Earnings call transcript: Dolby Labs beats Q3 2025 forecasts, stock dips

Dolby Laboratories reported strong third-quarter earnings for 2025, surpassing both revenue and earnings per share (EPS) forecasts. The company achieved an EPS of $0.78, exceeding the projected $0.71, and generated $316 million in revenue, surpassing the forecasted $305.23 million. Despite these positive results, Dolby’s stock dipped 0.51% to $75.05 in after-hours trading, reflecting mixed investor sentiment. According to InvestingPro analysis, Dolby maintains impressive gross profit margins of 88.92% and holds more cash than debt on its balance sheet, indicating strong financial fundamentals.

Key Takeaways

• Dolby’s Q3 2025 EPS of $0.78 exceeded expectations by 9.86%.
• Revenue grew by 9% year-over-year to $316 million.
• Stock price fell 0.51% in after-hours trading, despite an earnings beat.
• Licensing revenue, a significant growth driver, rose by 9%.
• The company maintained its full-year guidance, projecting revenues of $1.33-$1.36 billion.

Company Performance

Dolby Laboratories demonstrated robust performance in Q3 2025, with a 9% year-over-year increase in revenue and a notable rise in licensing and product revenues. Licensing revenue, which accounts for a significant portion of Dolby’s income, reached $290 million, while product and services revenue increased by 18% to $26 million. The company’s diverse product offerings and strategic partnerships in the automotive and mobile sectors contributed to its growth.

Financial Highlights

• Revenue: $316 million, up 9% year-over-year
• EPS: $0.78, above the forecast of $0.71
• Licensing Revenue: $290 million, up 9%
• Product and Services Revenue: $26 million, up 18%
• Cash and Investments: $777 million
• Dividend: $0.33, up 10% from the previous year

Earnings vs. Forecast

Dolby’s Q3 earnings exceeded expectations, with an EPS surprise of 9.86% and a revenue surprise of 3.53%. This performance marks a continuation of positive earnings surprises, reinforcing the company’s strong market position and operational efficiency.

Market Reaction

Despite the earnings beat, Dolby’s stock fell by 0.51% in after-hours trading, closing at $75.05. This decline contrasts with the company’s strong financial performance and could reflect broader market trends or investor caution. The stock remains within its 52-week range of $66.35 to $89.66.

Outlook & Guidance

Dolby maintained its full-year guidance, expecting revenues between $1.33 billion and $1.36 billion and a non-GAAP EPS of $3.88 to $4.03. The company is focused on expanding its reach in the automotive and mobile sectors and anticipates continued growth in its Dolby Atmos and Vision categories. InvestingPro analysis suggests the stock is currently trading below its Fair Value, with analyst price targets ranging from $95 to $112. For comprehensive insights into Dolby’s valuation and growth prospects, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.

Executive Commentary

CEO Kevin Yeaman highlighted the company’s strong engagement with Dolby Atmos and Vision, while CFO Robert Park emphasized Dolby’s solid financials, including high gross margins and a strong balance sheet. Yeaman also expressed confidence in achieving double-digit growth once economic conditions stabilize.

Risks and Challenges

• Trade uncertainties could impact technology adoption.
• The flat growth forecast for the broadcast and mobile markets.
• Potential supply chain disruptions affecting product launches.
• Economic fluctuations impacting consumer electronics demand.

Q&A

During the earnings call, analysts inquired about the impact of the ATSC 3.0 transition, to which Dolby responded that no significant effects are expected. The company also addressed trade uncertainties, affirming that these have not significantly hindered technology adoption. Analysts expressed interest in Dolby’s long-term growth strategy, with a focus on returning to double-digit growth rates.

Dolby Laboratories continues to strengthen its market position through strategic partnerships and innovation, despite facing certain market challenges.

Full transcript - Dolby Laboratories (DLB) Q3 2025:

Conference Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories Conference Call discussing Third Quarter Fiscal Year twenty twenty five Results. During the presentation, all participants will be in a listen only mode. Afterwards, you will be invited to participate in a question and answer session. As a reminder, this call is being recorded this Thursday, 07/31/2025.

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

Peter Goldmacher, Vice President of Investor Relations, Dolby Laboratories: Good afternoon. Welcome to Dolby Laboratories’ third quarter twenty twenty five 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 twenty twenty five 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, tariffs and other trade barriers, 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 quarterly report on Form 10 Q. Dolby assumes no obligation and does not intend to update any forward looking statements made during this call as a result of new information or future events. During today’s call, we will discuss non GAAP financial measures. A reconciliation between GAAP 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.

Kevin Yeaman, CEO, Dolby Laboratories: Thanks Peter and thanks to everyone joining us for our third quarter fiscal twenty twenty five earnings call. Results for the third quarter were generally in line with our expectations. Both licensing revenue and total revenue came in above the midpoint of the range of guidance we provided on our second quarter earnings call and non GAAP earnings came in just above the high end of the range. On our last earnings call, we talked about the macro environment and the related challenges to our visibility as we provided our outlook for the remainder of the year. Robert will go through the details in a moment.

At a high level, the macro remains uncertain. Our outlook remains unchanged, and we continue to monitor the environment while staying focused on the things that we can control. I’d like to cover some of the highlights from the quarter before I turn the call over to Robert to discuss the financials. We continue to see strong engagement with our ecosystem of content creators, distributors, and device OEMs. Starting with music, over 90% of the Billboard 100 artists record in Dolby Atmos.

We are also seeing momentum in back catalogs being remixed and re released in Dolby Atmos from bands like the Rolling Stones, Phil Collins, the Grateful Dead, Fleetwood Mac, and the Doobie Brothers. In sports, FIFA Club World Cup Soccer, the Stanley Cup finals, the French Open, the Indian Premier League playoffs and finals, and the World Test Cricket Championship final were all available in Dolby. HBO Max, which is streaming most of its sports in Dolby Atmos and Dolby Vision, is launching its streaming service in a dozen new countries this summer as the platform approaches availability in a 100 markets. In the cinema, Mission Impossible The Final Reckoning, How to Train Your Dragon, f one The Movie, Jurassic World Rebirth, Superman, and The Fantastic Four, just to name a few, are all in Dolby Atmos and Dolby Vision. Across music, sports, and movies, it’s clear that the creative community continues to embrace the value of content created with Dolby Atmos and Dolby Vision.

Moving on to end markets, let’s start with automotive where we continue to enjoy strong momentum. Last quarter, we talked about strong customer demand for OEMs to raise the bar on the quality of in car entertainment and big wins with Porsche and the Cadillac EV lineup. This quarter, we were excited to add Audi as a partner. Dolby Atmos is now available in the q seven, the q eight, the a eight, and the e tron GT. In India, the release of Tata’s new Harrier EV with Dolby Atmos was well received in the market.

Additionally, Mahindra announced that the Thar Rocks will offer Dolby Atmos. We now have partnerships with two of the top three Indian auto manufacturers, Tata and Mahindra, in the third largest car market in the world behind China and The US. To date, we have announced Dolby Atmos partnerships with almost 30 OEMs. We believe the strong progress we’ve made over the last three years is a testament to how well our offerings resonate with the direction the auto industry is going. In mobile, Motorola rolled out its first smartphone with Dolby Vision capture, and Xiaomi added two new phones with Dolby Atmos and Dolby Vision.

Many of the most popular social media platforms in China support Dolby Vision, including Xiao Hongshu, also known as RedNote, Kuaishou, and Bilibili. We are seeing the increased adoption by Chinese phone OEMs so that their customers can create and share high quality user generated content. This quarter, Oppo partnered with RedNote to launch its flagship smartphone, the x eight, featuring Dolby Vision capture for user generated content. Our progress in China demonstrates the value Dolby Vision brings to social media, enabling creators to make the best, most engaging content possible, and we are focused on bringing this experience to the rest of the world. Moving on to other devices, Dolby Technologies were a part of several new TV and speaker launches from partners including Samsung, Haier, TCL, Marshall, JBL, and LG.

We also worked with longtime partners Lenovo and Google to launch the world’s first Chromebook with Dolby Atmos. So to wrap up, we had solid results for the quarter, and we continue to see strong engagement with content creators, content distributors, and device manufacturers. There continues to be increasing demand for the most compelling and immersive audio visual content and more ways than ever to experience that content. The number of experiences in Dolby Atmos and Dolby Vision continues to grow across music, sports, podcasts, user generated content, movies and TV, in mobile devices, TVs, PCs, cars, and sound bars. All of this gives us confidence in our ability to drive growth by bringing more Dolby experiences to more people around the world.

With that, I’d like to turn the call over to Robert.

Robert Park, CFO, Dolby Laboratories: Thanks, Kevin, and good afternoon to everyone on the call. Before we review the quarter in some detail, I’d like to hit the highlights. First, revenues for Q3 were above the midpoint of the range we laid out in the Q2 earnings call, and earnings came in just above the high end of the range. Second, the macro environment remains uncertain and dynamic. That said, our guidance for the full year is generally in line with what we communicated last quarter with revenues expected to be between $1,330,000,000 and 1,360,000,000.00 and earnings to be between $3.88 and $4.03 for the year.

Third, we feel good about our long term growth prospects as we continue to make progress with end market wins and strengthening our ecosystem. Our value proposition remains strong and our financials are solid. Q3 revenue was $316,000,000 up nine percent year over year and licensing revenue of $290,000,000 was also up 9% year over year. Product and services revenue was $26,000,000 up 18% year over year. Licensing revenue came in at the high end of the guidance range due to activity expected in the fourth quarter coming in early.

Detailed licensing performance by end market is on our IR website. And as a reminder, timing of recoveries, minimum volume commitments and true ups can drive volatility between quarters. In Q3, these timing factors contributed to a 17% year over year growth in Broadcast, 11% year over year decline in Mobile and 22% year over year growth in PC. For the full year, we still expect broadcast growth to be flattish in mobile and other end markets to grow mid teens. PC growth is expected to be up mid single digits and CE, which we had previously expected to be down mid single digits, is now expected to be down low teens for the full year, mainly driven by lower device shipments and lower recoveries.

Moving on to the bottom line. We earned $0.78 per diluted share on a non GAAP basis, above the high end of our guidance due to higher revenue and lower operating expenses, partially offset by lower non operating income. We generated $68,000,000 in operating cash flow and finished the quarter with $777,000,000 in cash and investments. We repurchased $40,000,000 worth of common stock and have about $312,000,000 remaining on our repurchase plan authorization. We declared a $0.33 dividend, up 10% from our dividend a year ago.

Moving on to guidance. Q4 revenue is expected to be between $288,000,000 and $318,000,000 Within that, licensing revenue ranges from $263,000,000 to $293,000,000 Gross margins are expected to be approximately 88% on a non GAAP basis. Our outlook for non GAAP operating expenses is between $190,000,000 and $200,000,000 And with our effective tax rate for Q2 at about 21% on a non GAAP basis, non GAAP EPS is expected to come in between $0.61 and $0.76 per diluted share. For the full year, we expect revenues to be between $1,330,000,000 and 1,360,000,000.00 and for licensing revenue to be between $1,230,000,000 and $1,260,000,000 We expect non GAAP operating expenses to be between $765,000,000 and $775,000,000 and non GAAP earnings per share to be between $3.88 and $4.03 In closing, the creation and distribution of Dolby enabled content continues to grow and our partners are still very engaged as we have a number of new end market wins this year. 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 the operator to open the line for your questions. Operator?

Conference Operator: Thank you. The floor is now open for questions. Session. Your first question comes from the line of Patrick Scholl of Barrington Research. Your line is open.

Patrick Scholl, Analyst, Barrington Research: Hi. Thanks for taking the question. I was just curious on the broadcast side. With the, I guess, comment period open on, like, a transition to atsc3.o, I was curious how you view that potential transition impacting, like, the adoption on, Atmos and Vision within broadcast and the range of devices.

Kevin Yeaman, CEO, Dolby Laboratories: We don’t anticipate any impact of that. I mean, our our our codecs are are supported within the standards. Typically, the technologies like Dolby Atmos sit on top of the codec, and that’s really a value based sale to the customer. And we continue to build on that ecosystem across music, sports, movies and TV, increasingly, other forms of content, across all device types, including the TV. So I wouldn’t expect that to not not a top factor in our mind as it relates to continuing to expand the presence of Dolby Atmos.

Patrick Scholl, Analyst, Barrington Research: Okay. And then just within the q four guidance, you mentioned, shipment volume expectations on CE. I was just wondering if you could provide any more, color just on, like, shipment volumes more broadly within the q four guidance.

Robert Park, CFO, Dolby Laboratories: Yeah. Hi, Patrick. It’s Robert here. As we said in our last call, we expect some slight headwinds for the year. And then in q, q three, we saw, you know, some softness in your shipments, particularly in set top boxes and, to a lesser extent, consumer electronics.

And we had a negative true up of $4,000,000 for the quarter. And, yeah, that’s what we anticipate for the full year, but our guide for the full year is still within the range we, talked about last quarter.

Patrick Scholl, Analyst, Barrington Research: Okay. Thank you.

Conference Operator: Your next question comes from the line of Ralph Schackart of William Blair. Your line is open.

Ralph Schackart, Analyst, William Blair: Thanks for taking the question. Just on the macro, now that there appears to be some more trade agreement certainty that are being announced, And I know it’s fluid, but, you know, how much, does this help with adoption of Atmos or Vision to the extent there may have been any hesitation, you know, when there was previous, I guess, more tariff uncertainty?

Kevin Yeaman, CEO, Dolby Laboratories: Yes. I think at the highest level, Ralph, I mean, certainly we’ve seen some more have seen a few more trade deals and hopefully that is a path to people having better certainty to plan around. I would say as we sit here today, it doesn’t feel very different than where we were last quarter. There’s still uncertainty around some of the trade deals and those are in place around what impact they might have. But at the same time, I would also point out that we continue to see strong engagement for Dolby Atmos and Dolby Vision.

So I haven’t seen the uncertainty affecting the desire to have higher quality experiences. And so where the uncertainty is around how many of those devices will ship depending on how all of this plays out. And as Robert said, we’re maintaining our guidance, keeping it the same, which allows for a few slight headwinds. But path to stability would be good, and we still are focused on what we can control, which is bringing more Dolby experiences to more people around the world. That’s what will drive growth in the long term.

Ralph Schackart, Analyst, William Blair: Great. And just as it relates to Dolby Vision and autos, I know the Chinese OEMs have adopters there. But just if you could provide some perspective on how you would frame that opportunity and potentially how that would broaden out outside of what’s, I think, currently just the Chinese OEMs?

Kevin Yeaman, CEO, Dolby Laboratories: Yes. We think it’s a significant opportunity as we see the beginnings of expanding from the music experience in the car to the complete in car entertainment experience. You’re right. We have about four wins and it is in China. And in China, there’s just a really great availability of the services that people use every day.

If you can get it on your mobile device, you’d probably get it in your car. Of course, there’s more screens, whether that’s for rear seat entertainment or whether it’s the surprisingly significant amount of time that people spend in their cars when the car isn’t moving. That could be waiting to pick up kids from practice. It could be charging the car. It could be looking for a quiet moment before you go into that meeting.

And we do think that that will extend into the rest of the world where we have engagements within and outside of China. And so we’re optimistic that that is a will be a good opportunity for us.

Ralph Schackart, Analyst, William Blair: Great. Thanks, Kevin.

Conference Operator: Your next question comes from the line of Steve Frankel of Rosenblatt Securities. Your line is open.

Steve Frankel, Analyst, Rosenblatt Securities: Afternoon. Thank you. Kevin, maybe I want to revisit the statement you guys have made in the past about being able to return to double digit growth, let’s even recast it in the current environment of high single digit growth. I mean, that still something achievable with your current product set?

Kevin Yeaman, CEO, Dolby Laboratories: Yes, we believe it is. And leading up to the pandemic, we were in that high single digit. And as you know, we believe that Dolby Atmos, Dolby Vision imaging patents has great expansion opportunity. That category as a whole grew at a compounded annual growth rate of about 20% over the last four years. Our target going forward is 15% to 25%.

And we’re excited about the opportunities that we’re pursuing right now. We’re excited about our pipeline of innovation and our ability to continue to build on those experiences and extend into new ones. And then of course on the foundational side, that’s where we’ve been far more sensitive to what we’ve been seeing in the economic environment. But we do believe that once that stabilizes and we see that settle into low single digit growth, that’s the formula for double digit growth. And in the meantime, the part of the business that the part of the categories that are growing Dolby Atmos, Dolby Vision and imaging patents has grown to 40% of the total.

So we’re getting a lot more contribution from those categories. And then, of course, we continue to look to create new growth drivers as well.

Steve Frankel, Analyst, Rosenblatt Securities: And just to confirm that the trends you laid out in the beginning of the year in terms of the relative share of imaging patents, vision and Atmos relative to foundational, has that played out pretty much how you predicted year to date? Or given the weakness in foundation and the foundational business, has this other piece done a little better than you thought year to date?

Kevin Yeaman, CEO, Dolby Laboratories: We’re seeing it playing out more or less as we expected for the year so far.

Steve Frankel, Analyst, Rosenblatt Securities: Okay. And then on that negative true up, could you tell us what piece of the business accounted for most of that?

Robert Park, CFO, Dolby Laboratories: Yeah. Hey, Steve. The, negative 4,000,000 true up for the quarter was, primarily set top box in broadcast.

Steve Frankel, Analyst, Rosenblatt Securities: K. Thank you for that. I think that’s all I have for now. Thanks.

Kevin Yeaman, CEO, Dolby Laboratories: Alright. Thank you.

Conference Operator: With no further questions, this concludes today’s conference call. We thank you for participating and look forward to speaking with you on the next quarter. You may now disconnect.

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