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Edited Transcript of DLB earnings conference call or presentation 26-Apr-17 9:00pm GMT

Thomson Reuters StreetEvents

Q2 2017 Dolby Laboratories Inc Earnings Call

SAN FRANCISCO May 8, 2017 (Thomson StreetEvents) -- Edited Transcript of Dolby Laboratories Inc earnings conference call or presentation Wednesday, April 26, 2017 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Elena Carr

* Kevin J. Yeaman

Dolby Laboratories, Inc. - CEO, President and Director

* Lewis Chew

Dolby Laboratories, Inc. - CFO and EVP

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Conference Call Participants

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* Paul Chung

JP Morgan Chase & Co, Research Division - Analyst

* Michael Joseph Olson

Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

* Patrick William Sholl

Barrington Research Associates, Inc., Research Division - VP

* Ralph Schackart

William Blair & Company L.L.C., Research Division - Partner and Technology Analyst

* Steven B. Frankel

Dougherty & Company LLC, Research Division - VP and Senior Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories Conference Call discussing Fiscal Second Quarter Results. (Operator Instructions) As a reminder, this call is being recorded, Wednesday, April 26, 2017. I would now like to turn the conference call over to Ms. Elena Carr, Director of Corporate Finance and Investor Relations for Dolby Laboratories. Please go ahead, Elena.

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Elena Carr, [2]

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Good afternoon. Welcome to Dolby Laboratories Second Quarter 2017 Earnings Conference Call. Joining me today are: Kevin Yeaman, Dolby Laboratories' President and CEO; and Lewis Chew, Executive Vice President and Chief Financial Officer.

As a reminder, today's discussion will include forward-looking statements. These statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. A discussion of some of these risks and uncertainties can be found in the earnings press release that we issued today under the section captioned Risk Factors, as well as in our most form -- recent report on Form 10-K. 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 on our earnings press release and in the Dolby Laboratories Investor Relations data sheet that's posted on the Investor Relations section of our website. As for the content of this call, Lewis will begin with a recap of our fiscal results and provide our fiscal 2017 outlook, and Kevin will finish with a discussion of the business. So with that introduction behind us, I will now turn this call over to Lewis.

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Lewis Chew, Dolby Laboratories, Inc. - CFO and EVP [3]

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Thank you, Elena. Good afternoon, everyone. So our Q2 revenue came in at $267 million and that was within our guidance range for the quarter but it was below our midpoint. This was mainly due to some licensing revenue that we are receiving in the early part of Q3 instead of Q2 and since this is just a matter of timing between quarters, we are maintaining our full-year 2017 revenue range at the same level that we guided last quarter. I'll go over more details on the outlook in a few minutes, but first, let me continue with the Q2 results.

As I said, Q2 revenue was $267 million, of which $242 million came from licensing and $25 million came from products and services. Here's a breakdown of licensing by the different markets that we serve.

Broadcast represented about 44% of total licensing in the second quarter. Revenues in this market were essentially flat compared to Q1 as we saw increased volume in TVs and set-top boxes but these were offset by lower recoveries. Broadcast year-over-year was down about 4% due mainly to lower recoveries which were offset partially by higher volume in set-top boxes.

PC comprised about 15% of total licensing in the second quarter. PC was up sequentially by about 8%, but down year-over-year by about 11%. The increase over Q1 was really driven by some seasonally higher volume, while the decrease over last year was due to some timing of revenue as well as lower recoveries.

Mobile devices represented about 11% of licensing revenue in the second quarter and mobile increased sequentially by about 14% due to seasonally higher volume, but on a year-over-year basis, mobile was up just slightly.

Consumer electronics in the second quarter represented about 15% of total licensing. Consumer electronics licensing was up sequentially by about 34%, due mainly to seasonally higher volumes and year-over-year consumer-electronics were up about 2% due to higher revenue from DMAs and from home theater equipment.

Licensing revenues in other markets represented about 15% of total licensing in the second quarter. They were down sequentially by about 14% as Q1 had the benefit of 2 items that made it a tough comparison: one, we had higher recoveries in Q1 in automotive; and 2, we had some higher-than-normal revenue from gaming consoles in Q1 as stores were stocking up early for the holidays and we normally see this in Q2.

Other markets year-over-year was up slightly as we saw increases in Dolby Cinema and auto, which were offset partially by lower recoveries and the lower gaming because of the volumes that came in Q1 instead of Q2 that I just mentioned a second ago.

Products and services revenue was $25 million in Q2, which was about the same as last year's Q2 but below the $34 million in Q1, which clearly had the benefit of higher theater upgrade activity in preparation for the holiday movie season.

I will now move on to margins and operating expenses. Total gross margin in the second quarter was 89.9% on a GAAP basis and 90.9% on a non-GAAP basis. Product gross margin on a GAAP basis was 32.5% in the second quarter compared to 37.2% in Q1. Product gross margin on a non-GAAP basis was 39.6% in the second quarter compared to 42.6% in Q1.

Operating expenses in the second quarter on a GAAP basis were $177.2 million compared to $170.2 million in the first quarter. Operating expenses on a non-GAAP basis were $160.1 million in Q2 compared to $151.8 million in the first quarter.

Operating income. Operating income in the second quarter was $63.3 million on a GAAP basis or 23.7% of revenue and $83 million on a non-GAAP basis or 31% of revenue. The effective tax rate for the second quarter was 23.4% on a GAAP basis and 24.1% on a non-GAAP basis. Net income in the second quarter was $50.6 million on a GAAP basis or 18.9% of revenue and was $65.1 million on a non-GAAP basis or 24.3% of revenue. Diluted earnings per share in the second quarter on a GAAP basis were $0.49 compared to $0.51 in the first quarter and $0.66 in Q2 of last year. On a non-GAAP basis, second quarter diluted earnings per share were $0.63 compared to $0.66 in Q1 and $0.82 in Q2 of last year. During the second quarter, we generated $88 million in cash from operations and ended the quarter with over $1 billion in cash and investments. We bought back about 520,000 shares of our common stock in Q2 and we ended the quarter with a little over $200 million of stock repurchase authorizations still available.

We also announced today a cash dividend of $0.14 per share, payable on May 16, 2017, to shareholders of record on May 8, 2017.

So let's move on to the forward outlook. We estimate that total revenue in Q3 will range from $290 million to $305 million. Within that, we estimate that licensing revenue will range from $265 million to $275 million. While products and services revenue is expected to range from $25 million to $30 million. Gross margin in the third quarter is projected to range from 88% to 89% on a GAAP basis and 89% to 90% on a non-GAAP basis. Operating expenses in the third quarter are projected to range from $176 million to $180 million on a GAAP basis and from $158 million to $162 million on a non-GAAP basis.

Other income in the third quarter is projected to be around $2 million and our effective tax rate for the third quarter is estimated to range from 24% to 25% on both a GAAP and non-GAAP basis. Based on the combination of the factors I just went over, diluted earnings per share in the third quarter are projected to range from $0.61 to $0.67 on a GAAP basis, and from $0.75 to $0.81 on a non-GAAP basis.

For the full year, FY '17, we are maintaining our revenue outlook at the same levels we guided last quarter, which is a range from $1,060,000,000 to $1.1 billion for the year. Within that, we estimate the revenue from licensing will range from $950 million to $980 million, while products and services will range from $110 million to $120 million.

As a reminder, key factors baked into our outlook are: We've got a growth from new revenue initiatives such as Dolby Cinema, Dolby Voice and consumer imaging programs along with higher revenue from mobile and this is partially offset by declines in PCs, DVD Blu-ray and home theater equipment. Broadcast could be relatively flat this year. We anticipate lower recoveries coming off a stronger than typical FY '16 and these lower recoveries are offsetting other growth drivers in broadcast.

Here's the rest of the full year outlook. Gross margin is expected to range from 88% to 89% on a GAAP basis and about 1 point higher on a non-GAAP basis. Operating expenses are projected to range from $696 million to $706 million, let me repeat that $696 million to $706 million on a GAAP basis, and from $625 million to $635 million on a non-GAAP basis. Nonoperating income should be $7 million to $9 million on both a GAAP and non-GAAP basis and the effective tax rate is estimated to range from 24% to 25%.

So that's it for the numbers. I'll now turn it over to Kevin.

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Kevin J. Yeaman, Dolby Laboratories, Inc. - CEO, President and Director [4]

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Thank you, Lewis, and good afternoon, everyone. We continued to gain momentum this quarter in bringing our new audio-visual experiences to market. We expanded our Dolby Cinema footprint and added Reel Cinemas as a partner in the Middle East. We announced with LG the first smartphone with Dolby Vision. And we added 2 new Dolby Voice partners, West Unified Services and Bluejeans.

We also continue to focus on expanding our leadership in audio entertainment solutions and I'm going to start there. A big part of our success is our ability to evolve the Dolby Audio platform. Even as Dolby Digital Plus adoption is growing across our major markets, AC-4, our next-generation audio technology is gaining early traction. AC-4 is twice as efficient as Dolby Digital Plus and offers compelling new features. AC-4 is now included in both the ATSC 3.0 and DVB digital television standards and while implementation takes time, key partners like Samsung, LG, Sony and VIZIO have already announced the adoption of AC-4 in televisions.

We continue to make great progress in expanding the presence of Dolby Atmos, our immersive audio experience. In the cinema, Dolby Atmos is now installed or committed in nearly 2,800 screens with about 700 Dolby Atmos titles announced or released. Last quarter, the first Dolby Atmos TVs were announced by LG and Xiaomi and a number of Dolby Atmos sound bars were also announced at CES. This quarter, we saw many of these products launched in the market. There are now 7 Dolby Atmos sound bars on the market, and we expect several more to launch in the near term. This quarter, Nokia announced its first smartphone with Dolby Atmos, the Nokia 6. Dolby Atmos can be found on a number of mobile devices from partners like Amazon, Lenovo and Nokia. I'm excited to see continued expansion in the ways that consumers can experience Dolby Atmos at home both simply and affordably.

So let me turn to our new initiatives starting with Dolby Cinema. We saw continued momentum in the adoption of Dolby Cinema, which combines the most powerful imaging and audio technologies to deliver the ultimate cinema experience. Our newest partner, Reel Cinemas, plans on opening multiple Dolby Cinema locations across its portfolio in the Middle East. One of the first sites will be their flagship location at the Dubai Mall. Reel Cinemas joined a growing list of partners for Dolby Cinema, which includes AMC in the United States, Wanda and Jackie Chan in China, Cineplexx in Austria and Vue in the Netherlands. The number of Dolby Cinema locations has grown rapidly over the past year as we now have over 90 Dolby Cinemas in operation, and this compares to about 20 a year ago. We expect to surpass 100 screens soon and have over 140 by the end of the year.

In total, we have over 325 Dolby Cinema locations open or committed around the world. The content pipeline for Dolby Cinema continues to grow with about 25 additional titles since I updated you last quarter. So there are now 85 titles with Dolby Vision and Dolby Atmos announced or released, and recent releases include the Fate of the Furious and Beauty and the Beast. The reception we are getting from the industry and consumers is outstanding and we look forward to working with our partners to make the best movie going experience more broadly available.

Let me turn to Dolby Vision. The first smartphone with Dolby Vision was announced in February at Mobile World Congress. LG's flagship G6 features Dolby Vision and is available now with content support from our partners at Netflix and Amazon video. This marks a key milestone towards expanding Dolby Vision beyond the living room. Last quarter, we announced additional TV OEM partners at CES including Sony and Philips and the first Dolby Vision UHD Blu-ray players from LG, Philips and OPPO. We expect our newest TV partners to start shipping soon and Dolby Vision Blu-ray players will be on the market in the next few months. LG's 2017 TV lineup that features both Dolby Vision and Dolby Atmos is now shipping globally. Our Dolby Vision ecosystem continues to grow and we look forward to building on this momentum.

Finally, let's talk about Dolby Voice, our audio technology, which brings the feel of in-person meetings to audio and videoconferencing. In addition to going after the traditional audio conferencing market, we are increasing our presence in the growing videoconferencing market. BlueJeans is our newest Dolby Voice partner. BlueJeans is a leading video meetings platform and Dolby Voice will be integrated into both the BlueJeans Huddle and BlueJeans on video offerings this spring. Our integrated solutions with BlueJeans and Highfive positions Dolby Voice to provide great experiences in the huddle room, which is a rapidly growing market.

Also this quarter, we announced and launched a partnership with West, the world's largest audio conferencing services provider. West joins PGi and BT in making Dolby Voice available in audio conferencing services globally.

Overall, we are significantly expanding the availability of Dolby Voice during 2017 and are focused on driving adoption of Dolby Voice and the Dolby Conference Phone.

So let me wrap up. During the quarter, we continued to strengthen our leadership position in audio entertainment and momentum is growing with the new experiences we have brought to market. We have added a new partner for Dolby Cinema and now have over 90 locations open. More Dolby Vision TVs have come to market and the first smartphone with Dolby Vision has just been launched. And we are significantly expanding the availability of Dolby Voice by adding 2 new partners this quarter. All of this creates opportunities for increased revenue growth and broadens the number of people that will enjoy Dolby audiovisual experiences. I look forward to updating you next quarter, and with that, we will turn it over to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Mike Olson with Piper Jaffray.

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Michael Joseph Olson, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [2]

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I have 2 questions, if I could. On Dolby Cinema, you've had a lot of success getting Dolby Cinema deals outside the U.S. You talked about another one here today and I realize you have AMC in the U.S. and that's an important and significant deal as well. But would you say that you're having more success internationally as far as kind of convincing peer groups that it's going to be significantly incremental? And if so, why do you think that's the case? If not, that's okay, too.

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Kevin J. Yeaman, Dolby Laboratories, Inc. - CEO, President and Director [3]

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Well, we are very pleased with our success internationally and adding another partner this quarter. We're also really pleased with our success in the U.S. and, I mean, if you remember, when we first signed on with AMC, it was for 100 screens over 7 years. And we're now targeting together 100 screens by the end of calendar '17 and 160 by the end of calendar '18. So our focus is on rolling those out, making them successful, and so far, the results are very positive.

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Michael Joseph Olson, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [4]

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All right, then in Dolby Voice, I think most investors put that as kind of a distant third as far as potential impact of the model over the long-term compared to Dolby Vision and Cinema. Is that how you look at it internally? Or could Dolby Voice be a significant driver as well?

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Kevin J. Yeaman, Dolby Laboratories, Inc. - CEO, President and Director [5]

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Sure. Internally, we see Dolby Voice as a contributor to our future revenue growth. We believe -- here's an example of us moving into a new group of customers in the communications market, and we're focused on expanding the availability of Dolby Voice. As a reminder, it's deeply integrated into the services that we partner with. And then once we do that, we have the opportunity to grow adoption of the service, sell-through the Dolby Conference Phone. One of the significant developments this quarter, which I mentioned, is the audio conferencing market, of course, it's one that we have significantly increased our presence in with West, which is the largest provider. This is a market where most every large company has a solution today so the opportunity to sell the phone is about replacements and upgrading it based on increased quality of that -- of our service, which is getting really good reviews. The other significant result of this quarter is that with BlueJeans and our existing partner Highfive, that really expands our presence into the huddle room, which is a market that is experiencing a lot of growth and we think that will grow significantly in the future. So we're really excited about both the extended presence and going more directly into the videoconferencing huddle room context.

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Operator [6]

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Our next question comes from Steven Frankel with Dougherty & Company.

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Steven B. Frankel, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst [7]

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I want to revisit the timing issue around license revenue a little bit. And that's not something we typically see with Dolby. Was -- does this have to do with the recovery that's just is coming in later or is this something in traditional license business?

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Lewis Chew, Dolby Laboratories, Inc. - CFO and EVP [8]

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Steve, this is Lewis. There's something more specific your pointing to, or do you want me to just comment on what I said about the quarter?

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Steven B. Frankel, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst [9]

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Yes, I just want a comment on whether this was a recovery where the timing differed from your initial plan or is this some of kind of change in a customer relationship that affects the timing of [ revenue? ]

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Lewis Chew, Dolby Laboratories, Inc. - CFO and EVP [10]

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So the timing of revenue, the things I mentioned in my prepared remarks do not have to do with recoveries. They do have to do with the fundamental timing of when we would say historically, you've have seen our revenue versus this year. So it is true that last year, we saw some revenues in Q2 that this year we'll effectively see in Q3 and it's not related to recoveries.

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Steven B. Frankel, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst [11]

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So I guess, I'll try to dig a little deeper. Is that because the customers' business seasonality has changed? Or something's changed like we experienced a quarter or 2 ago where the customer changed their payment terms from paying every quarter to paying semiannually? I don't remember exactly the details. (inaudible)

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Lewis Chew, Dolby Laboratories, Inc. - CFO and EVP [12]

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Yes, it's more related to contractual arrangements than it is related to the movement of the actual PC market if that answers your question.

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Steven B. Frankel, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst [13]

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Yes (inaudible)

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Kevin J. Yeaman, Dolby Laboratories, Inc. - CEO, President and Director [14]

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And Steve, in the big picture here, our guidance for the year holds. The first half of the year, we grew just about 4%, first half over first half. At the midpoint, we're growing about 6%, second half over second half. And I guess, in many ways, the licensing business seems like a smooth business, but the reality, like everything else, it has -- it can be lumpy. We've got a very diversified business which tends to even out, in this quarter, we just came up a hair shy at midpoint but within our guidance and we feel good about our guidance for the year.

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Steven B. Frankel, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst [15]

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Okay, enough about that. But maybe I'll steal one more here. Kevin, maybe you could address HDR 10 plus and how, if at all does that impact the opportunity around Dolby Vision? And also on Vision, what needs to happen to start to see Vision in the live content environment as opposed to what we have today with movies and episodic television?

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Kevin J. Yeaman, Dolby Laboratories, Inc. - CEO, President and Director [16]

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Sure. So Samsung's HDR 10 plus format brings metadata into play. And, of course, we have been advocates for and have included metadata in our solution since the very beginning. And it's an important part of how we offer the highest quality, the most flexibility and the ability to adapt in real time to the capabilities of the device, on which the consumer is enjoying this content. Now, of course, the metadata itself is one piece of a much larger ecosystem that we brought together to be able to support an ecosystem that includes multiple manufacturers, multiple content providers and that's why you've seen the momentum we had over the last year. We have about 10 television partners, we now have our first smartphone partner and I think that live television, a great example of another context that requires a lot of tools and support around the fundamental format. That's an area where we're absolutely doing the work with the name of bringing Dolby Vision to live television. As a point of comparison, Dolby Atmos came out before Dolby Vision. Last quarter, we announced that BT was going to begin broadcasting live Dolby Atmos to its football games, soccer games, and so that happened. They've already broadcast 40 matches in Dolby Atmos and they've already decided to expand to another use case, which is boxing. So it's a natural -- the point being is that there's a natural migration. We start with the preproduced content, if you will, and then bring up the ecosystem for live content and, yes, we are hard at work at that right now.

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Lewis Chew, Dolby Laboratories, Inc. - CFO and EVP [17]

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Steve, this is Lewis again, you can't tell, I know I sound a lot like Kevin. I will come back to your timing question because it occurs to me that I mentioned it twice in the call. So the first thing I mentioned was the comment about not hitting midpoint for this quarter. So that related actually to some newer revenue streams that we're getting. So it has nothing to do with last year. That's revenue that we try to anticipate, whether it comes in Q2 or Q3, I don't particularly care. But I made a comment in PC about it being down year-over-year because of timing and that was the specific question I was answering to you earlier, which is last year, we had some PC revenue falling in Q2 which sort of will fall in Q3 of this year. So those are the 2 things. I just want to make sure not only for you but for everyone listening on the call that they're clear on that. That the first opening comment I made about not hitting midpoint was some newer revenue, which we definitely see coming in in the first part of this Q3 already. So it didn't bother me at all.

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Operator [18]

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Your next question comes from Paul Chung with JP Morgan.

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Paul Chung, JP Morgan Chase & Co, Research Division - Analyst [19]

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So Lewis, you mentioned in the past over 100 screens would provide better clarity on unit economics on Dolby Cinema? And since we're almost there, can you share any details? And how do those economics differ domestically versus in China and internationally?

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Lewis Chew, Dolby Laboratories, Inc. - CFO and EVP [20]

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Yes. So we are getting closer to 100 screens and I will live up to my commitment of providing more detail on this Cinema business. I'm not sure I said exactly when we got to 100 screens, but I am happy that our CEO said in his prepared comments that 100 is right around the corner. So we are getting closer. As you can imagine, Paul, even at the 100 screens it takes a while to get to the point where they are all generating a full year worth of revenue sale. Maybe a little bit of patience. But right now, all I can say is that we do plan to break some of that out when it gets more significant and that we're really -- we're making really good progress and we are very encouraged by the economics on this business. But beyond that, I don't have a lot more detail to share with you right at this moment, okay?

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Paul Chung, JP Morgan Chase & Co, Research Division - Analyst [21]

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Okay, so you can't mention domestic versus international at all?

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Lewis Chew, Dolby Laboratories, Inc. - CFO and EVP [22]

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Let me make a general comment, not just for you but for the whole audience. In general, I'd say that we have a business approach to this business that's similar to our other businesses, do not necessarily vary dramatically by region, but they can vary by customer. So like in any relationship, you can have a customer with higher volume and one with lower volume and that may change some of the economics. That's normal business. But I would not say right now that there's necessarily a distinction per se between international versus domestic. I think we'll need more time to see whether or not that shakes out.

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Paul Chung, JP Morgan Chase & Co, Research Division - Analyst [23]

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Okay, and then on the mobile segment, can you expand on the opportunity for Vision and Atmos in smartphones? And is there a possible battery consumption benefits for Vision? And (inaudible) expect more OEMs to adopt?

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Lewis Chew, Dolby Laboratories, Inc. - CFO and EVP [24]

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Sure. So as I said, we added another Dolby Atmos provider on the phone this quarter with Nokia and we're really excited that LG is the first to adopt Dolby Vision on the smartphone. Hopefully, you've seen that they're running a national advertising campaign, which includes Dolby Vision there. And I've said that we believe that any entertainment screen can benefit from what we're doing with Dolby Vision and so we're happy to have this first example of how great it can be. To your question on battery consumption, it's true that an OEM can choose to avail themselves of this technology to max out the video quality, or they can choose to also have features that employ its power to also benefit power consumption. And actually, because of the way we implement -- because of the way our Dolby Vision technology works, the power consumption is 10% lower than other [ both ] HDR and SDR formats in the market.

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Operator [25]

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Your next question comes from Ralph Schackart with William Blair.

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Ralph Schackart, William Blair & Company L.L.C., Research Division - Partner and Technology Analyst [26]

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Kevin, last quarter, I think you've talked about being on roughly about a 1/4 or so ultra-high-def TVs by the holiday season this year. Just curious if that's still sort of a good sort of framework to think about? And then maybe you can sort of give us some thoughts in terms of how you see that penetration rate going forward beyond the 2017 season?

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Kevin J. Yeaman, Dolby Laboratories, Inc. - CEO, President and Director [27]

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Sure. So I actually sharpened my pencil after that question, Ralph, because I've come to learn that a lot of people have a lot of definitions of what premium means. So what we honed in on, which is what we found at least frequently and perhaps most often used in the market is UHTVs over $750 price point, and at that level, we actually think that we will exit the calendar year at around 50% of that premium TV market. And beyond that, a real focus of ours, of course, is then moving from those premium televisions to the next lines and it's obviously too early for me to speak to what any individual customers' plans might be, but that's our focus. That's what of course broadens the volume of televisions that we can make a difference to. And then of course, again, with LG now offering a smartphone with Dolby Vision, we will, of course, continue to pursue use cases beyond the TV and all of those are areas that we would expect ourselves to make progress on going into 2018.

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Ralph Schackart, William Blair & Company L.L.C., Research Division - Partner and Technology Analyst [28]

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Great. One more if I could. Can you maybe just give us a sense of how you would frame the mobile device market just because you have LG today with Vision, clearly tremendous amount of unit volumes, but I'm guessing the unit economics are lower than TVs, contrast by lower unit volumes, and by my estimate, much higher ASPs within the TV market?

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Kevin J. Yeaman, Dolby Laboratories, Inc. - CEO, President and Director [29]

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Yes, I mean look, it's not dissimilar to what we would see in audio space as far as that goes. We've got $1 billion-plus device market, and hundreds of millions in market. I think the key to where we are right now is that we now have in market a smartphone available, which shows how great Dolby Vision can be. That also begins getting the ecosystem going because we're already on the day of launch, we have content partners who are sending Dolby Vision content to those smartphones and so I think, for now, we view it as a great progress that we've shown. We have the opportunity now to show the relevance to this use case. And then what I expect in mobile devices is the same as what we're seeing in TVs and the same as what we've seen with Dolby Atmos in mobile devices, which it will start in the high end and we'll, of course, then look to bring it more broadly.

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Operator [30]

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Your next question comes from James Goss with Barrington Research.

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Patrick William Sholl, Barrington Research Associates, Inc., Research Division - VP [31]

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This is Patrick Sholl for Jim Goss. Regarding Dolby Cinema, I was just wondering how nimble you guys are able to be with what film is showing on the screen? Making sure that, I guess, the most optimal film is playing on a specific weekend. If you could speak to your relationships with the studios in that regard?

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Kevin J. Yeaman, Dolby Laboratories, Inc. - CEO, President and Director [32]

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Sure. So the exhibitor is -- still retains the control over what is going to be shown when. But they do have a lot of flexibilities as it relates to the Dolby Cinema proposition. First of all, we've -- as I said earlier, we added 25 titles, that's 85 so far since the beginning of the program. It was 9 out of the 10 top box office leaders last year. We -- just to be clear, we don't have any required minimum playing time or those kinds of things. So they have flexibility and they're exercising it and they're getting a lot of value from that. So it's a very common that on a weekend, you might see one movie playing at Dolby Cinema in the afternoon, a different one in the evening and they can be very flexible about how they move those bookings around.

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Operator [33]

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(Operator Instructions) Our next question is a follow-up from Steven Frankel with Dougherty & Company.

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Steven B. Frankel, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst [34]

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Lewis, could you remind me what CapEx is likely to be for the year for the core business? In other words, exclude cinema, just what's the normal CapEx for the business today?

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Lewis Chew, Dolby Laboratories, Inc. - CFO and EVP [35]

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Yes. I'd say this is similar to what I've said in the past and I've been asked this in other forms is our typical maintenance capital for the year, probably $30 million to $35 million a year, that's where we typically run. And in the last couple of years, it's been kind of noisy because we've been doing some construction projects, but those are largely done. But going forward it's that maintenance capital and the Dolby Cinema initiative, which consumes most of our capital expenditures today.

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Operator [36]

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And it appears there are no further questions at this time. I would like to turn the conference back to Kevin Yeaman for any additional or closing remarks.

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Kevin J. Yeaman, Dolby Laboratories, Inc. - CEO, President and Director [37]

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Great. Well, thank you. Thank you all of us for joining us today and we look forward to keeping you posted on our progress. Thank you.