Dolby Laboratories (DLB) Q3 2012 Earnings Call August 02, 2012 5:00 pm ET Executives Alex Hughes Lewis Chew - Chief Financial Officer and Executive Vice President Kevin J. Yeaman - Chief Executive Officer, President, Director and Member of Stock Plan Committee Ramzi Haidamus - Executive Vice President of Sales & Marketing Analysts Ralph Schackart - William Blair & Company L.L.C., Research Division Steven B. Frankel - Dougherty & Company LLC, Research Division Paul Coster - JP Morgan Chase & Co, Research Division Perry Huang - Goldman Sachs Group Inc., Research Division Corey Barrett Presentation Operator
Call participants are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. An archive of the call will be made available on our website for approximately 1 year and is the property of Dolby. As for the structure of this call, Lewis will begin with a recap of Dolby's financial results and provide our fiscal 2012 outlook, and Kevin will finish with a discussion of the business.And with that introduction behind us, I will now turn the call over to Lewis. Lewis Chew Thanks, Alex. Good afternoon, everyone. During my section of the call today, I'll start by providing some details on the Q3 revenue in the various markets that we serve. Then I'll briefly go over the margins and operating expenses, and I'll finish with an update on our outlook for fiscal 2012. Total revenue for the third quarter was $207.9 million, down 5% year-over-year and 20% sequentially. Within that total, Q3 licensing revenue was $178.4 million, down 2% year-over-year and 21% sequentially. The year-over-year decrease was primarily attributable to our Consumer Electronics and PC markets, and this was partially offset by growth we saw in broadcast. The sequential decline was mainly due to seasonality since the increased shipment activity during the holiday period are reflected in our fiscal Q2 revenues. Looking at licensing revenue by market. Third quarter broadcast revenue grew 10% year-over-year on increased revenue from set-top box, as well as from TV. Our TV attach rate was higher, offset partially by lower TV unit shipments. Sequentially broadcast revenue declined 19%. Third quarter PC revenue declined 10% year-over-year, primarily on lower revenue from ISV and 11% down sequentially. Third quarter revenue from our Consumer Electronics market was down 19% year-over-year, driven by declines in regular DVD and Blu-ray, and sequentially, revenue from Consumer Electronics declined 32%. Third quarter revenue from our Other markets category, which includes mobile devices, Gaming, Automotive and Via, increased 14% year-over-year and declined 26% sequentially. The year-over-year increase was driven primarily by growth in mobile and the sequential decline was due to a combination of normal seasonality in Gaming and timing of royalty streams from a large licensee of mobile.
Third quarter product revenues were $22.1 million, down 22% year-over-year and 19% sequentially. The year-over-year decline was primarily due to lower shipments of our 3D systems. Revenue declined sequentially as our second quarter benefited from $5 million of Digital Cinema revenue related to achievement of DCI compliance which did not repeat in Q3. Third quarter Services revenue was $7.3 million, down from $7.7 million in the second quarter and from $8.8 million in Q3 of last year.So let me move on to margins and the rest of the income statement. Gross margin on the GAAP basis in the third quarter was 89.9% and 90.8% on a non-GAAP basis. Within that, licensing gross margin was 98.4% in the third quarter on a GAAP basis, and 99.1% on a non-GAAP basis. GAAP product gross margin was 34.4% in the third quarter, down 80 basis points sequentially and non-GAAP product gross margin was 37.2%, down 40 basis points sequentially. Read the rest of this transcript for free on seekingalpha.com