Dolby Laboratories, Inc. (DLB) Earnings

Management highlights

### Total Addressable Market Expansion (Beyond Device Licensing) - Video Distribution Program (VDP, imaging patent pool for streamers): signed large new licensees Meta (covering Facebook, Instagram, WhatsApp) and Alibaba (covering its video, ecommerce, and digital media operations) this quarter. In less than 1 year since inception, the pool has 45 licensors and top streaming licensees including ByteDance, Kuaishou, Meta, Roku, Tencent, and Alibaba. Management is targeting 10% of total revenue from content partners by the end of FY28. - Dolby OptiView: closed a multiyear deal with Roberts Communications Network for ultra low latency live horse racing streaming; Dolby OptiView Ads became the first product certified through Google Ad Manager's technology partner program, with performance and monetization improvements for integrated deployments. New AI-powered fan engagement solutions for live sports will ship in the coming months, focused on personalized content to increase viewer engagement. ### Core Experiential Technology Expansion - Dolby Vision and Dolby Atmos: the 2026 World Cup was available in Dolby across all host countries and multiple major markets, via leading broadcast and streaming partners. Dolby Vision 2.0 is currently available on select Hisense TVs, with TCL and Philips set to ship Dolby Vision 2.0-enabled TVs by the end of calendar 2026. - Automotive: agreements have been announced with over 40 auto OEMs to date. New Q3 wins include Volkswagen China's first Dolby Atmos vehicle, and Buick's presale of the Electra E5 SUV with Dolby Atmos in China. Google announced Android Auto support for Dolby Atmos with launch partners including BMW, Genesis, Mahindra, Mercedes, Renault, and Skoda, complementing existing CarPlay support to expand in-car accessibility. ### New Device and Use Case Growth - User Generated Content (UGC) and social media: Dolby Vision has strong adoption on major platforms including Instagram, Facebook, and Douyin, driving demand for Dolby on mobile phones and expanding into new categories: RayNeo launched the first Dolby Vision-equipped AR smart glasses (RayNeo GT Max), and Insta360 launched the Dolby Vision capture-enabled Luna Ultra action camera. ### Capital Deployment Updates - The company repurchased 1.2 million shares ($65 million) of common stock in Q3. The Board approved a $350 million increase to the share repurchase authorization, bringing total available authorization to approximately $427 million. - A $0.36 per share dividend was declared, a 9% increase year-over-year. The quarter ended with $756 million in cash and investments. A $4 million GAAP restructuring charge was recorded for organizational realignment to prioritize high-impact growth areas.

Guidance

- For Q4 fiscal 2026: total revenue is expected between $362 million and $392 million, with licensing revenue expected between $335 million and $365 million. Non-GAAP gross margin is targeted at approximately 90%, non-GAAP operating expenses between $195 million and $205 million, and non-GAAP EPS between $1.13 and $1.28. The midpoint of Q4 revenue guidance represents 23% year-over-year growth, driven by VDP momentum (including the large Meta deal signed early in Q4), higher Dolby Atmos unit volumes in auto, and new device category growth, plus favorable timing of minimum volume commitments. - For full fiscal year 2026: total revenue is expected between $1.41 billion and $1.44 billion, with licensing revenue between $1.31 billion and $1.34 billion. Non-GAAP operating expenses are targeted between $785 million and $795 million, and non-GAAP EPS between $4.25 and $4.40, adjusted for higher discrete Q3 tax expense. - Full year 2026 non-GAAP operating margin is expected to improve approximately 100 basis points, an upward revision from the prior 50-100 basis points guidance range.

Segment performance

Total third quarter revenue came in at $305 million, within management's prior guidance range. Licensing revenue accounted for $282 million (92.5% of total revenue), while products and services revenue was $23 million (7.5% of total revenue). Non-GAAP earnings per share was $0.69, above the midpoint of prior guidance. Operating cash flow was approximately $167 million. End market full year 2026 performance expectations are as follows: other revenue (including auto and VDP) is expected to be up high teens; broadcast revenue is up mid single digits; mobile (including wearables) is up mid single digits; consumer electronics (CE) revenue is expected to be flattish; PC revenue is down low single digits. Foundational audio revenue is expected to be down slightly for the full year, while Dolby Atmos, Dolby Vision, and imaging patents combined are expected to be up roughly 15% year-over-year.

Risks & headwinds

- Forward-looking statements are subject to material risks including macroeconomic volatility, supply chain disruptions, elevated inflation, changes in consumer discretionary spending, and geopolitical instability, any of which could cause actual results to differ materially from guidance. - Rising memory chip costs disproportionately impact the mobile and PC end markets (the two end markets most exposed to memory as a share of bill of materials cost). While this impact is already factored into FY26 guidance, sustained elevated memory costs could pressure device shipment volumes in 2027, partially offsetting growth in high-priority segments. The impact varies by customer: some absorb higher costs, some raise prices, and some eliminate lower-end product lines, which can lower total shipments but increase attach rates for higher-value Dolby technology. - New market segments (including VDP, Dolby OptiView, and automotive) are still in growth phases, and there is no guarantee that current early momentum will translate to sustained long-term revenue growth at projected levels.

Analyst Q&A

• Q: Ralph Schackart (William Blair) asked about the sustainability of Q4's projected 23% YoY growth, and how much of this growth comes from permanent momentum versus quarterly revenue shifting between Q3 and Q4. He also asked how signing large high-profile VDP licensees like Meta and Alibaba affects future VDP participation.

  A: CFO Robert Park confirmed Q4 growth is driven by both structural momentum in VDP, auto, and wearables, and timing benefits from back-end-loaded minimum volume commitments that were softer in last year's Q4. CEO Kevin Yeaman added that after one year of operation, VDP is progressing faster than expected with strong breadth of participants. Large prominent licensees encourage remaining prospective licensees to move forward with their due diligence and joining process, as it confirms the pool is comprehensive, fairly priced, and the industry standard, creating a virtuous cycle of adoption. ---

• Q: Steven Frankel (Rosenblatt Securities) asked for an update on discussions with large domestic streaming networks for VDP, when the auto segment might reach the 10% of licensing revenue threshold to be broken out as a separate segment, and how rising memory costs are impacting customer new product introduction plans.

  A: Kevin Yeaman confirmed the VDP pipeline remains strong and includes all types of large video streamers, with management increasingly confident in the program's progress. He also noted auto is on track to reach the 10% licensing revenue threshold, and management will re-evaluate segment reporting early next year. Robert Park added that memory cost impacts are already factored into FY26 guidance, with mobile the most impacted and TV the least. While some lower-end mobile product lines are being eliminated, this tends to push consumers to higher-tier devices with higher Dolby attach rates, mitigating some of the volume impact, and the situation is being monitored closely for 2027. ---

• Q: John Rigatti (Baird) asked what drives faster Dolby auto adoption in international markets, what is needed to unlock more growth in the US market, and what the core vision for Dolby OptiView is and what is resonating with early partners.

  A: Kevin Yeaman explained initial auto adoption momentum started in China because it is the world's largest vehicle market and the global leader in EV innovation, where in-car entertainment is a top competitive priority. As global OEMs added Dolby to compete in China, this spread to Europe, India, and other markets. The next step to unlock more growth (including in the US) is expanding penetration from high-end models to mainstream high-volume vehicles. For Dolby OptiView, the core vision is enabling personalized real-time interactive live streaming experiences, starting with sports. OptiView Ads, which recently received Google Ad Manager certification, is seeing early customer ad revenue increases of up to 75% from better targeting, higher fill rates, and reduced ad blocking, with scaling planned for fall 2026. AI-powered personalized fan engagement features are on track to launch in 2027. ---

• Q: John Rigatti (Baird) also asked about management's increased share repurchase pace in 2026, and how capital allocation strategy will look going forward.

  A: Robert Park confirmed the company has stepped up buyback activity year-to-date. The core policy is to at least offset dilution from stock-based compensation, and management evaluates repurchase levels quarterly based on business needs and prevailing market conditions, with continued active repurchasing planned for the remainder of the year.