should be what we're used to?

Yes. That's a good question, Steve. And you're right, our cash flow -- particularly our operating cash flow can fluctuate quarter-to-quarter depending on the timing of deals, the terms, patent pool collections and distributions. What you need to look at if you want to is go back to the last 4 quarters, it tracks very closely the non-GAAP net income. And if you look at the trailing 4 quarters, it's right about 100% of that, and that's what we continue to expect for the year. So if you want to peg a proxy for operating cash flow, look at our non-GAAP net income, and that should be a good proxy for operating cash flow.

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

Kevin, 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?

Yes. Thanks, Ralph. 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.

Great. Maybe just one for Robert. Just in terms of the guide being at the high end, was that just a combination of good stuff going on in the quarter as well as the favorable true-up? Or was that maybe tilted a little bit more in favor of the favorable true-up getting the revenue to come in towards the high end of the guide? Just trying to get a sense of that.

Are you talking about the full year, Ralph?

For the quarter, yes.

The quarter, Robert? Oh for Q2? Q1 -- or it was in Q1 or Q2. Now I guess I don't know. I'm not sure...

Yes, Q1 is the $7 million of favorable true-ups and deals coming in earlier than expected, as we talked about before in terms of the performance for Q1. I'm sorry. I thought you were talking about guidance.

No, I said guidance, but maybe just give a sense outside of NVIDIA favorable true-up and how about [indiscernible] was relative to expectations of [indiscernible] was in the quarter?

So Ralph, you were a little bit choppy on that. Can you repeat that question?

Yes, could you?

Can you give me a sense of -- yes, sorry. Can you just give me a sense of how the quarter progressed relative to expectations as the true-up? Just kind of want to get a sense from a macro. I know Kevin said, much hasn't changed, but it would just be helpful, just a little bit more color there if you could please.

Yes. I would say it's fairly small. It's nice that it's favorable in terms of units being a little higher than we estimated for last quarter. But the deals coming in earlier than expected, deals can ebb and flow, but it's always nice to have them in earlier. As Kevin said, it does derisk our pipeline for the full year and gives us a little more confidence about our ability to execute for the rest of the year. But I'd say other than that, it's pretty close to what we thought it would be, and that true-up of course is something we don't plan for. So that's more so for the full year.

Your next question comes from the line of Vikram Kesavabhotla with Baird.

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?

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.

Okay. Great. And then I also wanted to follow up on some of the recent announcements that you highlighted in the press release. So first on Peacock, you said that's the first streaming service to integrate your full suite of premium picture and sound innovations. Could you talk more about the significant -- significance of that announcement?

I mean, what do you think moves the needle in that conversation with Peacock? And what does this mean for your future relationships across the streaming landscape. And then similarly, you also highlighted Meta now supporting Dolby Vision on Facebook following the announcement on Instagram recently as well. I guess, could you talk more about how that's influencing your broader efforts in social media and your discussions with the mobile OEMs? And I'll leave it there.

Yes. Thanks for the question. So yes, so Peacock did announce that they're embracing the entire suite of Dolby technologies AC-4, Dolby Atmos, Dolby Vision 2, they've become one of our first two launch partners for Dolby Vision 2 which obviously will come to -- you'll be able to experience when TVs are available later this year. And with Peacock, that's, of course, across movies, it's across TV, it's across sports, they've started with Dolby -- starting Dolby Atmos, so you'll be able to experience the Super Bowl and the Winter Olympics in Dolby Atmos through Peacock.

So we're really excited about them leaning into the full Dolby experience. And yes, on Meta, we shared last quarter that they had adopted Instagram for iOS users. They've now expanded to Facebook. And that's important to us for a couple of reasons. I mean, first of all, obviously, it's a primary use case on mobile devices. So having the ability to experience Dolby Vision over your favorite social media and video sharing websites, applications are -- that creates demand for Dolby on mobile devices.

We also mentioned last quarter that Douyin in China began supporting Dolby Vision and that they are now expanding support to their Android users. So that's also a really strong development. But yes, we're very excited about Instagram and Facebook, and we're excited about our relationship with Meta. I mean, they now have embraced Dolby Atmos and Dolby Vision on the Oculus headset and it's just being able to engage with them across multiple aspects of their business. It is just a great opportunity to learn where we can help going forward in terms of new opportunities.

Your next question comes from the line of Patrick Sholl with Barrington Research.

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?

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.

Okay. 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?

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.

Ladies and gentlemen, that does conclude our question-and-answer session, and that does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories Conference Call discussing Fourth Quarter Fiscal Year 2025 results. [Operator Instructions]. As a reminder, this call is being recorded, Tuesday, November 18, 2025.

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 Fourth Quarter 2025 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 2026 1st quarter and full year outlook management's expectations for our future performance and other statements regarding our plans, opportunities and expectations. 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, changes in customer demand changes in law and regulation and the impact of macroeconomic events on our business. A discussion of these and additional risks and uncertainties can be found in our earnings press release as well as in the Risk Factors section of our Forms 10-K and 10-Q. Dolby assumes no obligation to update any forward-looking statements.

During today's call, we will discuss non-GAAP financial measures. These measures should be considered in addition to and not as a substitute for GAAP 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 the call today. I'd like to share a brief overview of our financial results and a few highlights for the quarter, and then I'd like to talk about our unique position in the market and our opportunities heading into FY '26 and beyond. After that, I'll turn the call over to Robert to cover the financials before we get to Q&A.

We wrapped up Q4 and the full year, in line with the expectations we provided on the last earnings call. In FY '25, we grew revenue by 6%, aided by the acquisition of GE Licensing, and we expanded our operating margins by 1.8 percentage points. Robert will walk through the results in more detail in just a moment.

I'll start by walking through some of the Q4 highlights as it relates to Dolby Atmos, Dolby Vision and Imaging Patents. For Dolby Atmos and Dolby Vision, we continue to see strong engagement from our ecosystem of content creators, content distributors and device OEMs as they increasingly embrace the value of content created in Dolby Atmos and Dolby Vision across sports, music, TV and movies.

In September, we announced Dolby Vision 2, which will dramatically improve picture quality and unleash the full capabilities of modern TVs from mainstream sets to the top of the line models. Some of the benefits of Dolby Vision 2 include automatically adjusting contrast via ambient light detection, motion control to optimize sports and gaming content and features that enable creators to take full advantage of the latest advancements in higher-end TV displays. By bringing 2 distinct offerings to market, Dolby Vision 2 will allow TV OEMs to bring Dolby Vision deeper into their lineups by improving their mid-range offerings while Dolby Vision 2 MAX will offer important differentiation at the high end.

Dolby Vision 2 is receiving a strong reception from the industry. Hisense and TCL, 2 of the top 3 global TV OEMs are the first TV makers to announce support with release dates yet to be announced. This quarter, we had several TV launches with Dolby Atmos and/or Dolby Vision with device partners, including TCL, Samsung, Hitense, Xiaomi and Amazon. And Peacock is now streaming at Sunday night football games and the Seasons NBA games in Dolby Atmos.

Moving on to automotive. The value proposition for Dolby Atmos and increasingly, Dolby Vision continues to resonate in the auto world. This past quarter, we signed agreements with Maruti Suzuki, a top passenger vehicle brand in India with over 40% market share; [ Dpaul ] in China and; Vinfast in Vietnam. Also, the first in-car game featuring Dolby Atmos, Loaner officially launched on Lee auto vehicles as more content creators are looking to add value by taking advantage of Dolby Atmos in the car. A number of partners recently announced new models with Dolby Technologies, including Li Auto, Mahindra, Cadillac, [ Zika ] and Mercedes.

In mobile, we are very happy to share that Instagram is now distributing content in Dolby Vision with initial support for iOS. In a blog post, Instagram concluded that content in Dolby Vision increased the time spent in app. The blog post also noted that Meta intends to expand Dolby Vision to other meta apps and corresponding operating systems. Additionally, Dow Yin, known in many parts of the world is TikTok has made Dolby Vision available to its users in China, joining other Chinese social media companies, including Xiaohongshu, [ Kuaishou ] and Billy Billy in offering their users the ability to capture share and edit content in Dolby Vision.

We've seen how support on social media platforms and video sharing sites in China drives demand for Dolby Vision on mobile devices. These new partnerships with Instagram and [indiscernible] are another important catalyst to further penetrating the mobile device ecosystem. In wearables, Meta announced that the MetaQuest will have Dolby Atmos and Dolby Vision and Samsung announced that its GalXC-XR comes with Dolby Atmos. The wearables market is still early days, and we are working with the ecosystem to ensure that we are able to offer all device makers, the technology to help them create the most immersive and connected experience possible.

Turning to Imaging Patents, where we participate in patent pools, which help device makers license critical imaging technology. The primary growth driver to date has been growth in OEM licensees. In FY '25, we helped launch a new patent pool focused on providing critical imaging technology to content streaming providers using a consumption-based pricing model. This video distribution program significantly expands the TAM for imaging patents beyond devices. The pool signed its first licensees in the second half of fiscal '25, and we will start recognizing revenue in fiscal '26. The progress we've made in FY '25 gives us confidence that we can grow Dolby Atmos, Dolby Vision and Imaging Patents at a growth rate of about 15% to 20% per year over the next 3 to 5 years.

Now before I wrap up, I'd like to take a few minutes to talk about Dolby and where we're going. Today, we are at the beginning of an opportunity to expand our total addressable market by delivering value to new sets of customers via consumption-based revenue models. We currently have 2 such offerings. We just discussed the first, which is the video distribution program for content streamers. The second is Dolby OptiView. Dolby Atmos is our Software-as-a-Service solution that is focused on delivering real-time personalized and interactive streaming experiences in sports, sports betting and iGaming.

Dolby OptiView combines very low latency video streaming with the ability to optimize advertising and integrate additional content. For example, highlights of another game that's happening to engage viewers and drive higher revenue through subscriptions and advertising. We see a significant opportunity in reinventing the fan experience for live sports, aligning with content owners to increase the value of their content. The NFL has been delivering Red Zone to the NFLs app using Dolby OptiView streaming since the start of the season, and they've seen significant increases in the quality of the streaming experience while delivering content at half the previous latency.

All of these improvements contribute to longer viewing time. While our focus in the near term is on scaling these 2 new offerings, Dolby OptiView and the video distribution program for content distributors, we believe that there will be opportunities in the future and deliver new value to trusted partners and new customers expanding into new verticals with consumption-based revenue models. And this is increasingly an important focus of our innovation pipeline.

Dolby has maintained its leadership position for 60 years by innovating and raising the bar on the quality and efficiency of entertainment. We do this by working with each part of the ecosystem: creatives, content distributors, device makers and earning their trust. This gives us a unique connection to their needs, challenges and opportunities, enabling us to deliver experiences that come to life in the highest possible quality. As we look to the next chapter of the Dolby story, our expansion into consumption-based models is a natural extension of our work to date. We have always delivered value to the distributors in our ecosystem and the opportunity to bring new experiences to life through the power of streaming is an opportunity to create new revenue streams.

The world is changing fast, and we are too. In the last 3 years, we have transformed our research and innovation capabilities in our Advanced Technology group, bringing in new capabilities aligned with the future, particularly as it relates to AI. This team is focused on AI-powered innovations to enhance our current and future offerings. So what does this mean for Dolby going forward? We are very excited about where we are, where the world is going and our ability to work with our customers and partners to grow our ecosystems. I'm proud of the progress and confident in our strategy to grow Dolby Atmos, Dolby Vision and Imaging Patents at 15% to 20% per year over the next several years.

And now that Dolby Atmos, Dolby Vision and Imaging Patents is approaching 50% of our licensing revenue, its impact on our overall growth rate is more meaningful. And while it's still early days, there is a significant opportunity to expand our total addressable market with consumption-based revenue models by serving the providers of audio video content that are looking to deliver more engaging and interactive entertainment experiences.

With that, I'd like to turn the call over to Robert to review our Q4 and FY '25 results and our guidance for FY '26.

Thank you, Kevin. Revenue for the quarter came in at $307 million, above the midpoint of guidance we shared last quarter, and non-GAAP earnings per share of $0.99 was above the high-end guidance due to a $0.28 discrete tax benefit this quarter. Excluding this discrete tax item, non-GAAP earnings per share came in at $0.71 which was above the midpoint of guidance, primarily due to higher revenue and better gross margins, partially offset by higher operating expenses. Licensing revenue was $282 million and products and services revenue was $25 million.

We generated approximately $123 million in operating cash flow, repurchased $35 million of common stock and have approximately $277 million remaining on our share repurchase authorization. We declared a $0.36 dividend, up 9% from a dividend a year ago and ended the quarter with cash and investments of approximately $783 million. We recorded a $6 million restructuring charge in the quarter as we continue to streamline operations and adjust resources towards the most impactful areas.

For the full fiscal '25, we reported revenues of $1.35 billion, which was above the midpoint of guidance and up 6% year-over-year and non-GAAP earnings per share of $4.24 or $3.97, excluding the previously mentioned discrete tax benefit within the range of our annual earnings guidance. As Kevin mentioned, we expanded our full year non-GAAP operating margins by 180 basis points.

For the year, Dolby Atmos, Dolby Vision and Imaging Patents grew just over 14%, in line with our expectations of roughly 15% growth and represented 45% of Licensing revenue. Foundational Audio Technology revenue came in just under negative 1%, again, close to our expectations of roughly flat growth.

Detailed licensing performance by end market and other components are on the IR portion of our website. And as we share with you every quarter, while trends are typically smoother on an annual basis, the timing of recovery, minimum volume commitments and true-ups can drive quarterly volatility. In terms of end market performance for the full year, we saw strong growth in mobile, driven by the GE licensing acquisition and other revenue due to Auto and Dolby Cinema. PC and broadcast grew mid-single digits and CE was down, in line with expectations coming into the year.

Moving on to guidance. For the full year, we expect revenue between $1.39 billion and $1.44 billion or up about 3% to 7% year-over-year. We expect licensing revenue to be between $1.285 billion and $1.335 billion, with revenue from foundational audio technologies expected to be down low single digits due to timing of deals in mobile and lower expected unit shipments in PC and CE.

We expect Dolby Atmos, Dolby Vision patents revenue to grow approximately 15%. We are targeting non-GAAP operating expenses to be between $780 million and $800 million. This guidance implies operating margin improvement of between 50 and 100 basis points. We expect non-GAAP earnings per share to be between $4.19 and $4.34. As a reminder, fiscal '25 non-GAAP EPS was $3.97, excluding the discrete tax benefit in Q4.

From an end market perspective, for the full year, we expect other revenue to be up high teens, broadcast and mobile to be up mid-single digits and consumer electronics and PCs to be down high single digits. Imaging patents revenue from content distributors, which we call the video distribution program, or VDP, for short, will be reported in the other category given that these patents aren't licensed to a specific device.

For Q1 fiscal 2016, we expect revenue to be between $315 million and $345 million. Within that, we expect licensing revenue to be between $290 million and $320 million. Gross margins should be approximately 90% on a non-GAAP basis, and we expect non-GAAP operating expenses to be between $195 million and $205 million. Non-GAAP earnings per share is expected to be between $0.79 and $0.94.

Q1 revenue is expected to be down approximately 8% year-over-year at the midpoint due to 2 main factors: the first is a tough comparison against Q1 of fiscal '25 when we had a large favorable true-up and the second is the timing of recoveries and minimum volume commitments. The composition of revenue between the first half and the second half of the year will be likely more evenly distributed this year than it was last year.

In closing, the creation and distribution of Dolby-enabled content continues to grow, and we are on the cusp of a significant opportunity to expand our offering and to expand our future market opportunities and grow our customer base. Our financials remain solid with high gross margins, healthy cash flows and a strong balance sheet.

With that, I'd like to turn it back to Peter, and we'll open the line for your questions. Peter?

Thanks, Robert. Before I turn the call back to the operator to open up the lines for Q&A, I'd like to announce that we're going to have a casual event for investors at CES on Wednesday, January 7 from 8:00 a.m. to 9 a.m. at the Dolby Live theater in the Park MGM. We will be in quiet period so there won't be any formal remarks or commentary on the business, but we always appreciate the opportunity to show up our technology. If you'd like to join us, please reach out to me for details or send a note to [email protected].

With that, operator, can we please open up the call for Q&A.

[Operator Instructions]

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

Kevin, maybe if you could provide a little bit more color on what seems like a pretty interesting opportunity to expand the TAM on the new consumption models you talked about think you talked about video distribution for streamers. I think that came primarily from the GE patents. If you could sort of confirm that and sort of provide an update there. And then Dolby OptiView. And maybe just kind of taking a step back, Give us a sense of the contribution in the 2026 guidance? And will this be something that will build throughout the year? Or just sort of if you can sort of frame that opportunity? Then I have a follow-up.

Yes. Thanks, Ralph. So if you put this in the context of Dolby's journey for 60 years, we've been leading the way in the quality and efficiency of experience. And we've been doing that by providing the services, the technologies, the know-how not just our paying customers, the device licensees, but also to content creators and to distributors of content. And so as we look to where that future is going we believe that we have significant opportunities to begin to add new value to the content streamers to bring that future to life.

It's a future where streaming services are more aware of what engages audiences. They're able to respond to that in the form of not just which content they show them, but actually having the content itself, be personalized that audience and to introduce interactive features. That's, of course, what we are doing with Dolby OptiView for sports, sports betting and iGaming.

We talked about -- I talked about on the call just a moment ago about how the NFL is now utilizing Dolby OptiView for its red zone service. And I think we've been in market for about 2 years with Dolby OptiView. And over that time, we've brought on a fantastic roster of customers. And many of them are still in the early stages of scaling. For some of them, these are new offerings. For others, they're testing the offerings on a percentage of the user base before they go bigger. So we think that as we look forward, scaling the customers we've won is a big opportunity to increase revenue. And also Dolby OptiView is becoming known in these circles compared to a year ago. So that is healthy for our pipeline.

And then more recently, you asked about the video distribution -- the Video Patent Distribution program. So I mean, as you know, imaging patent licensing has always been driven by licensing per device. And what's new is that the pool has now established a pool for content streamers. That's a combination, Ralph, of the patents that we've always had in the imaging patent pools and the GE licensing patents. The significance is that it completely -- it significantly expands the addressable market by opening up the world of these content streamers. And that's one of the things that gives us confidence in sustaining growth in our Dolby Atmos, Dolby Vision, Imaging Patents because that's still part of patent licensing revenue. Dolby OptiView is a part of product and services.

Yes, we're continuing to look to drive growth faster, but we're optimistic about the midterm. And we think that between those 2 programs in 3 years, we could have probably 10% of our revenue coming from service provider customers as opposed to device customers, and we'll be looking for opportunities to introduce new offerings and do everything we can to accelerate that.

Great. And maybe just double-click on the Imaging Patents. I think you had mentioned there's 4 new content streamers if I heard that correctly. Is that you sort of approaching the market with the patents in combination with GE and looking for opportunities to work with the streamers? Or are there -- are you bringing sort of, I guess, revenue enhancing opportunities to them versus, I guess, IP in terms of monetization?

Yes. Thank you. So we -- most of our patent licensing revenue, we licensed through patent pool. So the patent pools are a structure where many licensors contribute their patents for a particular purpose. In this case, the content streaming industry has obviously grown and there's also a growing recognition of the critical nature of this imaging patent technology to what they do. And so we participate in those pools. It's via the pool that the decisions are made to establish new programs. And that's what led to the opening of this pool. There's -5 licensees have signed up. We didn't have any -- that was all in the second half '25, so it will first start generating revenues in FY '26.

And going forward, what we -- 1 of the natures of these pools is that it incents licensors to innovate into those pools -- and so we would expect to see opportunities to innovate into those pools to meet the future needs of content streamers and any markets that those pools decide to focus on in the future.

Great. Just one last one, if I could, Kevin, I think you had mentioned that in the second half of 2025 fiscal year that the licensees signed that you'll generate revenue in 2026. Can you just sort of bridge the gap from signing to monetization and the time period and sort of what's taking place in between?

Well, the patent pool side of the business still operates somewhat like what you're used to in the early Dolby days where we recognize that revenue when we get the reports from the pools. And so that is the -- that's the -- probably the most important thing to understand as it relates to patent licensing. As when we sign someone up, we are then waiting for that first royalty report. .

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

I want to follow up on the questions around this new model. And I'm just trying to fundamentally understand whether the pool is selling new capabilities to the streamers, or are we enforcing patents from the pool on activities and technologies that they're already deploying?

So on day 1, Steve, it's essentially the same patents that were in the pool that was established for device licensees. That is the pool for content streamers. As I said, going forward, the purpose of these pools is to establish a mechanism to incent licensors to continue to collaborate and innovate into the future needs of the licensees. .

So the second part of your question was, why now? It really is just that the industry has grown significantly, and there is a recognition that imaging patent technologies are essential to the way they generate value.

Let me ask it a different way. So were they using these patents with the understanding that at some point, they would have to pay for what they're using? Or are you approaching them saying you should be using this now, going forward? That's what I'm basically trying to understand what your go-to-market motion is enforcement or upselling?

Yes, got you. So again, it's the pool that we participate in, which is approaching the customers. We sometimes approach bilaterally or participate in that. The -- generally speaking, these are technologies that have been being used, and I would say it's a combination. I mean, first and foremost, we look to -- the pool looks to bring licensees on board. And it also, like I said, provides value going forward. You have the certainty of having the ability to operate against this growing number of patents from innovation across a growing number of licensors. And sometimes there is enforcement. That's the last resort, but it's always -- when it's used, it's to ensure a level playing field across all licensees. .

Okay. And we've had some vast discussion on Atmos music and automobiles, kind of approaching a level where it might have to be broken out subsegment like you break out these other markets. Where did you exit the year? And do you think that's something that could happen in fiscal '26?

I don't anticipate doing it in fiscal '26, but I do anticipate that automotive will become a separate end market. We're still in the early days. It's still one of the fastest growers, and we continue to make great progress, bringing Dolby Atmos Music to cars, and we're even earlier days bringing Dolby Vision to cars. So automotive continues to be one of the areas that gives us confidence in our ability to continue to grow Dolby Atmos, Dolby Vision and Imaging Patents. .

Okay. I don't want to leave Robert out. So what were true-ups in the quarter?

Thanks, Steve, for not leaving me. I appreciate that. True-ups for the quarter was really not a factor. It's minus $1 million for the quarter.

Okay. Great. And then maybe one more time back on auto. Even, how do you feel in your progress of going deeper into some of the brands that you've already been with and what's your visibility into maybe going in the North American brands getting into some lower price points and more aggressively cars, been one of the high-end vehicles so far?

Yes. We continue to make progress getting deeper into lineup. You're aware of what we've done with Mercedes, obviously a higher-end brand, but getting deeper [indiscernible]. Cadillac and the entire EV lineup. Across our portfolio, we see a number of our partners bringing Dolby Atmos to additional models.

We also feel very good about the planned activity around bringing it even deeper. And so we still believe that Dolby Atmos is an experience that should be the standard way to listen to music in the car just as stereo has been for a very, very long time.

Next question comes from Patrick Sholl with Barrington Research.

Just another follow-up on your the new model that you're rolling out with the content distributors. I was just wondering just in terms of the imaging asset licensing, is there any like overlap between like the technologies that you're licensing there. and the services being able to distribute content like in Dolby Vision and there will be Atmos?

Separate things. Dolby Vision actually is not dependent on video codec. We implement Dolby Vision across a range of video codecs and Dolby Atmos is implemented with the branded Dolby audio codec. .

Okay. And then with Dolby Vision 2, is there -- I guess, when you produce an update to Dolby Vision. Is there any sort of process to updating the content pipeline or the service distribution pipeline in order to get adoption from device manufacturers? Is that more accelerated from other technology rollouts? Or is it similar in that area?

Yes. So yes, good question. I mean, first of all, we're always introducing new features and functionality as it relates to our core offerings. But what's significant about Dolby Vision 2 is this is a significant upgrade. So it really -- I hope you can join us and see. Yes, it's a noticeable difference across all -- the entire TV range. And that's why we think we've gotten such good engagement. And iSense and TCL announced right along with us [indiscernible] delusion to that they plan to adopt it. .

And yes, this does include providing new tools to creators to take advantage of the full range of capabilities. And -- we expect that the first TVs will be in market by the end of '26. We expect to have content we're working the content pipeline at the same time. And I would say, compared -- if your question is compared to when we first brought Dolby Vision to life, I would say it can go -- it's faster than that because of the general -- the broad adoption of Dolby Vision and because like I said, this makes a significant difference. So we have good engagement across the ecosystem.

Okay. And then just on the 3-year growth outlook for Atmos and Vision and the Image Patent thing, I think if I heard you correctly like the top end of that kind of 3-year CAGR has brought down a little bit from what it had been. Is that just sort of a law of large numbers or just kind of -- just the a macro kind of view of just how things have been trending more recently and like the potential macro impacts from trade issues and things like that?

Yes, I would say law of numbers. We were -- when we first started providing this construct, we were at about just over 20% of our revenue was Atmos Vision Imaging Patents. Today, it's approaching 50%. And I would say today, we've -- on the Q&A, we've talked about Auto, we just talked about Dolby Vision 2. We talked about the video distribution program. All of those are things that are in the early stages of growth and can contribute to this growth rate going forward. And we haven't yet talked about the fact that Instagram is now including Dolby -- support for Dolby Vision for iOS, which is a partnership, we're also very excited about. We're on the quest with Dolby Atmos and Dolby Vision. Now we're on Instagram.

And that's important because the social media is the most prominent use case on mobile devices. And so we've seen in China, how when we get included on social media and video distribution sites, we mentioned -- I mentioned on the call that Dean has now adopted us. That drives demand for Dolby Vision Capture and Dolby Vision playback on mobile devices. And so we think this is also a good driver. So what we're seeing is quite a few important wins that are early growth drivers for us to keep driving that forward. And now that it's approaching 50%, it has a much greater impact on the overall top line growth.

[Operator Instructions]

Your next question comes from Vikram Kesavabhotla with Baird.

Maybe just a follow-up to some of the comments you made on the last response. Just could you talk more about your observations around the macro environment right now? What is your latest thinking in terms of the potential impacts from the tariffs as well as just the state of the consumer? And how have you gone about incorporating that into the outlook for '26?

Yes. Thanks for the question, Vikram. So first, I would say that over this last year, we haven't seen any specific identifiable impact of the tariffs. If anything, I think what we're seeing is that our device partners have been dealing with supply chain issues quite some time, beginning with the pandemic, and they've invested a lot in resiliency. And I think they've proven to be quite resilient.

At the same time, I would say the overall device market is flattish, sluggish. And so as it relates to foundation of what Robert said, we're planning for low single digits. But we are a big improvement from '22 to '24 when one of the biggest reasons for our larger declines was because we were coming off those really strong purchasing years in 2021, where everybody went out to buy a TV and a PC.

So in that respect, we see it stabilizing relative to that period of time. We don't think it will be sluggish forever. We think our partners are hard at work doing exciting things. But -- and I guess I would also add that -- we have been able to grow Dolby Atmos, Dolby Vision and Imaging Patents at about 20% a year through all of that. So really focusing on what we can control, and that is all the things we just talked about that we think will drive continued growth in Dolby Atmos, Dolby Vision, Imaging Patents. And we are, of course, excited that we see new paths to expanding our addressable market by adding value to new customers, some of whom are already partners.

Okay. Great. And then maybe a follow-up on the '26 outlook. I think you called out a couple of drivers that are affecting the first quarter year-over-year trend here. But curious if there's anything else to call it as we think about the cadence throughout the rest of the year? .

Yes. Vikram, this is Robert. Our quarterly results can fluctuate widely due to timing of true-ups, minimum volume commitments and recoveries and Q1 is no any different than the previous past where we've had -- Q1 is suppressed due to Q1 true-up of last year and then timing of some minimum volume commitments. And I think this year, we expect our revenue to be more evenly distributed between the first half and second half versus what it was last year.

Great. And then maybe just the last one for me. It would be great to get your latest thoughts around capital allocation here. It looks like you saw some share repurchase authorization left balance sheet looks like it's in good shape. What is your latest thinking on how you plan to approach repurchase activity going forward?

Yes. We do have just over $270 million of repurchase authorization remaining. Our policy, of course, is to -- as I'm sure you know, is we do offset dilution on a regular basis from equity comp. We have a regular dividend that we announced an increase today. We've increased that every year except for 1 during the pandemic.

And then we do look closely at this with our Board each quarter, and we -- over time, we have sometimes done more buyback that is necessary to offset dilution. So we continue to look at it closely.

And with no further questions in queue, this will conclude our conference call today. You may now disconnect.