Good to go? I am. All right, we'll just wait for the sign there. We good? All right, I think we can go ahead and get started here. All right, well, thanks everybody for joining us today. For those of you who don't know me, my name is Vik Kesavabhotla. I'm one of our senior research analysts here. Very excited to be hosting the conference this week, and right now it's my pleasure to welcome Dolby Laboratories to the event. Joining me from the company is Peter Goldmacher, the company's Vice President of Investor Relations. We have about 30 minutes scheduled for this conversation, a bunch of topics and questions to get through, so we can dive right in. Great. Peter, thanks for being here. Maybe for the benefit of those who are not as familiar with the story, if you could start off just giving us an overview of Dolby, and we can go from there. Yeah, sure. Dolby Labs is in the business of the science of sight and sound. We're a $1.3 billion, primarily IP licensing business. We have technology on virtually every consumer device in the world, and that technology is primarily focused on making sure that audio and video codecs receive and transmit signals. So without our technology, any device you use would probably not play any sound. About 90% of our business is IP licensing, about 10% is related to the cinema business. The cinema business, if you've ever been to a Dolby Theatre or a Dolby Cinema experience, it's a lot of equipment and some technology. It's the lower margin piece of our business, but what we love about it is it gets the Dolby name and the Dolby brand out there. A big part of the opportunity for us is leveraging our opportunity in the consumer device category, where we are on every device to sell more technology on those devices. So Dolby has been around for a long time. It's been around for a lot of different evolutions of technology. Could you talk about, like, what has allowed the company to stay relevant throughout all those periods in time, and maybe, you know, some examples of, you know, how the company has adapted as technology has evolved? Yeah, great. So Dolby is a 60-year-old technology company. My background is software, and when I look at companies, I tend to look through the lens of a software provider. What strikes me about Dolby is when you think about the innovator's dilemma, the challenge of any company innovating, and then the challengers come up with new and better technology, and how does the original innovator remain competitive? What's so interesting about Dolby is if you think of all the transitions, and it's nice that everyone in this room, most people in this room are a little bit older, so you can relate. You think of all the transitions from mono to stereo to surround, now to Dolby Atmos. You think of going from analog to digital, you think of going from terrestrial broadcast, streaming. Dolby has been a part of all of those transitions, and what has helped us evolve and become bigger and stronger through every transition is not only our ability to write the best technology to enable certain things, but it's our relationship with the creative community. So when there is a transition afoot, or when there is an opportunity to improve something, because we know all the movie studios, TV studios, recording studios, and we have tight relationships with movie directors and musicians, and all kinds of creatives, we work together to make sure that we are doing something that is gonna be well-received by the creatives. And then, so if the creatives adopt the new standard, then for sure the electronics community is gonna come along. And I'm gonna answer a question you haven't asked yet, but where we are in our evolution now is two-thirds of our licensed revenue, so two-thirds of that 90% of revenue, is what we call our foundational business, and this is basically technology that is already installed on virtually every consumer device. One-third of our licensed revenue is an opportunity to bring a new kind of experience to the consumer community, and these products are Dolby Atmos and Dolby Vision. It's very hard to describe what Dolby Atmos is or what Dolby Vision is, you kinda just have to experience it, but I will try. Dolby Atmos is an immersive sound experience. So if you think of... Certainly in the old days, mono, one speaker coming at you, moved to stereo, where the sound was left and right, to surround, where the sound could be in front of you or behind you or left, right. Dolby Atmos is immersive, so the sound can be in front of you, it can move to be behind you, you can listen to something come over your head, you can have something in front of you and something in back of you at the same time. And that's very, very compelling to musicians and movie producers because they can now build a soundtrack or build a song that enables them to be more creative in what they, what they do. And there's no artist in the world that says, "I don't wanna take advantage of every opportunity to be more creative." Dolby Vision, which is a video experience, basically offers artists a much higher contrast ratio, and with a higher contrast ratio, you can change the way you do your lighting, you can change everything about the way you film. Our CEO tells a story. He was talking to a movie director, and they were going through Dolby Vision, and he demonstrated, gave him a demo of Dolby Vision. And the movie director said, "Oh, I can finally use night as a character." And our CEO says, "I don't know what that means," but clearly he was excited about it, and that's kind of what Dolby does. So your original question, I think, was about the history of Dolby. You know, the point I'm belaboredly making is that it's we, we work with creatives, and if we can get the creative community to adopt our technology and record using our technology, and build better product, build really great content, then the device manufacturers are gonna be beholden to consumers who demand devices with Dolby Atmos and Dolby Vision. So if you think of it almost as a credit card metaphor, we give credit cards away. We, we do not charge artists for any of our tools for them to build their, their creative content. Yep. We charge the device manufacturers to play it back. So if you record a song in Dolby Atmos, or you film a movie in Dolby Atmos and Dolby Vision, free to you as the creator, and the only way you can play it back, the only way you can have your audience experience the content as it was intended by the artist, is to own a device that plays back Dolby Atmos and Dolby Vision. Yeah. Maybe we can dive deeper into each of those things you mentioned in there, so the foundational piece and then Atmos and Vision. So maybe we can take those piece by piece. So starting first on the foundational revenue side, you said that was about two-thirds of the mix today. Maybe just talk about the drivers that influence that portion of the company, and we can follow up after that. Yeah. So the foundational piece of our business is basically the last stop in the evolution of a new technology. So there are certain patents that we contribute into patent pools that people use to literally encode and decode signals. Yeah. So, if you don't have this patent, you, your machine can't play sound. We patented that, it's in all devices. But if you think about things like stereo, or you think about things like surround, these were not standards. Like, if you go back to the '60s, everybody was recording in mono, and then you have innovative artists like The Who that say, "Oh, let's try stereo," and they recorded in stereo. If you bought a hi-fi set that didn't have stereo, you could not hear The Who as you need to hear The Who, right? So the opportunity was, with all this new, fantastic content being recorded in stereo, eventually all the device manufacturers said, "I clearly need a device that records in... That, that plays back in more than mono, I need stereo." So stereo, which was an innovative, cutting-edge thing a very long time ago, has now become a standard. So if you think of our foundational business as everything that has gone from that journey, from new innovative technology to standard, that's our foundational business. So we have virtually 100% market share on all devices because things like stereo and surround, to a lesser degree, are standard. So when we think about Dolby Atmos and Dolby Vision, it is our goal and our intention to do everything we can to make those the next stereo, make those the next standard, so that you, as a consumer, would not think of buying any kind of device that doesn't have Dolby Atmos or Dolby Vision on it. Yep, and maybe just sticking with that piece, how do you frame kind of the growth opportunity that remains for that business? How do you expect that part of the revenue mix to grow, kind of going forward? For Dolby Atmos and Dolby Vision? Uh, uh- Oh, uh- On the foundational piece- Sorry ... before we get to the- So for the foundational piece, the blessing and the curse of the foundational piece is we are so deeply penetrated into the opportunity that we're now primarily beholden to device sales. Yep. So if device sales are strong, then you will see strong sales in our foundational revenue. And if you look back to our business, and you look back to our income statement in FY 2021, when device sales, you had that COVID device-buying spree, everyone bought PCs and TVs and computers, our foundational revenue did really, really well, and because that business is entrenched in a standard, there's not a lot of incremental cost that goes to driving that business. So when that foundational revenue comes in, it's very high margin. Yep. Awesome. All right, so maybe we can shift gears to, to Atmos and Vision, where it sounds like you see kind of more of the, the growth opportunity going forward. Maybe first, I mean, you talked about when you were describing the products, kind of keeping the, the content creator in mind. Is there a way to frame kind of the adoption rates today in terms of kind of how, how often content creators are actually using that technology now? Yeah. So the content creators, again, these are the people we work with, these are the people we support, and these are a critical part of our strategy to get that content into the market. I can give you a couple of statistics. If you think about music, 92 of the top 100 Billboard artists record in Dolby. If any of you have been to a movie theater and not seen something, seen anything other than, like, an art house film or a documentary or something a little off the beaten path, you have probably seen a movie filmed in Dolby Atmos and Dolby Vision. I think virtually all of the top movies for the last seven or eight years have been Dolby Atmos and Dolby Vision. If you have bought a 4K TV, there's a... If you bought a high-end 4K TV, there's a very high probability you have a TV with Dolby Atmos or Dolby Vision. If you have any kind of Apple device, you have a Dolby Atmos and Dolby Vision. So we have enough traction and enough success that we feel like we're on the right path, and now the opportunity is just to keep chipping away, making sure that we're doing the things we need to do to get Dolby Atmos adopted in more cars. Yep. Cars is a really big opportunity for us. When we look at 4K TVs, we are on 25% of 4K TVs, primarily at the high end. We feel confident that over time we will get to the mid-range and the low end, because TV OEMs think about introducing new technology is, first, I'm gonna put the new technology in my highest-end TV, differentiate it, so that when a consumer comes into the store, they say, "Oh, well, I could buy a $800 TV, but this $2,000 TV is so much better. Yep. And then their strategy is over time, and when I need to, then I'll push that technology down into the market. That's a device manufacturer's choice. And then in mobile, while we do really well with Apple, we still have a lot of opportunity with Android. We've done quite well in the Chinese markets with a lot of the Chinese vendors adopting Dolby Atmos and Dolby Vision. So again, we've had enough success that we think we're on our way, and as our CEO likes to say, "Inflection points are only obvious in hindsight," but we think we're doing the things we need to do. Maybe I wanna come back to some of those drivers you mentioned there in terms of auto and mobile and things, but maybe this would be a good place just to talk about the competitive landscape. So those manufacturers and those content creators that are not using, you know, Atmos and Vision today, what are they using instead, and what does kind of the broader competitive landscape look like? Yeah, the artists that are not using it are not using anything. They're still recording in traditional technologies. Yep. So there's really not a competitive landscape because the market that we compete in is really the encoding and the decoding. So it's almost a closed loop of technology. So while there are some things that you could use with your Pro Tools app, very high probability they'll play on any device that plays any Dolby thing. You don't need a special decoder on the back end. And in the movie world, we have done quite well with all the major movie houses, and pretty much everything you see is in Dolby Atmos and Dolby Vision. For TV and sports, sometimes there are... It takes a little bit of time for people to upgrade equipment 'cause you need better equipment. Yep. But we're getting there. One of the things we're most excited about is Max, the former HBO, is now streaming all their live sports in Dolby Atmos and Dolby Vision, and that's a really, really big win for us. And as soon as that was announced, everybody else started calling us, saying, "Wait, wait, what's going on?" And the opportunity in live sports is wonderful because it's a whole new body of content. You know, I was thinking, I checked into my hotel last night, and I was flipping through the TV, and literally I went through 15 channels of sports, all kinds of sports, and sports is just becoming so prevalent. So to take that next step and make sure that you're getting the highest quality sport is great. That body of content comes online, and then there are a bunch of consumers who maybe aren't movie watchers and aren't TV watchers and didn't upgrade their TV for Dolby Atmos and Dolby Vision for movies. But if you can watch, for me, the Giants or the 49ers in Dolby Atmos and Dolby Vision, that's a reason to get a new TV. We really love anything that accelerates a product cycle or condenses a replacement cycle. Yep. Maybe you mentioned. You just talked about kind of the TV portion. You mentioned earlier kinda the opportunity in auto. Yeah. Maybe you can spend another minute kinda talking about- Yeah ... the progress you've made there and kinda the opportunity that you see ahead. Yeah. Auto, auto is probably the opportunity we're most excited about right now. Yep. Every car stereo has some kind of Dolby technology in it, or else it wouldn't play sound. Historically, the way we have worked in auto is we've gone to the tier one suppliers. We've had our relationships with Burmester or Harman Kardon or JBL or pick your, pick your tier one supplier. With Dolby Atmos, we went to the OEMs because we didn't want the tier one suppliers to be the ones getting the OEMs excited about Dolby Atmos. We felt like it was such a big opportunity, we wanted to control that. We have gone to the OEM community, established direct relationships, and as of our last earnings call, we announced relationships with 15 or 16 OEMs. Yep. The one that's probably furthest ahead is Mercedes. So initially, Mercedes bought Dolby Atmos for the Maybach, and the nice thing about a Maybach is it has 39 speakers. When you play Dolby Atmos in a Maybach, it's just something completely different. And now they have taken it, they put it in all the S-Class, now they're pushing it down to the E-Class, and it's our hope that they push it into every Mercedes so it becomes a standard opportunity in every Mercedes. Yep. The interesting, interesting thing about autos now is they're no longer differentiating their cars on brake feet per second or horsepower or 0-60 times. Now, it's all internal. It's electronics, it's the dash, it's the in-car experience. So Dolby Atmos is a great fit for that opportunity. We announced about a week ago that we are gonna be in a Cadillac. And so for the 15 or 16 partners we've signed up, if you can think of an auto OEM, we're in conversations with them. They really love the opportunity that Dolby Atmos represents. So the next question should be: How big is the opportunity? If you think about 90 million cars sold every year, and then you haircut that to exclude Amazon delivery vans or things that would never have a stereo, that's still a very big, very big TAM, very big opportunity, and we're only 2 years in, and we're first inning, maybe even still top of the first inning. Yep. Just sticking with some of the drivers behind Atmos and Vision. You talked about TV and auto. One of the other things you've talked about on your recent call is the opportunity in mobile as well. Yeah. Maybe if you can talk about kind of the progress you've made on mobile devices. Yeah. So as I mentioned, we're wall-to-wall. If you have an iPhone, you have Dolby Atmos and Dolby Vision. For the Android ecosystem, we're still working on that opportunity, and that's a very big opportunity. But the opportunity really is your phone is such a critical device in your existence, so you need three parts of the ecosystem to come together to experience Dolby Atmos and Dolby Vision. One is you need the content created by the creative community. Yeah. Two is you need the device to play back the content, and the third thing you need is all the streamers to be able to encode and decode Dolby Atmos and Dolby Vision. So that conduit between the creative and the end device has to be in place. And so when we talk about the mobile community, the opportunity to continue to work with all the streamers to make sure that they're able to handle the signal in Dolby Atmos and Dolby Vision, and then the end device. Yeah. But if you think about... I'm sure you have an Instagram page where you're an influencer and you're taking picture, taking selfies as you're— Yep ... visiting the world. A fully Dolby-enabled situation would be you could film yourself in Dolby Vision capture. So you could capture a super high-quality image on your phone, and then you could stream it on Instagram so that all of your friends who follow you on Instagram, and I'm sure it's in the millions... see that super high-quality image of you, and they say, "Wow, man, Vik really has it going on. I'm buying whatever he's selling. Happens more often than you think. I believe it. So I mean, we talked about kind of the quality on the content creator side. From a consumer perspective, like, how do you educate people about kind of the incremental quality they can get from kind of things that are recorded with Atmos and Vision? I guess, how do you go about measuring kind of consumer satisfaction with the Yeah. Well, that's sort of the hard part of marketing, right? Like you know that 50% of your marketing spend works, you just never really know what 50% it is. So, as I mentioned, one of the big things about Dolby Cinema is just getting that Dolby brand out there. Just looking at this crowd, everybody has heard of Dolby, and more than half of them had Dolby tape decks back in the '80s that had Dolby Noise Reduction on it. So the brand is out there, and it's just steadily chipping away at getting artists who love us to promote us. Ed Sheeran loves us. J.Lo loves us. Billie Eilish just made a big thing with her new album as Dolby Atmos and Dolby Vision. And it’s just really a lot of promoting brand, and then once you hear something in Dolby Atmos or Dolby Vision, you’ve gone to a movie, or you’ve been in a car, and it becomes a thing. Right ... where next time you make a purchasing decision, if the device doesn't have Dolby Atmos and Dolby Vision, it's a decision point for you. So you're... I didn't really answer your question. Your question was: how do you get the brand out there? Marketing. Yeah. Maybe just kind of putting some numbers around a lot of the things you talked about. So maybe first from a revenue growth standpoint, I know the company has talked about kind of getting to double-digit growth over time. Maybe if you can break down some of the components that will help you get there. Yeah, sure. So, really three things to think about. One is that cinema business, and that cinema business is relatively tied to box office. Box office has not been great. Every year is, "Next year's gonna be a great year," and we actually think next year is gonna be a better year. You had the writers' strike and a whole bunch of things causing problems this year, but hopefully next year is better. That's only 10% of revenue, but again, great for the brand. Within that licensing business, 90% of revenue, that foundational business, is tied to device sales. Device sales have been in steady decline since 2021, so we have... When you're fully penetrated or nearly fully penetrated, it's very hard to do more, right? We just need those device sales to go. Dolby Atmos and Dolby Vision have been growing, but when two-thirds of your business does not grow, it's really hard to show the growth in your business. And we talked about it, and we share numbers on our earnings calls. But we have guided the Street. FY2024, which ends in September, will be flat with FY2023. But within that for this year, cinema flat, foundational down mid-single digits, and Dolby Atmos and Dolby Vision and our imaging patents up high single digits. Yeah. So when we talk about the macro, the macro impacts us a couple of ways. For foundational, it impacts us in that device sales are declining, and they just are. What it looks like for Dolby Atmos and Dolby Vision, these are more proactive product and branding decisions being made by our device partners. And what you've seen from a lot of the device manufacturers is they've taken a step back from new products. Product cycles are elongated. They still love Dolby, but it's taking them a little more time to make the decisions they need to make. We hope and we expect that that normalizes. We've been through... Our CEO's been there 17 years. He's been through a bunch of cycles, and he doesn't know when, but he feels confident that all that stuff does come back. Yeah. So for the things we can control, which is proselytizing, getting people excited about Dolby Atmos and Dolby Vision, we're doing it. And then hopefully, cycle times come back to where they were, and we can get back to the, you know, year-over-year growth we're expecting. Maybe if you can talk about operating margins as well. How do you think about profitability for this business going forward? Yeah, we have said that we expect to grow earnings faster than revenue- Okay ... for the foreseeable future. In that cinema business, think of it as, you know, whatever, whatever you think of cinema growth from all the other cinema names you follow, and because there's a big hardware component, that's our lowest margin piece of the business. Yeah. For foundational revenue, that business is very profitable because most of the investment has been made. The investment now is keeping the technology fresh and making sure our technology keeps up with device technology, which continues to evolve. But the sales and marketing behind that is far less than it would be in something like Dolby Atmos and Dolby Vision. Dolby Atmos and Dolby Vision, we're still investing time with creatives. We're still investing time with all the studios and all the streamers to make sure that they're getting interested in doing the things they need to do to get that content out there. So that has more of a sales and marketing ongoing investment in that business. Maybe kind of sticking along that theme, just if you could talk about the state of the balance sheet today, and, and how you think about capital allocation for this business? Yeah, we've got, just under $1 billion on our balance sheet. Yeah. So it's as our CFO likes to call it, it's a fortress. It has been our policy to buy back stock every quarter to offset dilution. We pay a dividend, and we've increased that dividend every year except for one or two COVID years. In the last decade, we've returned over $4 billion to investors through dividends and buybacks. The way we think about capital allocation is, and it's something we discuss at a board level every quarter. We think about what's the right level of buyback, what's the right level of dividend, and what's, you know, when you're getting 5% on your savings, that's a different math than it was a few years ago when you were getting 0%. And then we look at the optionality of M&A. What, what sort of M&A is out there? What, what can we do from an M&A perspective that would be accretive to earnings? That's important for us. Yeah. So that's- Is there anything you've offered as far as kind of types of acquisitions that you look for strategically that make sense? Yeah, yeah. Historically, we've done two kinds of acquisitions. One is on the patent front. We like to buy patents and put them in our, in the pools we participate in, to make sure that our partnerships with device manufacturers have visibility to a long-term patents that that'll keep up with their devices. Yeah. So, we did a patent deal shortly before I joined, where we bought a big patent pool, and we internally view that as a big success. And then the other part of the M&A strategy is smaller product-type acquisitions to help very early-stage growth business or growth businesses where we've identified some technology with commercial viability, but we've not created the entire entity. And are there products we can put in there or people that we can acquire that help make that what is generally a fledgling opportunity a little more fully baked and a little more robust? Yeah. Okay, I think we're, we're about to come up on time. I, I wanted to leave some time at the end to talk about your perspective on, like, is there an aspect of the story that you think is particularly misunderstood by the investment community? And maybe you can segue that into any other kind of closing remarks or key messages that you want to emphasize for the audience. Yeah, I don't think there's much that's misunderstood because for there to be a misunderstanding, the investment community has to be engaged, and we are a $7 billion business with three covering analysts, two from smaller firms that tend to be a little more regional. So I don't think there's much that's misunderstood. I just think we're really far below the radar. And part of my opportunity as the head of IR is to spend time with folks like you and try and get the story out there a little bit. The challenge for the investment community is we're neither fish nor fowl. We're not really a software company, we're not really a media company, we're not really an internet company, we're a little bit of everything. So for all the work you do on Dolby, it really is only relates to Dolby. So it's... You really wanna have to understand Dolby. It's not like software, where you can say: I'm gonna go understand software and have 200 names to pick from. We're really an N of one, which is, I wanna say, a blessing and a curse 'cause that's optimistic. But it's hard to draw people in. I mean, there are 1 million stocks everybody can pick from, so... Yeah. Okay, well, maybe that's a good place for us to-