All right, let's get going. Great. Well, hey, thank you everybody for joining us today. My name is Vikram 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. We'll dive right in. Robert, let me start off by saying thanks for joining us today. Appreciate you being here. Great. Thanks for having me, and great to see you last night, too. Yeah, it was good. Great. Great day in New York. Great. Let's start off with this. 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. Yeah. 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. I'd like to start off with three 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. 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. 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. 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. Finally, where we make our money today is on the end market. 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. That's what we do. That's what we provide the OEMs, is providing that superior audio and video on that device. Yeah. When you look back at the last 60 years, so much has changed about technology and the way that we consume all these products, one thing that's stayed consistent is 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. 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. 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 a theater by the first major movie using Dolby Stereo. It really changed how audiences listened to sound in a movie theater, and it changed, and fundamentally changed, how theater owners changed all their sound equipment to handle four-channel audio. That's front, back, left, right. If you remember in the 1980s, I don't know how many of you were alive in the 1980s. Do you guys remember this? This is called a Sony Walkman for those of you who don't know. You can't play Spotify on this. This had what's called a 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 1980s, 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. When you turned on Dolby noise reduction, you could hear just the music. 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 could 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? It was a way to show the contrast of Dolby technology. Over the last 60 years, Dolby's 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 enabling high-quality audio and video throughout that process, and we're always trying to be in the forefront. 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. Yeah. Maybe we'll talk about the way you monetize all of this right now. You talked about the predominantly the way you do it right now is through licensing with the end market. When I think about that licensing business, 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. About 90% of our revenue, a little over 90%, is licensing revenue. 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. 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 it as an index for consumer electronic devices. 90-plus percent attach rates across devices around the world. In 2021, that was about 50% of our licensing revenue. Today, it's only about 20% because the other part is growing much faster. Think of that as growing low single digits flat. This year it'll 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 and more devices. Yeah. For an example, for 4K TVs, we're about 30% penetrative of 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 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 four of the five top handset 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. Other speakers and other things where we're trying to get attach rates on all those things. Yeah. When you look at all those different end markets that. Oh, that's growing about 15% this year. Yep. 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? Yeah. Our largest market today is broadcast TVs. TVs is a large piece of our business. We see that in terms of unit shipments, kind of flatish, kind of stable. Our second-largest market is mobile. Mobile is an area, 1.4 billion devices out there, as I said before, our goal is to try and get on more and more of the devices with Dolby Atmos and Dolby Vision. How we do that, we'll talk about in a little bit. Then our third-largest end market is other. In other, has auto, Dolby Cinema, gaming, but auto is becoming a larger component of our revenue, as we just got started about three years ago, and we're about 40 OEMs in, and growing. Atmos, Dolby Atmos in the car and also Dolby Vision are a natural place to fit. Auto for us is a market that's growing and getting more meaningful. Yeah. 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? Yeah. 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 quick. The in-car experience is more and more becoming a really big, powerful piece of buying a car. Cars are now differentiating that in-car experience with the infotainment, and infotainment is very important, and Dolby Atmos fits perfectly into that factor. It's hard to explain how much better I'm sure you thought Dolby Stereo 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 car makers. When I sit with the engineers, I sat with the engineers from Mercedes-Benz, 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. Anybody 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, it was a math problem. They just could not get it any better. With Dolby Atmos, they said we just helped them break through that ceiling. They started with the Mercedes-Maybach. They started with the S-Class, and I'm sure all you guys own one of those. 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-Benz, Volvo, Polestar. In Korea, we've got Hyundai and Genesis. In China, we've got BYD, Li Auto, NIO, Zeekr, and we're adding more and more OEMs just about every quarter. 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, we want to democratize that experience. We 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. Yeah. 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. We believe over time that will happen. 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. Yeah. 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. Yeah. I talked about the fact that Dolby Atmos and Dolby Vision are in 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 two 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. 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. 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. That's a technical term for shaky screen. The bigger the screen it gets, the more shaky you get, particularly with fast movement. What Dolby Vision 2 does, even for lower-end TVs, is eliminate that judder, especially for high-motion activity. 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. TVs should be launching at the end of this year. There's some adoption, and TVs will start shipping end of this year. Yeah. I think you announced some streaming partners that are already using Dolby Vision 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? Yeah. 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 you're watching live sports, of course, most of it's 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. 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. Yeah. 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? Yeah. For us, mobile is our second-largest market, and it's a large market. To strengthen that ecosystem, in order to have the value proposition to have Dolby Vision on the phone, you need creators. 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. 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. You can read it's a lot of technical stuff, but at the end of the day, what they found was that their influencers, not their influencers, their viewers, their users, spent more time on platform when it was in Dolby Vision than it was out on a large test, a large-scale test. 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. 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. If you're in a room or on an airplane like I was today or yesterday, if it's bright, you're just going to get off. It's just annoying. It's in a dark room. Dolby Vision, it makes it more consistent. 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's very good at doing that. 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. Yeah. On that piece, 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. 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." 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. I think over time, 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. Yep. It's only been a couple 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're engaged with all of them. Yep. 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. Consumer spending is surprisingly resilient. I don't know what that says about the consumer, but spending is still there. 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. In mobile, obviously, memory is a larger component and an important component for mobile. 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. Mobile handset makers will commit to a volume to get a price, and they'll commit to that for the year or longer. These are ways for them to predict their costs and to get a better per-unit rate. We haven't seen as much of an impact for our mobile. Our mobile's still going to grow this year despite the memory, but we're watching the headwinds. I think the takeaway is, yeah, the factors point to turbulence, but we don't see things dramatically different than they were three months ago. Yeah. 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? Yeah. 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 six months behind you would think you would shrink the range because you only have six months to go. Given the uncertainty and given the challenges in the marketplace, we kept the range the same, but maintaining what we see. When we started the conversation, you said the way you predominantly make money right now is through the OEMs. 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 would be great if we could talk a little bit more about some of these newer ways that you are monetizing the technology that you have. One of those, I think, is Dolby OptiView. Yeah. Great if you talk a little more about what that is and how that's going. Yeah. You're right. If you take a step back, over 90% of our revenue is licensing, and that's predominantly through device shipments. We have a couple of areas where we're diversifying and increasing the TAM for our revenue, and that's OptiView and the Video Distribution Program. Those are two things that are not tethered to device units and allow us to grow revenue despite device revenue ships. I'll start with the VDP. The VDP is our way of licensing our imaging patent technology to streamers. You'd say, "Why are you doing that?" 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 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. 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 in kind of an all-you-can-eat. 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. We're starting to see adoption, now these programs generally start with you have critical mass of licensors providing their assets into the pool, we have that now. SK and Sharp joined last quarter. More and more recognition that this is a real program. Licensees start to go as we go to market and educate and inform and license this technology, we've got half a dozen licensees so far. We just got started just a couple of quarters ago, the pipeline remains pretty strong on this. The second thing you talked about is Dolby OptiView. Dolby OptiView is 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? 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, I only care about my local team, which is the 49ers, but I like to watch the other teams for my players. Josh Allen's one of my players, typically, and I don't really care about the team he plays on. I don't care about the Bills. I care about how he's doing. I'd like to see in my content more highlights from Josh Allen and whoever's on my team. You can do that with streaming. We've demonstrated this at NAB last year and got a lot of interest from football leagues, motor sports. 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 three, 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. Yeah. You mentioned these really just started as an initiative story, but where do you see those going to over time? How big of the part of the business can this, you know, more consumption-based monetization go, and what are the key blocking and tackling that's going to be required to get there? Yeah, we can anticipate both these parts of our business, which are not tethered to devices, being around 10% of licensing within three 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. The thing is to start at the top, then you start, kind of land and expand. You start here, you add customization, you add services, add more layers as we normally would, build it over time. Yeah. 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? When we think about, you know, this year's margin guidance, I believe is 34%, you know, what are the puts and takes that, you know, will affect margins as we go forward, when you think about investments, but also things that can drive operating leverage in the business? 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. When you see growth, we don't have to spend as much money 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. We're making sure we allocate resources to make sure, you know, increase the size of success and ensure we're on the right track. Yeah. 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? Yeah, I've been told I have a lot of cash, and no debt, which is a kind of a nice problem, and I think we throw off $350 to $450 a year in operating cash flow. Yeah, we have a nice balance. I think of capital allocation in three 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 there's a nice outcome for that. 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, 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. You know, 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 Codecs, 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. These things take time for the ecosystem to adopt, and we want to get in 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've cost a lot more than it was 10 years ago. Getting them while we know how to drive them and manage them is important for us. For cloud, we bought a player for OptiView because with the player we can impact what the viewer looks like. That's the front end. Yeah. What actually is playback. Using someone else's player, it's one more integration we have to do. We don't need to do the integration, we own it. 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. Those are kind of the areas we think of M&A. Then whatever, giving back to shareholders through dividends and buyback. Yeah, you did notice that I think I bought back in the first two quarters of this year as much as I did the entire prior year. Cause we've seen an opportunity of undervalued stock and we wanted to take advantage of that. We will continue to do that. We look at it every quarter. We've had a dividend program for 10 years. I think it'd be increased at almost 10% every year except one. We give back to shareholders with that 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. We'll leave it there. Thanks everybody. Thank you.