Earnings call transcript: Dolby Labs Q3 2025 sees 9% revenue boost

Dolby Laboratories reported a strong third quarter for fiscal year 2025, with revenue increasing by 9% year-over-year to 316 million dollars. The company demonstrated robust growth across its licensing and product segments, contributing to a non-GAAP earnings per share of 0.78 dollars. According to InvestingPro data, the company maintains a "GOOD" financial health score of 2.81, supported by strong fundamentals. Despite these positive results, the stock remained stable in aftermarket trading, closing at 68.74 dollars, a 0.54% increase from the previous close, and currently trades near its 52-week low of $67.54.

Key Takeaways

• Dolby’s Q3 revenue rose by 9% year-over-year, driven by strong licensing growth.
• The company announced a 10% increase in its quarterly dividend to 0.33 dollars per share.
• Dolby is expanding its partnerships in automotive and mobile sectors.
• The company repurchased 40 million dollars in stock, highlighting confidence in its future.

Company Performance

Dolby Laboratories showcased a robust performance in the third quarter, with a 9% increase in revenue compared to the same period last year. The company’s strategic focus on expanding its presence in the automotive and mobile markets has paid dividends, with significant partnerships contributing to its growth. Dolby’s leadership in audio and visual technology continues to solidify its position in the market, especially with over 90% of Billboard 100 artists recording in Dolby Atmos.

Financial Highlights

• Revenue: 316 million dollars, up 9% year-over-year
• Licensing Revenue: 290 million dollars, up 9% year-over-year
• Product and Services Revenue: 26 million dollars, up 18% year-over-year
• Non-GAAP EPS: 0.78 dollars per diluted share
• Cash and Investments: 777 million dollars
• Stock Repurchase: 40 million dollars
• Dividend: 0.33 dollars per share, a 10% increase

Outlook & Guidance

Dolby provided guidance for the full fiscal year, projecting revenue between 1.33 billion and 1.36 billion dollars. The company expects licensing revenue to range from 1.23 billion to 1.26 billion dollars. For the upcoming fourth quarter, Dolby anticipates revenue between 288 million and 318 million dollars, with non-GAAP earnings per share guidance set between 3.88 dollars and 4.03 dollars. Analyst consensus remains bullish, with price targets ranging from $74 to $114, suggesting potential upside. InvestingPro analysis indicates the stock is currently undervalued compared to its Fair Value, presenting a potential opportunity for investors. The company remains optimistic about market growth in the Atmos and Vision categories, forecasting a 15-25% increase.

Executive Commentary

CEO Kevin Yeaman emphasized Dolby’s strong engagement with content creators and device manufacturers, stating, "We continue to see strong engagement with content creators, distributors, and device OEMs." CFO Robert J. Park highlighted the company’s financial health, noting, "Our value proposition remains strong and our financials are solid." Yeaman also expressed confidence in Dolby’s strategic direction in the automotive sector, saying, "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."

Risks and Challenges

• Trade Uncertainty: Potential trade tensions could impact Dolby’s international operations, though the company’s strong balance sheet, with more cash than debt and a current ratio of 3.44x, provides a buffer against market volatility. Additionally, Dolby has maintained dividend payments for 12 consecutive years, with 11 years of consecutive increases, demonstrating resilience through various market cycles.
• Market Saturation: Increased competition in audio-visual technology could pressure market share.
• Economic Pressures: Global economic fluctuations may affect consumer spending and investment in Dolby’s products.
• Technological Advancements: Rapid technological changes require continuous innovation to maintain leadership.
• Regulatory Changes: Changes in international regulations could impact Dolby’s business operations.

Q&A

During the earnings call, analysts inquired about the impact of the ATSC 3.0 transition, which Dolby indicated would be minimal. Questions also focused on trade uncertainties and their potential effects on Dolby’s operations. Analysts were keen to explore growth potential in the automotive and mobile markets, areas where Dolby has been expanding its partnerships and presence.

Full transcript - Dolby Laboratories (DLB) Q3 2025:

Conference Call Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories conference call discussing third quarter fiscal year 2025 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. If you would like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. If you would like to withdraw your question, press STAR one again. As a reminder, this call is being recorded this Thursday, July 31, 2025. I would now like to turn the conference over to Mr. Peter L. Goldmacher, Vice President of Investor Relations. Peter, please go ahead.

Peter L. Goldmacher, Vice President of Investor Relations, Dolby Laboratories: Good afternoon. Welcome to Dolby Laboratories’ third quarter 2025 earnings conference call. Joining me today are Kevin Yeaman, Dolby Laboratories CEO, and Robert J. Park, CFO. As a reminder, today’s discussion will include forward-looking statements including our fiscal 2025 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 2025 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 100 markets. In the cinema, Impossible, the Final Reckoning, How to Train Your Dragon, F1, 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 Q7, the Q8, the A8, 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 Roxx 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 U.S. 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 Xiaohongshu, also known as Red, 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 Red to launch its flagship smartphone, the X8, 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. 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 and 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 J. 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 $1.33 billion and $1.36 billion 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 million, up 9% year over year, and licensing revenue of $290 million was also up 9% year over year. Product and services revenue was $26 million, 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 million in operating cash flow and finished the quarter with $777 million in cash and investments. We repurchased $40 million worth of common stock and have about $312 million 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 million and $318 million.

Within that, licensing revenue ranges from $263 million to $293 million. Gross margins are expected to be approximately 88% on a non-GAAP basis. Our outlook for non-GAAP operating expenses is between $190 million and $200 million, 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 $1.33 billion and $1.36 billion and for licensing revenue to be between $1.23 billion and $1.26 billion. We expect non-GAAP operating expenses to be between $765 million and $775 million 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 Call Operator: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press Star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press Star one again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is Star one to join the queue. Your first question comes from the line of Patrick William Sholl of Barrington Research. Your line is open.

Kevin Yeaman, CEO, Dolby Laboratories: 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 ATSC 3.0. I was curious how you view that potential transition impacting the adoption on Atmos and Vision within broadcast and the range of devices. We don’t anticipate any impact of that. I mean, our codecs 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. 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. I wouldn’t expect that to not factor in our mind as it relates to continuing to expand the presence of Dolby Atmos. Okay, and then just within the Q4 guidance, you mentioned shipment volume expectations.

I was just wondering if you could provide any more color just on shipment volumes more broadly within the Q4 guidance.

Robert J. 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. In Q3, we saw some softness in unit shipments, particularly in set-top boxes and to a lesser extent consumer electronics, and a negative true up of $4 million for the quarter. We anticipate full year, but our guide for the full year is still within the range we talked about last quarter.

Kevin Yeaman, CEO, Dolby Laboratories: Okay, thank you.

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

Question just on the macro now that there appears to be some more trade agreement certainty that are being announced. I know it’s fluid, but how much does this help with adoption of Atmos or Vision to the extent there may have been any hesitation when there was previous, I guess more tariff uncertainty.

Kevin Yeaman, CEO, Dolby Laboratories: Yeah, 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. At the same time, I would also point out that we continue to see strong engagement for Dolby Atmos and Dolby Vision. I haven’t seen the uncertainty affecting the desire to have higher quality experiences. Where the uncertainty is around how many of those devices will ship depending on how all this plays out.

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. 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. Great. Just as it relates to Dolby.

Vision, I know the Chinese OEMs have been sort of the early adopters there, but 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.

Conference Call Operator: Thanks.

Kevin Yeaman, CEO, Dolby Laboratories: Yeah, we think it’s a significant opportunity as we see the beginnings of expanding from the music experience in the car to the in-car, the complete in-car entertainment experience. You’re right, we have about four wins and it is in China. 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 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.

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

Conference Call Operator: Great.

Kevin Yeaman, CEO, Dolby Laboratories: Thanks, Kevin.

Conference Call Operator: If you would like to ask a question, press Star and then number one on your telephone keypad. Your next question comes from the line of Steven Bruce Frankel of Rosenblatt Securities. Your line is open.

Good 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, is that still something achievable with your current products?

That.

Kevin Yeaman, CEO, Dolby Laboratories: Yeah, we believe it is. You know, leading up to the pandemic, we were in that high single digit. 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%. We’re excited about the opportunities that we’re pursuing right now, excited about our pipeline of innovation and our ability to continue to build on those experiences and extend into new ones. 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. 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.

In the meantime, the part of the business, the part of the categories that are growing, Dolby Atmos, Dolby Vision, and imaging patents, has grown to 40% of the total. We’re getting a lot more contribution from those categories. Of course, we continue to look to create new growth drivers as well.

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? Given the weakness in the foundational business, has this other piece done a little better than you thought?

Year to date, we’re seeing it playing out more or less as we expected for the year so far.

Okay, on that negative true up, could you tell us what piece of the business accounted for most of that?

Robert J. Park, CFO, Dolby Laboratories: Yeah. Hey Steve. The negative $4 million true-up for the quarter was primarily set-top box and broadcast.

Okay, thank you for that. I think that’s all I have for now.

Kevin Yeaman, CEO, Dolby Laboratories: Thanks.

Robert J. Park, CFO, Dolby Laboratories: Thank you.

Conference Call 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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