Dolby Laboratories, Inc. (NYSE:DLB) Q4 2022 Earnings Call Transcript November 17, 2022
Dolby Laboratories, Inc. misses on earnings expectations. Reported EPS is $0.54 EPS, expectations were $0.6.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories’ Conference Call discussing Fiscal Fourth 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, Thursday, November 17, 2022. I would now like to turn the conference over to Ashley Schwenoha, Senior Manager, Investor Relations for Dolby Laboratories. Please go ahead, Ashley.
Ashley Schwenoha: Good afternoon. Welcome to Dolby Laboratories fourth quarter 2022 earnings conference call. Joining me today are Kevin Yeaman, Dolby Laboratories CEO; Robert Park, CFO; and Maggie O’Donnell, Head of Investor Relations. As a reminder, today’s discussion will include forward-looking statements, including our first quarter and fiscal 2023 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 current macroeconomic events, COVID-19, supply chain issues, inflation, 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-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 non-GAAP financial measures. A reconciliation between GAAP and non-GAAP financial measures is available in our earnings press release and in the new Interactive Analyst Center on the Investor Relations section of our website. So, with that introduction behind us, I will now turn the call over to Maggie.
Maggie O’Donnell: Thank you, Ashley, and thanks, everybody, for joining us today. So last quarter, we tried something different with the format, and it seemed to be really well-perceived, so we’re going to try to do the same thing today. I’m going to be leading our conversation with both Kevin and Robert, and then we’re going to turn it over to our analysts for Q&A. So, let’s get started. Kevin, obviously, this is a really dynamic environment. Can you talk about that and how it’s impacting our business?
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Kevin Yeaman: Yes. The past year, and for that matter, the last few years have been a challenging environment. I don’t think that’s news to anybody. It’s a combination of the pandemic, geopolitical issues, supply chain inflation, all of this has come together to create an environment of uncertainty and change. And most of the industries we serve have been significantly impacted by some combination of these factors. As it relates to this quarter, it continues to be a tough environment, and our results did come in lower than what we expected. Since we last talked, the estimates for consumer device shipments have continued to come down across a number of categories, particularly in PC and TV. And transaction cycles are taking longer right now.
We’re in an environment with a lot of challenges that affect not just us, but our partners and our customers. And so our customers, both current and potential continue to be engaged, but we’re seeing some of those engagements taking longer. At the same time, we’ve accomplished a lot over this quarter and over this last year, and we’re making progress in our key focus areas. We continue to strengthen our movies and TV ecosystem. We had significant growth with Dolby Vision and Dolby Atmos in terms of increased content across services and streamed content, and we’ve expanded across all the device categories that people use to enjoy their favorite movie and TV content. We have fantastic momentum across the Dolby Atmos Music ecosystem. We have more artists, more studios on board.
The amount of music and Dolby Atmos continues to expand and we have more ways for people to enjoy that music across streaming services and devices and increasingly their car. And we’re building out our ecosystem for user-generated content, which this is what enables a growing number of consumers to capture and share their memories in Dolby Vision across their favorite platform. So, our strategy has not changed and we’re confident in the opportunity ahead and consumers have a seemingly insatiable demand for entertainment content. We’re hard at work to bring the Dolby experience to all the ways consumers experience that content, whether it’s movies, TV, gaming, sports, music, user-generated content and all the devices that those experiences are enjoyed on.
We also see audio/video content and the ability to interact digitally in audio/video, increasingly become a part of everything we do online. And with Dolby.io, we can improve these experiences and bring Dolby to a far wider range of used cases. So, while there are near-term headwinds, we’re staying focused on what we can control and we’re confident in the opportunity ahead.
Maggie O’Donnell: Great. That’s great context. Let’s talk a little bit about the revenue drivers. So, over the last year, you’ve been talking about revenue drivers in the context of both foundational and Dolby Atmos, Dolby Vision, Dolby Imaging — or sorry, imaging patents. Can you start with foundational?
Kevin Yeaman: Yes. And maybe as a reminder for people who might be new or newer to the story, our foundational audio revenues are made up of our audio codecs and audio patents and these technologies are deeply embedded in the ecosystem for entertainment audio and they’re delivered across a broad diversity of consumer devices. And we’re included on such a significant number of those devices that this part of the business is sensitive to the macroeconomic environment, especially as it relates to consumer device shipments. So, for this year, foundational was down nearly 15% and ended up at roughly 70% of our licensing revenues. And while macro challenges continue to make it difficult to predict the near-term, based on current data points, we’re expecting foundational to be down again in FY 2023.
And — but it’s important to note that these technologies are fundamental to the playback of content, they have been for decades and they will continue to be for years to come. And this is a strong position to be in. We’re going to continue to strengthen it. And once the end markets stabilize, we expect that foundational revenue will continue to be a contributor to our growth.
Maggie O’Donnell: Makes sense. And what about Dolby Atmos, Dolby Vision and imaging patents?
Kevin Yeaman: Revenue from those areas grew roughly 30% versus last year. That is a little bit slower than we expected as of the last call. I said these areas are not as sensitive to the macro environment as foundational. It’s more about getting on more of the devices with these relatively more technologies, more devices that are shipping, but they’re not immune to the macro. The largest growth driver, what drove the 30%, one of the largest growth drivers was movie and TV content. We’ve built this incredible ecosystem of content around Dolby Vision and Dolby Atmos, and that’s led to broad adoption by content services. And so we’re seeing growth in living room devices like TVs, set-top boxes, sound bars and beyond. We also saw strong growth in Dolby Cinema as the box office began to improve from the pandemic lows and we also had a lot of progress beyond that.
We’re — we’ve laid the foundation for new ways to experience Dolby and laying the foundation for new growth in areas like music and automotive, user-generated content with Dolby Vision Capture. We’re always looking for ways to bring Dolby to new experiences. So, the opportunity ahead of us is significant. We are confident that we have the opportunity to double the size of these revenues in the mid-term, and we’re targeting 15% to 25% annual growth over the next three to five years.
Maggie O’Donnell: Got it. So, we’re going to let Robert talk a little bit more about revenue in a few minutes. But first, let’s dive into the three main focus areas that you mentioned at the beginning. First, the movies and TV ecosystem in the living room, there’s music and auto, and there’s also the user-generated content with Dolby Vision Capture. So, can we start with the living room?
Kevin Yeaman: Yes. Well, with movies in TV, like I said earlier, we have very strong adoption across the creative community and great distribution across content services. And all of that means that it’s easier than ever to access your favorite content in Dolby. We firmly established Dolby Vision and Dolby Atmos as the best way to enjoy movies in TV, and we have broad adoption across premium 4K models. And of course, we began to move this deeper into lineups. And that’s what we’re going to be focused on expanding more deeply into lineups like we’ve done with partners such as Sony and VIZIO. It also means pursuing remaining partners, and that includes the house brands, the big box retailers, that makes up part of the market. So, we are also focused on — we’re always looking for ways to become a part of more of the content that people care most about.
And a great example of that is live sports. There’s a few examples of content that bring out more emotion than live sport. And big events can actually drive TV purchases. So, it’s a way to bring Dolby into more living rooms. And so we’re particularly excited that Comcast announced this morning that X1 customers are going to be able to enjoy the World Cup in Dolby Vision.
Maggie O’Donnell: That’s great. That’s huge news. Let’s also let’s move on to the music and auto initiatives, what are you seeing there?
Kevin Yeaman: Well, as is the case with all of our ecosystem, it starts with content. And enthusiasm from artists, the increasing availability of mastering tools and studios means an increasing amount of music available in Dolby. Universal Music Group recently said on its earnings call that 80% of its top streaming artists have tracks available in Dolby Atmos and that makes up nearly half of streamed music consumption. They also said that 90% of consumers surveyed reported that they listen longer when they’re listening in Dolby Atmos. So, once you have the content, then it’s about the availability of the content to the consumer, and we made a lot of progress this year. We added Tencent’s QQ to our roster of streaming partners.
With Apple and Amazon, that means that we now have three of the top five global streaming services in the world. We also added a number of top regional services in markets like South Korea, the Middle East, China. And this quarter, we added Gaana.com, which is a top music streaming service in India. So, it’s that combination of content and availability, what we at Dolby refer to our ecosystem. That’s what creates the value proposition to our device partners. And we continue to see demand signals across all the ways consumers enjoy their music, but especially — we’re especially focused on automotive. And we’ve added more than half a dozen auto partners in just over a year. In just the past couple of weeks, we’ve added Polestar and Lotus at the Paris Auto Show a few weeks ago.
Mercedes was showcasing the Dolby Atmos Music experience and it got great reviews. And just last week, Volvo announced the EX90, which is the soon-to-be released electric SUV will feature Dolby Atmos. So, we’re really excited about all of that. We’re going to stay focused on bringing more streaming services to life, bringing on more auto partners, going deeper into lineups with the partners we’ve brought on board, and that’s what drives growth in this ecosystem. Our goal is to make Dolby Atmos Music the way everyone experiences music all the time.
Maggie O’Donnell: Great. That’s awesome. So, on the third focus area, Dolby Vision Capture. Can you talk about that?
Kevin Yeaman: Yes. What’s exciting about this is enabling consumers to engage with Dolby Vision content on a daily basis. And that that significantly enhances our value across the mobile device ecosystem. It started a couple of years ago when Apple introduced Dolby Vision Capture. And this year, we expanded into Android. We — last quarter, Xiaomi launched the first Android smartphone with Dolby Vision Capture in China. They launched another model with Vision Capture this quarter. And it’s often striking when we look back at our videos that we’ve taken over the years, how sometimes that older content can be a little unfulfilling. It can be washed out. The colors aren’t right. But with Dolby Vision, you get a giant leap in quality.
And you can tell things like — from the light, what time of day it was or what season was it? What was the weather? Everything looks more vivid and just like you remember it. So, this is important to smartphone makers because we all use our phones as these memory capture devices every day and the camera is a major reason that people upgrade their phone. So, we expect to see more adoption of this. And capturing the memories is one thing, well, it’s even more important to sharing them. So, that’s why we’re so excited to see the ecosystem coming together with services. In China, we have services like WeChat, QQ, Bilibili, enabling the sharing of Dolby Vision content so that hundreds of millions of users on these platforms can experience those same vivid memories.
So, this year, look for us to continue to be focused on expanding this Dolby Vision Capture ecosystem with more services and more devices.
Maggie O’Donnell: Got it. So, of course, in addition to those three main focus areas, there are a lot of other things we’re working on. One of those is Dolby.io. Can you talk about that a little bit?
Kevin Yeaman: Yes. With Dolby.io, we’ve created a platform that enables developers to create experiences that are highly immersive, and audiovisual content and interactivity are increasingly a part of everything we do online. Dolby.io makes it easy to integrate the Dolby experience into a wide range of use cases that had become a part of our everyday lives. It’s been a little over two years since we launched. We’re continuing to see strong increases in developer engagement that takes the form of developers signing up for the platform and engaging with and working with our APIs. One area we’re seeing a lot of demand is in real-time streaming. So, this is a use case that developers are looking for. So, it’s easy for them to understand.
It’s also easy for them to integrate. And our offerings differentiate it because, of course, it brings very high quality. It can scale to a very high number of users and we have exceptionally low delay times, and that’s what brings the action and the viewer closer together. So, it makes the experience as close to real-time as possible and that’s critical for a number of use cases. We’re also seeing a lot of customers that are starting with or have started with real-time streaming and then expanding to enable our real-time interaction so that the audience can interact with one another. The presenter can interact with the participants and have a conversation that flows very naturally. That’s made possible by things like our audio spatialization, which makes it easier to know where the sounds are coming from.
And with — combined with extremely low latency, you don’t have those delays that can get caused when people are talking over one another. And beyond that, we’re having a lot of conversations with companies and developers who are focused on inventing the next-generation of online immersive experiences. And the audio experience is top of mind. They are creating rich and complex environments that require high-quality audio and spatialization to be realistic to keep people in those experiences. A lot of interest in areas like virtual performance, social events, sports, big company events. Music is also top of mind. And we just talked about the momentum we have in Dolby Atmos Music. And of course, that can come into play in these worlds. But combined with spatialization, it creates the opportunity for events of virtual concert, for instance, then the audience can be having a realistic experience interacting with one another.
If it’s some kind of a social event or a company trade show, if you have background music, the music can be high quality, but you also have the realistic ambient environment. So, early days, but we’re really excited about the opportunities.
Maggie O’Donnell: So, lastly, the macro environment is obviously going to continue to be challenging. How are you planning to manage the business throughout this period?
Kevin Yeaman: Well, we always managed through many economic downturns and many technology transitions. And we’re coming at this from a position of strength given our strong business model, balance sheet, proven ability to generate cash. And we’re planning for it to continue to be a tough environment in the near-term. And so we’re going to be wise with our resources. Our headcount is roughly flat year-over-year. We’ve paused hiring except for the most critical hires and we’ve taken a number of cost savings measures. And on top of that, the management team is regularly reviewing our resource envelope and our resource allocation to make sure that we continue to be aligned to where the opportunities are. And Robert can elaborate on this further.
But we understand what it takes to go through an environment like this and come out the other side strong. For us, the formula starts with, first and foremost, staying true to who we are. Consumers have the seemingly insatiable demand for entertainment content and audiovisual experiences are becoming a pervasive part of everything we do. So, our purpose has never been more relevant, and there’s incredible opportunity to bring more Dolby experiences to more people around the world. And we’re always hard at work reinventing what that means, what it means to have a Dolby experience and bringing those experiences to the content that’s most important to them. We know that to do all this in this kind of environment requires extraordinary focus and that’s why you hear us talking about our key focus areas.
And we’ve just talked about the momentum that we have across movies and TV, music, user-generated content, bringing more developers to IO. So, we’re clear on what our most present opportunities are. We’re going to focus on what we can control, and we’re going to act with urgency to bring more Dolby experiences to more people, and that’s what grows the business.
Maggie O’Donnell: Great. Makes a ton of sense. Thanks, Kevin. And let’s now turn to some of the numbers. Robert, can you walk us through the financials for both the fourth quarter and fiscal year 2022?
Robert Park: Thanks, Maggie. Of course, let’s start with Q4. Total revenue in the fourth quarter was $278 million, which fell short of the total revenue guidance we provided on our last call. This was driven by a couple of factors. Based on what we’re seeing, including data points from industry analysts, there were further declines in consumer device shipments, especially for TVs and PCs compared to when we provided guidance in August. This negatively impacted our current quarter revenue estimate. Last quarter, we mentioned that we were seeing transaction cycles take longer in the environment, particularly in Asia and within mobile, and this had a greater impact than we expected on Q4. Now, as a reminder, our licensing business is based on unit shipments.
In general, we estimate revenues from unit shipments each quarter and trued up the following quarter based on actual reported shipments from our partners. We also have transactions that reflect revenue from units shipped in prior periods, which we call recoveries and transactions where the customer will commit to minimum volumes for a given period where all or a portion of the revenue is recognized upfront. These transactions are all related to unit shipments. The only difference is the timing and amount of revenue in any given quarter. Our partners remain actively engaged and we expect these transactions to close, but the process is taking longer. Now, let’s get into the Q4 details. Q4 revenue was down 2% year-over-year, driven primarily by lower unit shipments in PC, broadcast, CE and gaming.
This was partially offset by growth in Dolby Atmos, Dolby Vision, and imaging patents as well as an increase in products and services revenue, driven by improvements in the cinema industry. Q4 revenue comprised of $249 million in licensing revenue and $29 million in products and services revenue. Now, to our full year results. Fiscal year 2022 revenues were $1.25 billion compared to $1.28 billion in fiscal year 2021, resulting in a year-over-year decline of 2%. Within that, licensing revenue was $1.16 billion, while products and services revenue was $89 million. Fiscal year 2022 licensing revenue was $1.16 billion, down 4% year-over-year. Foundational audio made up roughly 70% of our licensing revenue in fiscal year 2022. Revenue for foundational audio declined about 15% year-over-year, primarily as a result of lower device shipments, especially in areas like broadcast, gaming, and auto and lower recoveries in broadcast and mobile.
We also had a tough comp against the higher-than-normal true-up in fiscal year 2021. Dolby Atmos, Dolby Vision, and imaging patents were about 30% of total licensing revenue. This portion of our licensing revenue grew roughly 30% in fiscal year 2022 compared to nearly 20% growth in fiscal 2021, driven by higher adoption and new licensees as well as increased box office, which positively impacted Dolby Cinema. Now, let’s get into the end markets. Broadcast represented about 37% of total licensing in fiscal year 2022. Full year broadcast revenues declined by $42 million or negative 9% on a year-over-year basis, driven by lower TV unit shipments and lower recoveries, both impacting primarily foundational audio. This was partially offset by growth in Dolby Vision and Dolby Atmos, and TVs and set-top boxes.
In Q4, broadcast revenues declined year-over-year, driven by lower unit shipments, partially offset by increases in Dolby Vision and Dolby Atmos. Mobile represented about 21% of total licensing in fiscal year 2022. Full year mobile revenues declined by $22 million or negative 9% on a year-over-year basis as the prior year benefited from timing of deals, including recoveries, partially offset by increases in Dolby Atmos, Dolby Vision, and imaging patents. Q4 mobile revenues were down year-over-year, driven by lower unit shipments. Consumer Electronics represented about 16% of total licensing in fiscal year 2022. Full year CE revenues increased by $4 million or 2% on a year-over-year basis, driven by growth in Dolby Atmos, Dolby Vision, partially offset by lower units.
Q4 CE revenues were down year-over-year, driven by lower recoveries and lower unit shipments, partially offset by growth from Dolby Vision, Dolby Atmos, and imaging patents. PC represented about 13% of total licensing in fiscal year 2022. Full year PC revenues increased by $9 million or 6%, driven by Dolby Atmos, Dolby Vision, and imaging patents and higher recoveries compared to fiscal year 2021. This is partially offset by lower PC shipments, primarily in the back half of the year. Q4 PC revenues are down year-over-year, driven by lower unit shipments, partially offset by growth in Dolby Vision, Dolby Atmos, and imaging patents. Other markets represented about 13% of total licensing in fiscal year 2022. Other markets were flat year-over-year, driven by improvements in Dolby Cinema, offset by unit declines in gaming and auto.
Q4 other markets declined driven by lower gaming units and true-ups. Beyond licensing, our products and services revenue were $89 million in fiscal year 2022 compared to $67 million in fiscal year 2021. The year-over-year increase was primarily driven by higher product sales as a result of improvements in cinema industry, and we also saw revenue growth from Dolby.io. Total non-GAAP gross margin in the fourth quarter was 87% compared to 90% in the fourth quarter of fiscal year 2021. Gross margins came in lower, driven by a higher mix of products revenue. Non-GAAP operating expenses in the fourth quarter were $182 million compared to $190 million in the fourth quarter of fiscal year 2021. Operating expenses were below the low end of our guidance for Q4, driven by lower variable incentive compensation expenses.
Non-GAAP operating income for Q4 was $60 million or 22% of revenue compared to 23% of revenue in Q4 of last year. Non-GAAP income tax in Q4 was within our range of guidance at 18% compared to 12.7% in last year’s Q4. The year-over-year increase was primarily driven by the mix of our income between different tax jurisdictions and lower discrete benefits. Net income on a non-GAAP basis in the fourth quarter was $53 million or $0.54 per share per diluted share compared to $60 million or $0.58 per diluted share in Q4 of 2021. On a full year basis, non-GAAP operating income was $376 million or 30% of revenue compared to $451 million or 35% in fiscal 2021. Full year net income on a non-GAAP basis was $320 million or $3.14 per diluted share compared to $383 million or $3.66 per diluted share in fiscal 2021.
During the fourth quarter, we generated $51 million in cash from operations compared to $110 million generated in last year’s fourth quarter. We ended the fourth quarter with just over $900 million in cash and investments. During the fourth quarter, we bought back about 2.9 million shares of our common stock and ended the quarter with about $361 million the stock repurchase authorization available going forward. We announced — also announced today a cash dividend of $0.27 per share, an increase of $0.02 or 8% compared to the prior quarter. The dividend will be payable on December 8th, 2022 to shareholders of record on November 30th, 2022.
Maggie O’Donnell: All right. So, before you get into the numbers for fiscal year 2023, how are you thinking about guidance going forward?
Robert Park: I’d start by saying We are continuing to operate in a challenging and uncertain environment. Not only is the world still dealing with repercussions from the pandemic, but there has also been supply chain imbalances, geopolitical instability, high inflation, and monetary tightening to address it, and the list goes on. Our customers and partners are similarly impacted by the uncertainty in the environment and as a result, we are seeing this impact not only unit shipments, but the timing of some transactions as we discussed earlier. Many companies who stopped giving guidance during the pandemic are still not providing guidance. All of this is to say that our visibility is limited and predicting what will happen in the next year is difficult.
With this as the backdrop, I’ll be providing a high-level scenario for FY 2023. Based on what we are seeing right now, including data points from industry analysts, we are expecting declines in consumer device shipments, particularly for TVs in North America and Europe, and globally for PC and CE. This mostly impacts our foundational audio revenue, which we project will decline mid-single-digits during the year. As Kevin said earlier, we are targeting 15% to 25% growth in Dolby Vision, Dolby Atmos, and imaging patents, and we expect this to be driven by growth in the broadcast, mobile, and other markets. We assume this will more than offset the declines in foundational audio that we are expecting. With these assumptions, we are projecting total revenue for fiscal year 2023 to grow low single-digits year-over-year.
Within this, we anticipate licensing revenue to be up low single-digits with products and services revenue expected to grow high single-digits. Now, let’s talk about OpEx. For the full year, we are currently anticipating non-GAAP operating expenses to increase roughly 2% compared to prior year. We will see growth from our annual merit increases and normalization of incentive compensation for employees compared to fiscal year 2022, which came in significantly below 100%. We are also seeing inflationary pressure in some other areas, and increased travel expenses. This is mostly offset by cost-saving measures such as organizational adjustments and reductions in infrastructure costs. We will continue to limit hiring to the most critical roles, while focusing our investments on the areas that have the largest impact toward our long-term opportunities.
This would result in operating margins of roughly 30% on a non-GAAP basis for the year. We will continue to be disciplined with our spend, review our resource envelope and allocation on a regular basis, and make adjustments as the year progresses. We anticipate that non-GAAP earnings per share could grow at a slightly higher rate than revenue.
Maggie O’Donnell: Great. Thanks for the full year context and perspective, how about Q1?
Robert Park: Well, let me reiterate that volatility from this economic environment has made forecasting more challenging in the near-term, and that includes visibility into Q1. In addition, revenue lumpiness from timing of deals is more acute in the quarters than on the full year. That said, based on what we are seeing right now, we see Q1 revenue ranging from $300 million to $330 million. Within that, licensing revenue is estimated to range from $280 million to $305 million, while products and services is projected to range from $20 million to $25 million. Compared to Q1 of last year, we expect lower unit declines in TV and PC and lower recoveries. At the same time, we continue to see growth from Dolby Vision and Dolby Atmos.
Non-GAAP gross margin is estimated to be 90% plus or minus. Operating expenses in Q1 on a non-GAAP basis are estimated to range from $180 million to $190 million. Our effective tax rate for Q1 is projected to range from 19% to 21% on a non-GAAP basis. This is higher than fiscal year 2022 as we are forecasting lower benefit from foreign tax credits. We also benefited from discrete items in fiscal year 2022 that are not included in fiscal 2023. We anticipate the full year tax rate will be in a similar range. So, based on a combination of the factors I just covered, we estimate that non-GAAP Q1 diluted earnings per share could range from $0.76 to $0.91. Let me restate Q1 revenue range is $300 million to $330 million.
Maggie O’Donnell: All right. Robert, do you have any closing remarks?
Robert Park: Yes, Maggie. It remains a tough environment and while the near-term is uncertain, we are well-positioned for growth in the long-term. Dolby has a durable business model, a strong balance sheet, and healthy cash flows, even with today’s tough market conditions. Our foundational audio technologies are broadly penetrated across a wide variety of content and devices. And much of the opportunity lays ahead, with Dolby Atmos, Dolby Vision, and imaging patents as we continue to expand further into new use-cases like live sports, user generated content, and auto. We are also excited about Dolby.io as a long-term growth factor as it greatly expands our addressable market. All of this give us confidence in our ability to drive revenue and earnings growth into the future.
Maggie O’Donnell: Great. All right. That wraps up my portion. Let’s turn it over to the operator and our analysts for some Q&A.
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