Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories Conference Call discussing fiscal fourth quarter and fiscal 2017 results. [Operator Instructions] As a reminder, this conference call is being recorded, Wednesday, October 25, 2017. I would now like to turn the conference over to Elena Carr, Director of Corporate Finance and Investor Relations for Dolby Laboratories. Please go ahead.

Good afternoon. Welcome to Dolby Laboratories Fourth 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 being 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 recent 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 this call, Lewis will begin with a recap of Dolby's financial results and provide our fiscal 2018 outlook, and Kevin will finish with a discussion of the business. So with that introduction behind us, I now turn the call over to Lewis.

Thanks, Elena, and I'm still impressed that you can do the whole thing from memory. So I'll have to try to do that one of these days. So anyway, good afternoon, everyone. I will cover 3 areas for you today. First, I'll go over the Q4 results, and then since it is Q4, I'll go through the full year results on a summary basis, and then I'll give you an outlook for fiscal year 2018. So let me start with Q4. Total revenue in the fourth quarter was $242 million, which was right in the range we had projected and within the $242 million, about $213 million came from licensing and $29 million came from products and services. So let me cover the Q4 trends in licensing by the different end markets that we serve. Broadcast represented about 48% of total licensing in the fourth quarter, and revenues in this market were about the same as they were in Q3, but down year-over-year by about 4% due mainly to lower recoveries. PC represented about 14% of total licensing in the fourth quarter. PC was down sequentially by about 36%, but up year-over-year by about 2%. The sequential decline was mostly due to timing of revenue, and we anticipate that we'll see a similar pattern like this again next year, all else held equal. And the year-over-year increase was due to higher volume. Consumer electronics. Consumer electronics represented about 12% of total licensing in the fourth quarter, and licensing in this area was down sequentially by about 34%, due mainly to timing. And on a year-over-year basis, consumer electronics was roughly flat in licensing. Mobile devices were approximately 9% of total licensing in the fourth quarter, down sequentially by over 60%, but up year-over-year by about 4%, and the sequential trend…

Thank you, Lewis, and good afternoon, everyone. 2017 was a year of progress on many fronts. And going forward into 2018, we are focused on increasing our rate of revenue growth by expanding our leadership in audio entertainment solutions and by bringing our new audiovisual experiences to market, with the goal of returning to sustainable double-digit growth. Let me start with Dolby Vision. Apple announced this quarter that Dolby Vision will be included in the iPhone 10, the iPhone 8, the Apple TV 4K and iPad Pro. Apple's adoption will significantly increase the availability of Dolby Vision experiences to customers around the world. Already, iTunes has over 100 movies available in Dolby Vision and Netflix is streaming in Dolby Vision to these devices. This is another important endorsement that Dolby Vision is the best way to enjoy HDR content. Apple's announcement caps off a year of great progress with Dolby Vision. We started the year with Sony announcing their support on televisions and the first Dolby Vision Blu-ray players having been announced by Philips, OPPO and LG. The progress continues. We added a new partner, Vestel, the largest TV manufacturer in Europe, bringing our total to over 10 Dolby Vision TV partners. And Huawei, the second-largest set-top box provider in the world announced the inclusion of Dolby Vision in its flagship IPTV set-top box. This is the first Dolby Vision-enabled set-top box and lays the ground work for IPTV and other pay-TV operators to deliver Dolby Vision content. It was also a great year for Dolby Atmos adoption. We started off the year looking to expand Dolby Atmos beyond the traditional home theater. LG released the first TV with Dolby Atmos and Dolby Vision earlier this year, and we now have over a dozen sound bars with Dolby Atmos in…

[Operator Instructions] And we'll take our first question from Mike Olson with Piper Jaffray.

Two questions, if I could. First, could you give us a sense for how much overall new initiatives revenue grew in fiscal '17? Did it turn out to be kind of the 2x growth from, I think, it was $30 million to $60 million or something like that? And then what would you expect it to be for fiscal '18 and where do expect the most significant growth to come from within new initiatives for the coming year?

Sure. So, Yes, we did end up at about double last year. So we doubled it to about $60 million, just over $60 million. And our guidance for 2018 is based on that, just over doubling going into 2018. And that's with contribution from all the new initiatives. I went through some of them for each of them with Dolby Vision. That's obviously, a result of being included in additional devices. Just this quarter, of course, we announced Apple. I mentioned earlier that we've added Vestel, another TV partner. With Dolby Cinema, it's about screen growth and we look to add a lot of screens next year. And for Dolby Voice, we're very excited about our partnership with BlueJeans, as we become much more relevant in the cloud-based video meeting market that is serving the increasing huddle room market. So they are all contributing to growth in 2018.

Okay. And then regarding the Apple deal for Dolby Vision. As is always the case, that one you can't talk specifics. But is that something that on its own can be material to your revenue? Or is it more of you've now got a great reference customer that can potentially lead to other manufacturers adopting it and that's when it can become more significant as a revenue contributor?

Well, Apple is a significant partner of ours, right. So I think it's an important customer. It always has been and continues to be. And it is also -- it is in addition to that a very important, I think, reference point for the developing ecosystem around Dolby Vision. We've got a robust ecosystem of partners and content. And of course, having that much broader of an audience of consumers who can experience Dolby Vision content is a big plus for any content producers or distributors who are considering their timing of when they were going to go live with Dolby Vision. And yes, other device manufacturers certainly keep apprised of what's going on around them in the market and it becomes -- we think it becomes a virtuous circle as this ecosystem really begins to develop.

Okay, Mike. Operator, just for a quick second. I want to make a verbal -- something I want to correct. I said verbally when I gave you guys a breakdown of the revenue, the total range is correct $1,140,000,000 to $1,170,000,000, and product and services $130 million, which means licensing should be $1,010,000,000, $1,040,000,000, not $1,110,000,000 to $1,140,000,000. So just correcting how I broke that down. Anyway, go on operator to the next question.

We'll take our next question from Steven Frankel with Dougherty.

Just a couple of questions around that guidance. So Kevin, you reiterated, again, your goal of getting to double-digit revenue growth and staying there. So maybe we'd start with what has to happen to move from kind of this 5 to 8 that you've guided to, to double-digit revenue growth?

Well, Steve, I think the clearest path is doing more of what we're doing. I mean, we've doubled revenue from new initiatives over the last year. As I said earlier, we are planning within our guidance to just over double it again next year. And as that base grows and we think we're really just at the early days of those opportunities. When you look at the number of audiovisual experiences, all the inter-connected devices in the world, all the hundreds of millions of moviegoers that enjoy premium experiences, and the billions of office workers that are going to be in communications experiences, we really are at the very beginning here. So for that to happen as soon as possible, as we'd all like, it's about getting more of those devices in market. For Dolby Vision, specifically, obviously, as we've talked about, Apple significantly increases the potential audience for Dolby Vision experiences. In TVs, we continue to add partners. As you know, we've been primarily in the premium units, which are the lower-volume units. We saw a couple of models begin shipping over this last year that are getting into some higher volumes, and we plan to see more of that in 2018. And what gets us there faster is more of those shipping sooner and maybe some hits in there and those SKUs that do better than we expect. On Dolby Cinema, it's obviously -- it's about getting more screens in market. And of course, it also has to do with the box office. I think it's no secret that the box office was pretty poor this summer. So going into next year, while we like the industry are optimistic about the outlook for the box office, we're going into the year planning on pretty similar box office levels from what we saw last year.

Okay. And then just one more on the guidance. The Q1 guidance is especially muted in terms of revenue. Is that just because it's a tough comp against last year when you had that shift in gaming platforms ramping? Or is there something you're seeing in Q1 that's making you a little more cautious on how you start off the year?

Steve, it's definitely not that. There is nothing about seeing something to make us more cautious. It really is a matter of some timing in last year in Q1, we did have some [ outside ] recoveries that we're not baking into this year's Q1. That's primarily driving that delta. If it were not for that, then I think you'd see a more normal curve. But it is worth noting though that for the full year, I know I made sort of a by-the-way comment in my prepared remarks, but we're going from growing the last 2 years at 5% and we're guiding 5% to 8%. So for the year, we see that stepping up, it's just as you know with our business, any one particular quarter does is not a linear progression.

And we'll take our next question from Eric Wold with B. Riley.

Follow-up question -- I've got 2 questions. One is a follow-up question on the last one. Your comments, Lewis, around Dolby Vision on the TV side. Can you update us on where you are in penetration of the UHD TVs as kind of price points continue to drop and as you get into the lower price points and kind of into ones that you characterize kind of that can get into volume? Are your licensed deals struck such that it's purely based on volume? Or is it based around price point of TV? And then I have a follow up to that.

Sure. So as it relates to the first part of your question. We, in previous calls, had been taking the question around the penetration of the premium UHD televisions. Last quarter, we said that we expected to exit the year, the calendar year, around 35% to 40%. That's still about what we're expecting. And as far as your question about the higher-volume units, we did see some models from VIZIO and from TCL begin shipping this last year, which were getting into some higher volumes. And in 2018, we expect to see more of that and continue to get into some of the more mainstream models. So our revenue agreements are not typically tied to price, so it's really -- it's about -- we're focused on is getting into as many units as possible and getting these experiences to as many consumers as possible.

Perfect. And then last question. On the large customer that is skewing Q3 revenues [ similar ] to the last couple of years around the audio. Should we expect kind of the new vision deal to roll into that same pattern and kind of just make Q3 even more skewed? Or is it going to be a different pattern of rev recognition?

Yes. Eric, as you know, I'm going to give the standard. We don't comment at a customer level. But at a high level, I would say we still expect that sort of spiky pattern in Q3, but with respect to any recent new deal, I'm not necessarily going to say that, that makes it any more prominent.

And we'll take our next question from Ralph Schackart with William Blair.

Two questions, if I could. First, can you just maybe give us an update on how the conversations have evolved with potential handset OEMs adopting Dolby Vision after Apple's recent announcement? And then, secondly, the reallocation of resources initiative, how should we think about that going forward? Is that sort of an ongoing process or something that was sort of a onetime event?

Sure. So as it relates to Dolby Vision in mobile devices, of course, we've been saying throughout 2017 that it was a goal of ours to bring Dolby Vision experiences to devices outside of televisions. We couldn't be more excited about Apple adopting it so broadly. And I think that, that is a big step forward in the robustness of the Dolby Vision ecosystem. And I would say that, that's a positive across our discussions with all potential Dolby Vision partners. And as relates to the resource reallocation, yes, I would say that certainly every year and, I guess, as a matter of course throughout the year, we're always looking for where there are opportunities or needs to reallocate resources. Clearly, this year that was more than we usually have and that was us taking a hard look given how far we've come with these new initiatives to see what's working well, what's not working well and make sure we make the appropriate adjustments to continue to accelerate our success with those initiatives. And I would also say that, we have a lot of -- we have a great pipeline of innovation. And I think the more we establish ourselves as a company that is providing audio and visual experiences in entertainment and communications, we see a lot of opportunities. So this also gave us an opportunity to allocate some resources toward some of the more promising initiatives.

And we'll take our next question from Jim Goss with Barrington Research.

I was wondering with Vision and Atmos, beyond the theater sector, cinema sector, do you try to sell them together versus a product or is it just whichever will sell in a certain application?

Yes. Great question, Jim. I would say we always go in looking to sell the full Dolby experience. And so in our dream world everybody would out of the gate launch with Dolby Vision and Dolby Atmos, and they'd deliver Dolby Atmos over AC-4, and everybody would start that way. So we always begin our engagements with the entire proposition in mind. Now, of course, depending on where partners are, what their priorities are, it is often the case as you've seen that they will start with one or the other and evolve into both. And so it's a natural evolution. But I think increasingly as [ each ] begins to scale and each have ecosystem strength of their own, we will look to bring the complete experience to life as quickly as we can.

And you've talked about Vision, maybe moving beyond the premium applications to a broader application in TVs. With Atmos, you mentioned sound bars. Is that pretty much the game right now or are there more applications with traditional receivers and discreet speakers and that sort of thing?

We have pretty good penetration at the receiver market, which is really, I guess, that you might say that's the highest end of the market. And the success we've had this year is bringing that beyond the high end home theater market into sound bars. Most of them are still pretty high in sound bars, but I think we've seen price points as low as $500. And so that's still a big opportunity, because we still see the opportunity to bring that experience to a much broader range of sound bars and beyond. We saw some great examples this year of PCs coming to market with Dolby Atmos. Last quarter, we announced the MateBook from Huawei, where we also participated in the design of the audio hardware and layout. It's really spectacular sounding. So we still see a lot of opportunity to expand Dolby Atmos to a much wider range of used cases, and this year was a big step forward in that.

Okay. And the last, just a general question. Do you think the royalty rates for this generation of technologies are similar or higher or lower than the prior generations of technologies? Is there a way to compare from one set of pricing pressures and systems to the next?

Jim, this is Lewis. I think it would be difficult to make any one general characterization. In fact, if anything, I would step above the notion of royalty rates and point towards one of the things we've done to expand our revenue opportunity is to get into different business models. So for example, the revenue that we're getting from Dolby Cinema doesn't even have to do with a royalty rate. It's revenue share for tickets that are being sold. So it's really hard to say all the royalty rates are higher or lower, and you're seeing us being adopted in a much broader range of devices to ranging from dongles that go into TVs, to sound bars to PCs. So I think it's very difficult to make any one comment about ASPs as becoming less of a single factor.

And we'll take our next question from Paul Chung with JPMorgan.

Can you just talk about the dynamics going on in the broadcast segment? You mentioned that fiscal year '18 will be flat to up. If you think about Vision on TVs and now IPTV set-top boxes, I mean, your wallet share of premium it should be increasing on top of your existing audio solution. So why the modest guide on what seems to be an easier comp and how have the dynamics really changed since fiscal year '16? We saw big step-up in revenues and then fiscal year '17 and now '18 guide is expected to be flattish?

Hey, Paul, that has to be the longest question on record. So why don't I start off to [indiscernible] and then I'll turn it over to Kevin to talk about the business dynamics, because we feel great about our broadcast business, and that is a very valuable part of this company. But a lot of innovation happening there is probably underestimated by people. But in fiscal '18, we've got a couple of dynamics you cited. One, we have organic growth coming from some of our imaging technologies which flow through broadcast because it doesn't all flow through broadcast, but we also have a year where we're currently projecting recoveries to be down and that's offsetting some of that. But then, beyond that, let me turn it over to Kevin to talk about some of the dynamics we see in the offerings. And I think even Kevin, you mentioned in your comments that there was an IPTV set-top box that just got announced and we see more of those things coming in the future. So...

Yes, I mean, I've talked quite a lot about our presence on televisions. We're excited about the Huawei set-top box. That's the first set-top box to go-to-market. Again, I would point out that these are early days and they tend to be premium SKUs. So you're not talking about the high volume SKUs. It's certainly -- we certainly plan on getting into more higher-volume SKUs this year. But in comparison to the audio side of the business, where we're at scale, as Lewis said, there is some dynamics in the recoveries this year that are offsetting the growth we're seeing out of Dolby Vision. But in the long haul, we see a very significant opportunity for growth in Dolby Vision. And as I said earlier, we're still making good progress in those developed markets around the world that are still coming up the curve on even high definition and Dolby Audio to go along with that. So yes, this is the year where, as Lewis said, on any given year, the recovery side of the business can shift from one segment to another, and this is a case where the reason broadcast is not up as much as we might otherwise expect or be used to is offsetting the growth we're seeing from Dolby Vision.

Got you. And then on the $60 million split and the new initiative revenues. Can you confirm the split between Vision, Cinema and Voice and maybe if you can rank order your growth expectations near term for those 3 initiatives.?

Paul, I suppose I could confirm it if we ever gave it, but we don't ever really split that out. But we will say that all 3 of those legs of the stool did contribute to growth for the year. So what we look forward to do is someday all those being big enough to break out separately. But right now, we don't. Within $60 million number, we're not at liberty to break that out -- that fine of a detail.

[Operator Instructions] We'll take a follow-up question from Steve Frankel with Dougherty.

Kevin, I wonder if you might give us an update on timing of ATSC 3.0 rollout in the States, and then AC-4 adoption among customers globally?

Sure. As you know, AC-4 has been included in the ATSC 3.0 specification. I believe that there are meetings coming up very soon seeing whether they can accelerate the adoption, and so that's an ongoing process. But in the meantime, just as importantly, we have been and continue to be focused on getting wins in the market. We have a number of TV providers, including Samsung and LG, which are shipping AC-4. We had a number of trials this year and some live streams, live broadcasts using AC-4. So historically, it's just as important to be working with as we are, the major pay-TV operators, and getting these units and these experiences into market quickly. Often times, we're centering that around large events, sports championships and Olympic opening ceremonies and those sorts of things. And all that's coming along really nicely. And we're optimistic that, that ATSC 3.0 specification will become adopted quickly. Either way, it has, I think, it's certainly influential in terms of people looking at that -- at those specifications as the way of the future.

Okay. And then on HDR 10-plus. What are you hearing from your customers or people that you've talked to, that aren't your customers yet about that? And does it impact the decision tree when they are looking at maybe adopting Dolby Vision and then you've got this HDR 10/HDR 10-plus effort that's out there?

Yes, so far we've seen the press releases. I think our take on it is that it affirmed something that we've always believed, which is the importance of having metadata as a way of optimizing this experience. And in the case of Dolby Vision, as you know, we're able to identify what the capabilities of the television are and optimize the Dolby Vision strain for those capabilities, so that you're not stretching or shrinking the content. So -- and Dolby Vision is a robust ecosystem of content, service providers and OEMs. And it's still not completely clear as to whether anybody, any competing methodologies to what degree that's a specification or how that ecosystem will be supported and built out. But in the meantime, in Dolby Vision, we have the highest quality solution with a robust ecosystem and is growing. So we just continue to be focused on that.

And it appears there are no further questions at this time. I'd like to turn the conference back over to Kevin for any additional remarks.

Great. Well, I want to thank everybody for joining us today. And we look forward to talking to you again soon. Thank you.

And once again, that concludes today's presentation. We thank you all for your participation. And you may now disconnect.