Dolby Laboratories - Earnings Call - Q3 2020

Transcript

Speaker 0

and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories Conference Call discussing Fiscal Third Quarter 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 Monday, 08/03/2020.

I'd now like to turn the conference call over to Jason Di, Director of Investor Relations for Dolby Laboratories. Please go ahead, Jason.

Speaker 1

Good afternoon. Welcome to Dolby Laboratories Third Quarter twenty twenty Earnings Conference Call. Joining me today are Kevin Yemen, Dolby Laboratories' President and CEO and Louis Chu, Executive Vice President and Chief Financial Officer. As a reminder, today's discussion will include forward looking statements, including our fourth quarter and full year fiscal twenty twenty 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.

In particular, we are currently in the midst of the COVID-nineteen pandemic. The extent of its continued impact on our business will depend on several factors, including the severity, duration and extent of the pandemic, as well as actions taken by governments, businesses, and consumers in response to the pandemic, all of which continue to evolve and remain uncertain at this time. 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 GAAP and non GAAP financial measures.

A reconciliation between the two is available in our earnings press release and in the Dolby Laboratories Investor Relations data sheet on the Investor Relations section of our website. As for the content of today's call, Lewis will begin with a recap of Dolby's financial results and provide our fiscal twenty twenty outlook, and Kevin will finish with a discussion of the business. So with that introduction behind us, I will now turn the call over to Lewis.

Speaker 2

All right. Thank you, Jason. Right. Good afternoon, everyone, and I hope you're all staying safe out there. I'm glad to report that Q3 revenues came in at the high end of the scenario that we provided three months ago, and our earnings were above the range as we had a large tax benefit in the quarter to go along with some lower than projected operating expenses.

While we did do better than the Q3 outlook, it's worth noting that the numbers were lower than the original forecast from the start of the year before COVID-nineteen came into the picture. So here are the numbers. Third quarter revenue was $247,000,000 compared to $352,000,000 in Q2 and $3.00 $2,000,000 in Q3 of last year. Our Q3 revenue guidance coming into the quarter was a range of $225,000,000 to $250,000,000 Now if I compare that to what we assumed in our guidance, revenues from TVs, PC and mobile were at the higher end, while consumer electronics and set top boxes were at the lower end of our scenario. Products and services were at the high end of the range, but remember that we had lowered our expectations by 70% to 80% because of the significant impact of COVID-nineteen shutdowns on the cinema industry.

Looking at total company quarter over quarter, revenue was down by about $105,000,000 from Q2. Roughly half of that was driven by timing of revenue under contracts as well as lower recoveries, And roughly the other half of that was attributable to the impact from COVID-nineteen, which includes lower royalties from unit shipments across a variety of devices, lower sales of cinema products and services and lower revenue from box office share at Dolby Cinema. Now looking at total company year over year, revenue was down by about $55,000,000 versus last year's Q3, and that was predominantly attributable to COVID-nineteen. And similar to what I said a minute ago, lower unit shipments, lower products and services and lower Dolby Cinema revenue. The composition of Q3 revenue was $235,000,000 in licensing and $12,000,000 in products and services.

So let's go through a breakdown of licensing revenue by end market, starting with Broadcast. Broadcast represented about 38% of total licensing in the third quarter. Broadcast revenues were down about 34% year over year, and that was driven by lower recoveries and lower unit volume due to the pandemic, despite the fact that adoption of Dolby Vision and Dolby Atmos into TVs and set top boxes is higher than last year. On a sequential basis, Broadcast was down by about 31% due to lower recoveries and lower unit volume. Mobile represented approximately 33% of total licensing in Q3.

Mobile was up by about 65% over last year due to higher recoveries and revenues from our patent programs, offset partially by unit volume impact from the pandemic. On a sequential basis, mobile was up by about 3%, driven by recoveries offset partially by unit volume impact from the pandemic. PC represented about 10% of total licensing in the third quarter. PC was down by about 4% year over year due to lower recoveries and lower unit volume, although it's worth noting that adoption of Dolby Vision and Dolby Atmos into PCs has increased since last year. And sequentially, PC was down nearly 50% due to timing of revenue under contracts and also lower recoveries.

Consumer electronics represented about 9% of total licensing in the third quarter. And on a year over year basis, CE licensing was down by about 29%, driven by lower volume and lower recoveries. On a sequential basis, CE was down by nearly 60% due to timing of revenue under contracts as well as lower unit volume. Other markets represented about 10% of total licensing in the third quarter. They were down by about 34% year over year due to significantly lower revenues from Dolby Cinema because nearly all those screens were closed for the quarter and lower revenues from gaming due to console life cycles.

On a sequential basis, other markets was down by about 16%, driven by lower revenue from Dolby Cinema and from via admin fees. And those are the fees in the patent pool program that we administer. This was offset partially by higher recoveries in automotive and gaming. Beyond licensing, our products and services revenue was $11,800,000 in Q3 compared to $23,000,000 in Q2 and $30,300,000 in last year's Q3. We had anticipated a big drop off in sales in this category as most of this revenue comes from equipment that we sell to cinema exhibitors.

And these customers, in general, continue to be negatively affected by the pandemic. Now let's cover margins and operating expenses for Q3. Total gross margin in the third quarter was 87.9 percent on a GAAP basis and 89% on a non GAAP basis. Products and services gross margin on a GAAP basis was minus $5,500,000 in the third quarter due to fixed costs not fully covered by the lower volume that we ran. And as a reminder, the guidance I gave at the beginning of the quarter was for GAAP gross product margin to range from minus $6,000,000 to minus $9,000,000 Products and services gross margin on a non GAAP basis was minus $3,500,000 in the third quarter for the same reasons that I just went over in the GAAP discussion.

And there, as a reminder, our guidance for non GAAP product gross margin was minus $5,000,000 to minus $8,000,000 Operating expenses in the third quarter on a GAAP basis were $182,900,000 compared to $2.00 $9,000,000 in Q2. Operating expenses in Q3 were about $8,000,000 less than the low end of the range we had guided, mostly driven by timing of certain marketing programs that were pushed into Q4, lower legal expenses and lower travel and outside services. Operating expenses in the third quarter on a non GAAP basis were $159,200,000 compared to $188,400,000 in the second quarter. And the Q3 non GAAP total was also below the range we projected and for the same reasons that I discussed in the GAAP expenses. Operating income in the third quarter was $34,100,000 on a GAAP basis or 13.8% of revenue compared to $34,300,000 or 11.3% of revenue in Q3 of last year.

And last year's Q3 included a $30,000,000 charge for restructuring, mostly associated with an early exit from a leased facility. Operating income in the third quarter on a non GAAP basis was $60,500,000 or 24.5% of revenue compared to $85,900,000 or 28.4% of revenue in Q3 of last year. Income tax was a $27,400,000 benefit in Q3 on a GAAP basis and a $21,200,000 benefit on a non GAAP basis. The Q3 income tax amounts include approximately $36,000,000 of discrete benefits for specific items that were resolved during the quarter. Net income on a GAAP basis in the third quarter was 67,300,000 or $0.66 per diluted share compared to $39,600,000 or $0.38 per diluted share in last year's Q3.

Net income on a non GAAP basis in the third quarter was $87,500,000 or zero eight six dollars per diluted share compared to $79,300,000 or $0.76 per diluted share in Q3 of last year. For both GAAP and non GAAP, net income in Q3 was above our original guidance due to revenue being at the higher end of our range, operating expenses below our range and the favorable income tax I discussed. During the third quarter, we generated about $134,000,000 in cash from operations, which compares to about $91,000,000 generated in last year's third quarter. And we ended the third quarter with a little over $1,100,000,000 in cash and investments. During Q3, we bought back about 500,000 shares of our common stock and ended the quarter with about $230,000,000 of stock repurchase authorization still available.

We also announced today a cash dividend of $0.22 per share, which will be payable on 08/26/2020, to shareholders of record on 08/17/2020. Now let's cover the outlook for Q4. Three months ago, when I went over the guidance for Q3, I highlighted the challenges that we were facing in the environment. Consumer demand was dropping, visibility was much more limited than usual, and industry data reports were not consistent or current. Fast forward to now, we have updated TAM data for some of our end markets, but not all of them.

Customer visibility is still very limited. And remember, we won't have actual shipment data for the June until all our customers send us their reports over the next two months. And the economy is still pretty uncertain. So with that as a backdrop, here's our current scenario for q four, along with some key assumptions that we've embedded into the outlook. Let's start with products and services revenue, most of which goes into the cinema industry.

Screens are opening more slowly than we thought last quarter, so we are assuming that there will not be any significant uptick in equipment purchasing activity from exhibitors in Q4. We estimate that products and services revenue in Q4 could range from $10,000,000 to $15,000,000 Let's talk about licensing. We estimate that licensing revenue in Q4 could range from $215,000,000 to $240,000,000 That's in comparison to the $235,000,000 that we had in Q3. As I look at the transition from Q3 actual to the Q4 outlook scenario, there's downward movement from timing of revenue under customer contracts. This is not unusual, and I think of it as Dolby seasonality.

In other words, within the course of our fiscal year, we tend to have higher revenue in our q two and our q three and lower amounts in our q one and q four, and a lot of this is because of timing of revenue under various contracts. Partially offsetting it this year is an assumption that total unit shipments could increase modestly in Q4 over Q3 as consumer spending starts to improve. Our Q4 scenario assumes that there will roughly be a 5% improvement in unit shipments, plus or minus, blended across all device categories. And for Q4, we're also assuming very little revenue from Dolby Cinema box office share. To summarize, our scenario for total revenue in Q4 is a range of $225,000,000 to $255,000,000 If I compare that to last year's Q4 actual revenue of $299,000,000 the majority of the potential decline would be attributable to the economic ripple effect of the pandemic, and the remainder would largely be due to lower recoveries.

Let me finish up with the rest of the Q4 outlook so I can turn it over to Kevin. Gross margin for Q4 on a GAAP basis is estimated to range from 85% to 86%, and non GAAP gross margin is estimated to be about one percentage point higher than the GAAP number. Products and services gross margin will remain in negative territory in Q4, mainly because of fixed costs that are not fully covered at the lower revenue levels. At the revenue range in the outlook I provided, products and services gross margin on a GAAP basis could range from minus $6,000,000 to minus $9,000,000 in Q4. And on a non GAAP basis, it could range from minus $5,000,000 to minus $8,000,000 Operating expenses in Q4 are estimated to range from $187,000,000 to $197,000,000 on a GAAP basis and from $167,000,000 to $177,000,000 on a non GAAP basis.

Other income is projected to range from 2,000,000 to $3,000,000 for the quarter, and our income tax rate for the fourth quarter is projected to range from 19% to 21% on both a GAAP and non GAAP basis. Based on a combination of the factors I just reviewed, we estimate that Q4 diluted earnings per share on a GAAP basis could range from about $05 to about $0.20 And then on a non GAAP basis, we estimate it would range from about $0.22 to $0.37 And as for the full year, if you do the math, that would mean that our FY 'twenty revenue for the full year could range from about $1,150,000,000 to $1,145,000,000 GAAP diluted earnings per share could range from $2.04 to $2.19 and non GAAP diluted earnings per share could range from $2.76 to $2.91 Now I would like to turn it over to Kevin. Kevin?

Speaker 3

Thank you, Louis, and good afternoon, everyone. With the strength of our financial model, balance sheet and value proposition, Dolby continues to be well positioned to navigate through these challenging times. Our people continue to bring their creativity and passion to enable more Dolby experiences to more people around the world. While our Q3 revenues came in at the high end of our scenarios, there is still a lot of uncertainty across many of the markets in which we operate. In addition to lower consumer spending, the pandemic has resulted in some shifts in the timing of new customer wins and revenue.

At the same time, our partners remain deeply engaged with enabling new Dolby Vision and Dolby Atmos experiences. As consumer spending does return, we are confident that with our strong positioning across a broad range of devices and services, will return to our path of driving revenue and earnings growth. Our formula for growth has always started with increasing the amount of compelling content available in Dolby. The Dolby Vision and Dolby Atmos experience in movie and TV content has led to growing adoption across a broad range of devices. We are also expanding the Dolby experience to areas such as gaming and music that broaden our value proposition and create more opportunities in device categories like mobile, PC, and automotive.

In addition, we are beginning to address a growing population of content beyond premium entertainment, most recently with the launch of our developer platform, dolby.io. All of this gives us confidence in our ability to drive long term growth. Let's turn to some of the highlights this quarter. As people are watching a growing amount of streamed content, Dolby Vision and Dolby Atmos continues to be highlighted within the content that matters most to people. The highly anticipated releases of Hamilton on Disney plus and Greyhound on Apple TV plus are both available in Dolby.

This quarter, we began to see the first titles in Dolby Vision on Google Play. And Hotstar, the largest streaming service in India, began to support Dolby Vision for Disney Plus content. This quarter, we saw several partners adopt Dolby Vision and Dolby Atmos within their products. Apple, which supports Dolby Vision and Dolby Atmos across most of their devices, announced that AirPods Pro will support Dolby Atmos with the release of iOS 14. Sonos launched the Sonos Arc, their first soundbar that supports Dolby Atmos.

Free, one of the largest Internet service providers in France, launched their first set top box to support Dolby Vision and Dolby Atmos. And last month, Xiaomi launched their first TV supporting the combined experience. Adoption of both Dolby Vision and Dolby Atmos within TVs continues to expand globally, most notably in India. This quarter TCL, Sony, OnePlus, and Nokia all announced new TV models in India supporting the combined experience. Also, Panasonic expanded their adoption of Dolby Vision IQ to additional models this quarter.

In FY19, Dolby Vision was included on about 10% of four k TV shipments and we are on track to materially increase that adoption rate for fiscal twenty twenty, with a significant growth opportunity still ahead of us. Our strong presence in movie and TV content has enabled the initial adoption of Dolby Vision and Dolby Atmos within PC and mobile devices. Beyond that, we see a significant opportunity to accelerate adoption by enabling more experiences on these devices, gaming and music. Recently, Tidal significantly expanded the number of devices that support Dolby Atmos music to include Dolby Atmos enabled sound bars and home theater equipment. We are also seeing examples of how Dolby Atmos can create unique experiences across a wide range of music genres.

This quarter, we saw examples of classical music from John Williams and recordings from the London Philharmonic Orchestra mixed in Dolby Atmos. Empire, an independent label, began releasing music in Dolby Atmos from artists like Fat Joe and Remy Ma. The music in Dolby experience elevates our engagement with partners and strengthens the value proposition for Dolby Atmos in existing device categories such as mobile phones and creates new opportunities for us in areas such as automotive and smart speakers. Let me shift to cinema. During the quarter, most cinemas remained closed with a few regions slowly beginning to reopen.

The closure of cinemas around the world has significantly reduced demand for our cinema products. We believe that when cinemas do begin to reopen, exhibitors will look to highlight their premium offerings and consumers will seek out the best experience. And there is none better than Dolby Cinema. Last month, the first Dolby Cinema in South Korea was opened with our partner Mega Box. We have also added our second partner that will bring Dolby Cinema to Saudi Arabia, where we saw our first site open just last week.

As we look ahead, we are excited by the unique opportunity to significantly broaden the content experience we address with Dolby Technologies. During the quarter, we launched our developer platform, dolby.io. Dolby.io enables developers to access Dolby technology to raise the bar on the quality of the media and communications experiences within their apps and services using our APIs. Among our initial customers, we have seen application across a wide range of use cases including podcasts, elearning, and telehealth. Beginning a few weeks ago, artists can optimize the quality of their music recordings with mastering on SoundCloud powered by Dolby's platform.

We are excited by the initial reception of dolby.io and by the potential to bring Dolby to the growing amount of media and communications content that is part of our daily lives. To wrap up, Dolby has a solid foundation with a strong business model. And more than ever, people want immersive entertainment and communications experiences. The quality of these experiences matter. We continue to focus on growing the number of devices that support Dolby Vision and Atmos.

We will accelerate adoption and broaden the device categories that support the Dolby experience by enabling new forms of content, like music and gaming. And we are excited by the opportunity to enable an even broader range of Dolby experiences, most recently with the launch of dolby.io. All of this reinforces our belief in the opportunities that are still ahead of us and give us confidence in our ability to drive revenue and earnings growth. And with that, I will turn it over to Q and A.

Speaker 0

Thank you, ladies and gentlemen. If you wish to register a question for today's question and answer session, you may do so by pressing star 1. If you would like to withdraw a question, press 2. If you're on a speakerphone, please pick up your handset before entering your request. Please be sure to identify yourself and your firm at the outset.

To be fair to all participants, we ask that you limit yourself to one question and a follow-up question until all participants have had a chance in the first round. If time allows, we will then come back to answer any remaining questions. One moment please for the first question. Your first question comes from Ralph Schackart with William Blair.

Speaker 1

Good afternoon. A couple of questions,

Speaker 4

if I could. Lewis, I think the old guidance contemplated down 15% to down 25% for units. And now the Q4 outlook on a blended basis talks about an increase of 5% per units. So just curious if you could us a sense of the improvement you might be seeing there and if there's any way to sort of give us an update to what was previously down 15% to up I'm sorry, down 25%, just to get a sense for how that outlook may have improved.

Speaker 2

Sure. First, just to clarify for everyone in the audience, that original reference Ralph made to the down 15% or 25% was one of the comments we made last quarter when we gave guidance. That was in reference to, let's just say, our expectation before COVID-nineteen hit. That was not a sequential reference. So relative to that reference, Ralph, we probably came in at the better end of that range, which is one of the reasons that allowed us to get current quarter Q3 revenue into the upper end of our range.

The 5% I mentioned is now more of an absolute value comparison. It's kind of saying, Okay, from Q3 to Q4, what do we see happening in units? And like I said in all my caveats, I want to make sure everyone understands that we don't have the normal crystal ball that we might normally expect to have. But in the context of all the data points that we assembled, we are assuming that from Q3 to Q4 that broadly across categories, device volume picks above 5%. That would probably mean then that, relative to the other reference you had before, the decrease from previous expectation is probably a little bit better than that 15% to 25% for Q3.

But we're trying to move away from that because it gets harder and harder to make comparison as each quarter progresses to what we originally thought of as pre COVID-nineteen. So I hope that explains how those two numbers work. It isn't like we went from minus 15 to 25, and that became a plus five. Those are two very different comparison points. So let me pause there to see if you have anything further to add to that, that maybe I may or may not have made clear.

Speaker 4

I'm good on my end for that. Thanks, Liz. One more, though, while I have you in hand. One quick one for Kevin. Yeah.

On your income tax, you talked about 36,000,000 benefits for certain items resolved in the quarter. Any extra color you could add to that?

Speaker 2

Yeah. Low, I'll take that first. As with any company, we you know, especially the size of our company, we do have uncertain tax positions for which we've not benefited on our P and L. And during the quarter, we had a couple of items that were large enough to have been resolved this quarter by elapse of statutes that then we took this quarter, and those are discrete items. And the reason it has to be taken that way is because you really can't forecast those in advance until you get past the final point at which that statute has expired.

Speaker 4

Okay, great. And then last one, Kevin. Kevin, you talked about some shift of new customer wins and revenue in the prepared remarks. I'm assuming that's just due to COVID, perhaps for better release windows, but just want to see if there's any extra color you could add to those remarks.

Speaker 3

Yes, sure. First of all, Ralph, I, of course, want to highlight that start with the fact that we have a lot of great wins with our first soundbar with Sonos, our first TV with Xiaomi, and a number of partners expanding their presence. But yes, as part of the implications of COVID, there are some deals that we would have hoped to have signed that we see pushing out into next year. That often tends to be in some of the newer things we're doing. And yes, there's also some of the, absence of major events that, often would drive, new wins and adoption.

And if you take the Olympics, for example, historically, that's been a very major moment for us and our partners. But we are continuing to be very pleased with the engagement we have. And like I said, we did see a lot of great new wins during the quarter.

Speaker 4

Okay. Thanks, Kevin. Thanks, Louis.

Speaker 2

Our

Speaker 0

next question will come from Paul Chung with JPMorgan.

Speaker 2

Hi, guys. Thanks for taking my questions. Just on broadcast, you had a pretty big dip in the third quarter. Do you see kind of a bounce back in Q4? Is it going to be kind of the 5% sequential unit increase that you're talking about?

And then, are you seeing any different demand trends in different regions? And then I have a follow-up. Yeah. I'll start with that one, and I'll let Kevin add any color if he chooses. First of all, I'll point out that the broadcast dip that you referred to, that's effectively baked into our guidance because notwithstanding those numbers, our revenue for the quarter did come in at the high end of our range.

And as I pointed out, TVs was one of the areas that we saw relative strength. Everything here is in the context of the COVID-nineteen environment, so relative strength. And like I said in my prepared comments, we have some elements of timing of revenue and also difference in recoveries that might be affecting some of those comparisons. And then looking forward into the Q4 outlook that I provided, we currently assuming 5%, roughly 5%, and that's a plus or minus. I know it's tricky to be too precise in this environment, but roughly 5% plus or minus improvement broadly across all categories.

But I don't really have a breakdown for you at the broadcast level. That's probably not a big enough number to try to start breaking into pieces, but we would anticipate that broadcast would be a part of that story as well.

Speaker 3

Okay. And then, as I look

Speaker 2

at your OpEx, your costs were down 11%, pretty good. Possibly, maybe some lower discretionary costs, like many companies in the quarter. But it looks like your costs are down year on year for 4Q but kind of at a slower pace. Are there any kind of new permanent costs that you can carry over, or is this that 4Q kind of the new quarterly run rate we can think about? I know you have a bump maybe next in the December quarter on some stock comp, but any thoughts there would be helpful.

Sure. As we transition from Q3 to Q4, first, we have to acknowledge that the Q3 expenses were extraordinarily low, virtually no travel. I'm sure we're not that different from other companies, but virtually no travel, very limited expenses from outside services and consultants, very low hiring. I think these are things that, to some degree, will continue, but I think as we transition into Q4, one highlight for us is that Q3 benefited from timing of some of our discretionary programs, Paul. So your high level question is, is a chunk of our spending discrete and variable?

Yes, it is. And particularly in areas like marketing, where we have a number of campaigns we plan in advance for the full year, and we even signaled at the beginning of this year that we had some cool things planned for marketing. Some of those were moved into q four. And actually, some of you out there listening to this call may have seen some of the cool things that are running right now that connect our incredible technologies to some pretty big names of things going on out there. So I think there's the timing of some of those marketing programs that shifted from Q3 to Q4, which causes almost like a double whammy, to your question, Paul, because it makes the Q3 number bigger, and then that money now is being spent in Q4.

We have some similar things going on in legal. I think, to a small degree, we did actually have some although it's at a reduced level, we did have some hiring that we did in Q3, so the full impact of that will be felt in Q4. Those are a handful of things, but net net, I think we are still running at a noticeably lower expense level now than we would have been thinking of pre COVID. But maybe those are the three or four things to think about transitioning from Q3 to Q4: timing of programs in legal and marketing, probably travel expenditures not being so close to zero like they were this quarter and some outside services, and then the ripple effect of some personnel costs that affect us in Q4 more than Q3. Got you.

Very helpful. Last question. Your free cash flow looks pretty good. It's up $70,000,000 for the fiscal year. You had some lower CapEx.

You had some benefits from working cap timing. Are we on track to kind of exceed last year's level even despite your weaker sales this year? Anything you want to call out during the quarter as well? Thank you. Sure.

It is fun, Paul, to get a question in the quarter where we did that well. What you're seeing is something that I think both Jason and I have committed to from the very beginning is once we lapped six zero six and some of the things that affected our balance sheet because of that, you're seeing work its way through. So yes, the cash flow this quarter, even net cash flow after CapEx, but even cash flow from operations was very, very favorable. And some of that you saw was from us reducing some of our working capital, getting contract assets down and receivables being pretty steady. So going forward, as I've often said, our businesses, to this topic, is pretty straightforward to the extent that we think of our ability to generate net earnings translating very heavily into the ability to generate cash flow.

It's just that sometimes, from a timing standpoint, it doesn't always line up in a particular quarter. So this quarter was a good affirmation of that statement. And going forward, yes, we'll continue to probably be a little bit more cautious about CapEx than we were before COVID-nineteen hit, and that's just natural. We're in an environment where we want to look carefully at all those investments that we make.

Speaker 1

Thank you.

Speaker 0

Your next question will come from Jim Goss with Barrington Research.

Speaker 4

Thanks. I'm wondering if the pandemic is providing any window or cover for you to secure some additional Dolby Cinema deals in various markets. To the extent that Dolby has a certain consumer facing element, it might maybe benefiting such as some of some of the number of companies that have done better than others in in the downturn. And I think you held up well and does this give you some opportunity domestically or internationally?

Speaker 3

Well, first of all, Jim, we are, you know, we do believe that once cinemas reopen that people are gonna want to have the best experiences. And Dolby Cinema, we believe, is the best experience available. I think in terms of opportunities to expand the footprint, it really, right now, depends a lot region by region, partner by partner, and what their individual circumstances are. I'm sure you won't be surprised to hear that many of them are currently holding back on any form of capital investment. We did, as I said, add our second partner in Saudi Arabia.

We opened our first screen in South Korea, which we're excited about. So we'll look for those opportunities. But right now, we're keeping in touch with our partners and what their reopening plans are. Like I said, that really I think this is a point in time where more than ever, I really can't generalize on that front because it really depends on their individual circumstances.

Speaker 1

Okay. And if you if

Speaker 4

you look at the mix issue in in terms of licensing revenues, mobile certainly, you know, reign supreme in the quarter. I'm wondering, yes, MPC, so they're relatively well vis a vis the others. Are you thinking those sort of types of trends you've developed in this quarter would be sustainable into the fourth quarter? Or do you think any of the other categories may experience a better pickup than was the case in this quarter?

Speaker 3

Well, I'll let Louis comment on any trends about this quarter and the guidance. But I will say that mobile continues to be an area of strong focus for us. And as you know, we have Dolby Vision and Dolby Atmos included throughout Apple's ecosystem. We have a number of high end devices for Dolby Atmos in a number of Android devices. And most of that was on the initial push from our presence in streaming of movies and television.

A big reason for the focus we have on initiatives like music content and as well as gaming content is to bring more experiences to those devices, the types where people are spending time. And that will increase the value of partners, for the partners that have already adopted Dolby Vision and Dolby Atmos, but we also think that that has the potential to bring us into a much broader category of devices.

Speaker 2

And then to your quantitative question, Jim, just to reiterate, the assumption we've made in the scenario we've painted for Q4 is, broadly speaking, a 5% uptick in volume plus or minus across all categories. If we look back at what we saw in Q3 as maybe some indicators of that, I think I said that PCs and mobile were a little better than, say, set top boxes and consumer electronics, and there's some natural dynamics for that, not the least of which is what kinds of things can people more easily or more readily buy without having to go into a store? Because as we can see from all the news around us, that shutdowns are still pretty prevalent in the sense that there's not a lot of heavy traffic going into stores. And so that will be something for you to think about in your modeling as you look at Q4, what you think about those factors. But we didn't break down to five, so that's probably as much as I can add in terms of color vis a vis your question about PC and mobile reigning supreme and whether those trends will continue.

Speaker 4

All right. Thanks very much.

Speaker 0

That will conclude today's question and answer session. I'd like to turn the conference call over to Kevin Yeaman for any additional or closing remarks.

Speaker 3

Well, want to thank everybody for joining us today. And we look forward to keeping you updated on our progress. Thank you.

Speaker 0

That will conclude today's conference. Thank you for your participation. You may now disconnect.