Elena Carr - Dolby Laboratories, Inc. Lewis Chew - Dolby Laboratories, Inc. Kevin J. Yeaman - Dolby Laboratories, Inc.

Steven Frankel - Dougherty & Co. LLC Ralph Edward Schackart - William Blair & Co. LLC James Charles Goss - Barrington Research Associates, Inc. Eric Wold - B. Riley FBR, Inc. Paul J. Chung - JPMorgan Securities LLC

Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories Conference Call Discussing Fiscal Fourth and Fiscal 2018 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 today, Wednesday, October 24, 2018. I would now like to turn the conference call over to Elena Carr, Director of Corporate Finance and Investor Relations for Dolby Laboratories. Please go ahead, ma'am. Elena Carr - Dolby Laboratories, Inc.: Good afternoon. Welcome to Dolby Laboratories' fourth quarter 2018 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 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 the call, Lewis will begin with a recap of Dolby's financial results and provide our fiscal 2019 outlook, and Kevin will finish with the discussion of the business. So with that introduction behind us, I will turn the call over to Lewis. Lewis Chew - Dolby Laboratories, Inc.: Thanks, Elena. I love how you do that from memory. Okay. Good afternoon, everyone. I will focus on three topics today: Q4 results, FY 2018 results and the outlook for fiscal 2019. Now, Q4 is the last quarter that we'll be reporting revenue under ASC 605, the old revenue accounting standard. Starting Q1 of FY 2019, we will be applying ASC 606, the new revenue accounting standard. So when I get to the forward outlook, I will preface out with a few comments on our adoption of ASC 606 and what the changes are compared to ASC 605. So let's go over the results, starting with Q4 that we just completed. Total revenue in the fourth quarter was $265 million. Licensing revenue for the quarter was $240 million, which was ahead of our projections, while products and services came in at $25 million, which was below expectation. I'll comment more on that in a minute. But first, here are the trends we saw in licensing revenue during Q4, broken down by the end markets that we serve. Broadcast represented about 45% of total licensing in the fourth quarter. Revenues in this market were up about 15% sequentially, driven by higher recoveries along with higher volume from set-top boxes. Year-over-year, broadcast was up 7% due to higher recoveries along with higher volume in TVs. Consumer electronics represented about 16% of total licensing in the fourth quarter. Licensing in this area was down sequentially by about 6% due mainly to timing of revenue. But year-over-year, consumer electronics was up about 50% due to higher recovery along with higher revenue from DMAs and sound bars. Mobile devices. Mobile devices represented approximately 12% of total licensing in the fourth quarter, and sequentially, mobile was down by about 56% due to timing of payments. By the way, we had a similar trend last year going from Q3 to Q4. And year-over-year, mobile was up 44% due to higher volume from Dolby-branded solutions as well as our patent licensing programs. PC represented about 11% of total licensing in fourth quarter. PC was down sequentially by about 47% driven by timing of payments. PC year-over-year was down by around 16% because of lower ASP due to mix. Neither of these trends was a surprise as PC revenue for the quarter was reasonably close to what we had factored into our original guidance. Licensing in other markets represented about 16% of total licensing in the fourth quarter. They were up about 3% sequentially and up about 6% year-over-year, and the year-over-year increase driven by Via and Dolby Cinema, offset partially by lower recoveries in automotive. Products and services revenue was $25.2 million in Q4, compared to $31.1 million in Q3 and $28.7 million in last year's Q4. As I mentioned, product revenue in the Q4 just completed was below our original expectation, and most of this was in cinema products as we experienced lower than expected volume, especially in China. Let's move on to margins and operating expenses. Total gross margin in the fourth quarter was 88% on a GAAP basis and 88.5% on a non-GAAP basis. Product gross margin on a GAAP basis was 25.4% in the fourth quarter compared to 34.5% in Q3, and product gross margin on a non-GAAP basis was 29.2% in the fourth quarter compared to 37.5% in Q3. Operating expenses in the fourth quarter on a GAAP basis were $196.7 million compared to $188.2 million in the third quarter, and operating expenses on a non-GAAP basis were $178.5 million in Q4 compared to $170.8 million in the third quarter. Operating income in the fourth quarter was $36.7 million on a GAAP basis or 13.8% of revenue, and $56.4 million on a non-GAAP basis or 21.2% of revenue. Income taxes on a GAAP basis was a benefit of $8.3 million in the quarter, and that includes $23 million of net credits primarily driven by revised estimates of amounts that were impacted by U.S. tax reform. Recall that in Q1 of this year, we booked $155 million tax charge that quarter to accrue at that time the estimated impact of U.S. tax reform. So excluding that $23 million net credit, the non-GAAP income tax expense in Q4 was $14.7 million or an effective tax rate for the quarter of 23.9%. Net income on a GAAP basis in the fourth quarter was $50.1 million or $0.47 per diluted share, compared to $21.8 million or $0.21 per diluted share in last year's Q4. Net income on a non-GAAP basis in the fourth quarter was $46.8 million or $0.44 per diluted share, compared to $46.6 million or $0.45 per diluted share in Q4 of last year. During Q4, we generated about $112 million in cash from operations and ended the quarter with over $1.2 billion in cash and investments. We bought back about 913,000 shares of our common stock in Q4 and ended the quarter with about $350 million of stock repurchase authorization still available. We also announced today a cash dividend of $0.19 per share, which is $0.03 higher than the previous quarter. The $0.19 dividend will be payable on November 14, 2018 to shareholders of record on November 5, 2018. I will now review a summary of the full-year results. FY 2018 total revenue was $1.172 billion, representing growth of 8% over FY 2017 total revenue of $1.081 billion. Total operating expenses in FY 2018 on a GAAP basis were about $744 million compared to $715 million in FY 2017. On a non-GAAP basis, total FY 2018 operating expenses were about $671 million compared to $633 million in FY 2017. And total operating income in FY 2018 on a GAAP basis was $300 million or 25.6% of revenue compared with $249 million last year. And on a non-GAAP basis, operating income in FY 2018 was $378 million or 32.3% of revenue, compared to $339 million last year. Diluted earnings per share on a GAAP basis were $0.14 in FY 2018, compared to $1.95 in FY 2017, and that FY 2018 number does include the tax accruals related to U.S. tax reform that I alluded to earlier. And on a non-GAAP basis, diluted earnings per share were $2.93 in FY 2018, compared to $2.61 in FY 2017. So, let's move on to the outlook for FY 2019. As I mentioned earlier, we adopted ASC 606 beginning Q1 FY 2019. Under the new standard, we elected to use the full retrospective method to adopt ASC 606, which requires us to go back and recast our FY 2018 and FY 2017 revenues under ASC 606 by applying the new rules retrospectively. Then, going forward, we will report FY 2019 revenues only under ASC 606, along with comparable FY 2018 and FY 2017 revenues under ASC 606. With that as the backdrop, let me highlight the two areas of Dolby's revenue accounting that are most significantly impacted by the change from ASC 605 to ASC 606. The first involves multi-year contracts. Most of our licensing arrangements with customers involve multi-year contracts. And in the past, under ASC 605, it would have been unusual for all revenue from a multi-year contract to be recognized upfront. In other words, upon execution of the contract. Under ASC 606, the accounting framework has shifted, and now, certain terms and conditions, and an example might be minimum volume commitments, are more likely to result in upfront recognition. Only a small population of our contracts were affected by this change. So when we did our ASC 606 recast of FY 2017 and 2018 revenue, some of our revenues shifted to previous years. Going forward into FY 2019, as we adapt to the new rule under ASC 606, I don't anticipate any significant change in the amount of licensing revenue that is recognized upfront compared to what was happening under ASC 605. The second topic with significant impact on Dolby in transitioning to ASC 606 involves our quarterly recognition of certain royalty revenues from licensing customers. A typical arrangement with a licensing customer is that they enter a contract with us agreeing to pay royalties for Dolby technology that they've incorporated into their products. Usually, the customer compiles their shipment activity throughout a quarter and then submits an aggregate report to us in the following quarter. Under ASC 605, we use those reports to compute and record royalty revenue in the quarter the report was received by us. For instance, units shipped by a customer in a quarter ending March 31 would result in us recording revenue in the quarter ending June 30. Under ASC 606, the approach has changed. Instead, we will record revenue in our March 31 quarter for units that are shipped by the customer in the March 31 quarter. To do this, we would need to make estimates. Then, using the same example, in the June quarter when we received customer reports of the actual shipments that occurred in the March quarter, we will book adjustments as necessary to true-up the difference between estimate and actual, and this true-up could be a plus or a minus. This change will cause a shift in timing. Certain revenue that used to land in one quarter will now land in the preceding quarter. The change may also cause more volatility in our quarterly figures because the estimation process and the true-up adjustments which we plan to disclose each quarter as appropriate. So now that I've covered that, let's move on to the FY 2019 guidance. Starting Q1 FY 2019 and going forward, our revenue will only be reported under ASC 606, including prior year comparisons. And therefore, our forward outlooks will only be under ASC 606. So, let me start with the FY 2018 revenue recast using the ASC 606 rules. It's an estimate for now. We will complete the recast once we receive all customer reports pertaining to FY 2018 activity, which we anticipate will be around the end of Q1 of FY 2019. Based on the work we've completed, we estimate that FY 2018 revenue recast under ASC 606 will be between $1.090 billion and $1.1 billion dollars. The difference between the recast numbers and the $1.172 billion that we reported for FY 2018 under ASC 605 is nearly all due to revenue that shifted from FY 2018 into previous periods, in some cases, as far back as five years. The end market categories most affected by this shift were mobile, PC and broadcast. For the full year FY 2019 – so, let me talk about the outlook now – so for the full year FY 2019, we estimate that total revenue will range from $1.240 billion to $1.280 billion. Within that total, we estimate that licensing will range from $1.080 billion to $1.120 billion, while products and services are estimated to range from $150 million to $170 million. Here are some of the trends that we anticipate in FY 2019 compared to FY 2018, all on a ASC 606 basis, reflecting the recast. We anticipate that broadcast revenues will grow driven by increasing volume from higher adoption of our technologies. PC licensing is projected to be flat to down due to mix, while consumer electronics is projected to be up. We expect mobile revenues to grow over last year, although some of that will be offset by a large recovery that we got in FY 2018 that's not expected to repeat in FY 2019. We expect growth in the other licensing category from Dolby Cinema, gaming and Dolby Voice. And in products and services, we are projecting growth driven by newer offerings in cinema products, Dolby Voice and also Dolby Cinema, because we anticipate that some of our Dolby Cinema deals in FY 2019 will include a blend of minimum amounts along with percentage share of box office, and these instances could likely result in some upfront recognition and this will be classified as products and services revenue. So, that was it on the revenue. We move on to the rest of the P&L. Gross margin for the year is projected to be around 87% plus or minus on a GAAP basis, and about 88% plus or minus on a non-GAAP basis. Operating expenses are projected range from $785 million to $795 million on a GAA P basis, and from $705 million to $715 million on a non-GAAP basis. Other income is estimated to range from $20 million to $24 million for the year. And the effective tax rate is expected to range from 19% to 21% on both a GAAP and non-GAAP basis. For the first quarter of FY 2019, we anticipate that total revenue will range from $285 million to $305 million. Within that, we estimate that licensing will range from $255 million to $265 million, while products and services is projected to range from $30 million to $40 million. Q1 gross margins on a GAAP basis is estimated to be around 87%, and the non-GAAP gross margin is estimated to be around 88%. Operating expenses in Q1 are projected to range from $188 million to $192 million on a GAAP basis, and from $168 million to $172 million on a non-GAAP basis. Other income is projected to range from $4 million to $5 million for the quarter. And the effective tax rate is estimated at 19% to 21% for both GAAP and non-GAAP. So based on a combination of the factors I just went over, we estimate that Q1 diluted earnings per share will range from $0.49 to $0.55 on a GAAP basis, and from $0.65 to $0.71 on a non-GAAP basis. And so, with my apologies for taking up three quarters of the call, let me turn it over to Kevin. Kevin J. Yeaman - Dolby Laboratories, Inc.: Thank you, Lewis, and good afternoon, everyone. 2018 was a strong year for the company. It was fueled by the progress we've been making over a number of years in bringing Dolby experiences to market. I'm particularly excited about Dolby Vision and Dolby Atmos increasingly coming together as a combined experience. Just this quarter, Apple enabled Dolby Atmos in Apple TV 4K, making it the first DMA to support both Dolby Vision and Dolby Atmos. Consumers can now enjoy a wide range of Dolby Vision and Dolby Atmos content which is prominently featured in the iTunes Store. And even more recently, Amazon announced the Fire TV Stick 4K supporting Dolby Vision and Dolby Atmos. Over the summer, Jack Ryan was the first Amazon original series to support the combined Dolby experience and we look forward to seeing more content in the future. We also made progress with pay TV operators. Orange announced its first set-top box with both Dolby Vision and Dolby Atmos this quarter, with its first services launching in 2019. And at a large trade show in September, Comcast began demonstrating its new set-top box that supports both Dolby Vision and Dolby Atmos. On the gaming front, Microsoft began supporting Dolby Atmos earlier this year and has now rolled out support for Dolby Vision on the Xbox, making this the first gaming console to offer the combined experience. And in August, Lenovo released the first PC with the combined experience. It's a fantastic finish to the year. We started the year with LG OLED TVs as the first device supporting both Dolby Atmos and Dolby Vision. We now have TVs from six partners, the first smartphones from Sharp in Japan, as well as the recent product announcements for DMAs, the Xbox, PCs and set-top boxes. On the content side, in addition to iTunes and Amazon, other partners streaming in Dolby Vision and Dolby Atmos include Netflix, Rakuten, Tencent and iQiYi. Of course, we had many other highlights this year. Mobile stands out, in particular, with Apple, including Dolby Vision on iPhone X, iPhone 8 and iPad Pro, to start the year. Also this year, Samsung and Huawei adopted Dolby Atmos and have expanded the number of models supported beyond their flagship lines. Dolby Atmos and Dolby Vision are increasingly being adopted in more mainstream devices. Sound bars with Dolby Atmos are now being offered at $499, and Dolby Vision has increasingly been included in mid-tier TVs with price points starting at $350. Early adoption in live events has been another highlight. Starting with Dolby Atmos, throughout the year, BT and Sky Sports have been delivering Premier League football, and Comcast and DIRECTV delivered the Winter Olympics. This summer, the World Cup was carried by broadcasters in Brazil, Russia and China, to name a few. In the U.S., NBC is airing all Notre Dame home football games in Dolby Atmos. And as it relates to live Dolby Vision content, we have been working on trials throughout the year, and this quarter, Tencent streamed the first live event in Dolby Vision, an all-star basketball game. Overall, 2018 has been a pivotal year for the adoption of Dolby Vision and Dolby Atmos. We are confident that we are creating a robust ecosystem which is rapidly gaining support from content and device partners. At the same time, we are still in the early stages of this opportunity in terms of adoption and awareness. As we go into 2019, we're focused on continuing with this momentum and driving broader availability of these experiences. Dolby Cinema was, of course, the first combined Dolby audio-visual experience. We currently have about 180 screens open around the world, compared to 115 a year ago. In total, we have over 390 Dolby Cinema locations open or committed, and we expect to roll out a similar number of screens this year as we did in fiscal 2018. This quarter, Wanying Cinema Line announced plans to open Dolby Cinemas in Shenzhen and Southeast China. We now have seven partners in China, including Wanda and CGV, with an increasing flow of content. Also this quarter, T-JOY announced that it will be opening its first Dolby Cinema screen in Japan. And during the year, we've expanded our presence in Europe. We started the year with our first screen in France with Pathé and they have now grown their footprint to 10 screens. More recently, we've announced ODEON Cinema Group (sic) [ODEON Cinemas Group] (00:22:51) in the UK and Kinopolis in Germany as new partners. The content pipeline for Dolby Cinema is strong, with about 190 titles in Dolby Vision and Dolby Atmos released or announced, including all of the top 10 box office leaders in 2018. Recent releases include A Star Is Born and Venom. And it was fun to see A Star Is Born running exclusively at Dolby Cinemas for the first two days of its release. Let me turn to Dolby Voice. We released the Dolby Voice Room solution late this year, which includes an integrated video solution to go along with the Dolby Conference Phone. We are working with partners such as BlueJeans to target the rapidly growing Huddle (00:23:33) market and we continue to be encouraged by the growth in the pipeline. Let me wrap up. 2018 was a great year for Dolby. Dolby Vision and Dolby Atmos are available in a broad range of devices with an increasing amount of content. We've significantly expanded the footprint of Dolby Cinema and we've expanded our Dolby Voice offering. Looking forward to 2019, we are focused on building on this momentum and broadening the number of people that will enjoy Dolby experiences. We are confident that this will give us the opportunity to continue to drive revenue and earnings growth. I look forward to updating your next quarter. And with that, I'll turn it over to Q&A.

Thank you. We'll hear first from Steven Frankel with Dougherty. Steven Frankel - Dougherty & Co. LLC: Good afternoon. Kevin, wonder if you might start by updating us on whether the new initiatives hit the revenue target for the full year and what's your expectations for new initiatives in fiscal 2019? Kevin J. Yeaman - Dolby Laboratories, Inc.: Sure. Thanks, Steve. We came in at just over $100 million on our new initiatives, which is a little bit short of what we were aiming for. I'll say, though, that we're very pleased with the momentum we're building and how that puts us in a position to continue to grow going forward. Like I said, I think we've built robust ecosystems which are rapidly gaining partners. And so, we're at the early stage of these opportunities. So, I feel good about the opportunity to grow it again at least the same growth rate going forward. Steven Frankel - Dougherty & Co. LLC: And what's that growth rate? And was it supposed to double – almost double in... Kevin J. Yeaman - Dolby Laboratories, Inc.: Yeah, we reported that it was about $60 million in 2017 and we're just over $100 million in 2018. Steven Frankel - Dougherty & Co. LLC: And again, you said same growth rate in 2019. And the shortfall in the China cinema business, is that just a timing issue or did something change in the marketplace that caused that equipment not to be sold in the quarter? Kevin J. Yeaman - Dolby Laboratories, Inc.: I think that I'd probably be hesitant based on one quarter to draw any broad conclusions about the Chinese market overall, but what we can say is that many of our larger partners pushed new builds into future quarters. So, that's what we're seeing so far. Steven Frankel - Dougherty & Co. LLC: Okay. And then, on the expense guidance for the year, that's a little higher than you'd been running. What's leading you to up the expense guidance and what should shareholders expect for that extra money? Kevin J. Yeaman - Dolby Laboratories, Inc.: Well, I think OpEx as a percentage of revenue is down a little bit at the midpoint, but yes, it's higher in absolute terms, and that reflects our continued investment on the growth opportunities we have. It also reflects the fact that we do have a pipeline of innovation that we're excited about and we think that will continue to create new growth opportunities going forward. Steven Frankel - Dougherty & Co. LLC: Okay. I'll pass the baton and come back to you in the next round. Thank you.

We'll hear now from Ralph Schackart with William Blair. Ralph Edward Schackart - William Blair & Co. LLC: Good afternoon. Lewis, I was curious, I think for FY 2019 licensing revenue, so it would be roughly $1.08 billion to $1.2 billion under ASC 606. Can you give us what FY 2018 licensing revenue would have been on a comparable ASC 606 basis, please? Lewis Chew - Dolby Laboratories, Inc.: Well, I gave you the – I don't know if I break that out of the call or not. Ralph Edward Schackart - William Blair & Co. LLC: Maybe we could do it offline. That'd be fine, too. Lewis Chew - Dolby Laboratories, Inc.: No, no, no. I don't (00:28:34) that way. Let's put it this way, I gave you the recasted FY 2018 numbers and the vast majority of that is in licensing. So, the delta in 2018 between ASC 605 and ASC 606, think of that as being substantially all in licensing. So, that's the licensing number under ASC 606. Ralph Edward Schackart - William Blair & Co. LLC: Okay. I guess what – okay, so, is the majority of the growth, is it – maybe the simpler way to ask it – primarily driven by licensing then in 2019 over 2018? Lewis Chew - Dolby Laboratories, Inc.: No, no. Clearly, in 2019, we see a blend of growth coming from both licensing and products. As I mentioned in my prepared comments, we do specifically have things that are growing from areas like cinema products. We have some new products that we were releasing throughout the year. We anticipate growth in product, for example, from Dolby Voice. And I also mentioned, too, that in FY 2019 in our base plan, we are anticipating some portion of Dolby Cinema revenues to be classified as products and services revenue if they do end up being deals that have this blend of upfront money versus share of box office. So, all of those contribute to growth in products and services on a real basis. And then, also, organically, we see licensing growth as well in FY 2019 no matter how you look at it. But obviously, the growth on a ASC 606 basis is larger than comparing to the ASC 605 number. Ralph Edward Schackart - William Blair & Co. LLC: Okay. Thank you. Lewis Chew - Dolby Laboratories, Inc.: Okay.

And from Barrington Research, we'll move to Jim Goss. James Charles Goss - Barrington Research Associates, Inc.: Thanks. In terms of the theatrical installations this past year, were the – was it number of installations or terms of the installations? Have they – have those changed at all? Just trying to look at the shortfall in the product sales area. Kevin J. Yeaman - Dolby Laboratories, Inc.: Well, remember that Dolby – so you're talking about cinema products? Lewis Chew - Dolby Laboratories, Inc.: Yeah, he's talking about cinema products. James Charles Goss - Barrington Research Associates, Inc.: Yeah, the – yes, the cinema product sales. Kevin J. Yeaman - Dolby Laboratories, Inc.: Yeah. So Jim, I would say that substantially all the shortfall was due to volume-related reasons. It's not related to anything to the terms and conditions. So, it'd be primarily due to customers pushing out or delaying installations that we thought were going to happen earlier. James Charles Goss - Barrington Research Associates, Inc.: Then, does that imply that you would get that back, plus the growth you are getting – you thought you might get, for the New Year or like would it double off a little bit and you'd get an accelerated growth in the product sales this coming year? I know you outlined some of the numbers. Is that part of what you expect to be happening? Kevin J. Yeaman - Dolby Laboratories, Inc.: Well, obviously, when we put out a plan, we believe in that plan but it's really hard for me to say that there's any doubling up. We have a good pipeline of cinema products. We obviously, in this quarter but going into next year, we do anticipate growth in that area. But I wouldn't try to translate that into a doubling up because timing is always a tricky thing to discuss there. James Charles Goss - Barrington Research Associates, Inc.: Okay. And to some extent, maybe it's less important then, you're getting the branding out there and you're getting the payback through the licensing sales. Is that fair? Kevin J. Yeaman - Dolby Laboratories, Inc.: Maybe you could clarify that, Jim. James Charles Goss - Barrington Research Associates, Inc.: Well, it seems like the – you've always said the royalty generation is going to be in the product sales for the – that – or license for the Dolby technology, and that, as you've outlined, a number of the television manufacturers and sound bars, et cetera, are carrying Atmos and Vision. So, a lot of the payback for this technology is through those items more than the theatrical installations. Kevin J. Yeaman - Dolby Laboratories, Inc.: Yeah. I mean, there's no doubt, Jim, that success in the cinema reinforces success in our other areas. Having said that, we also look at them individually as businesses and we evaluate them on their performance individually even though they certainly mutually reinforce each other. James Charles Goss - Barrington Research Associates, Inc.: Okay. And one last clarification, under the shift from ASC 605 to ASC 606, when you say there would be adjustments that would be necessary, would the adjustments wind up coming into the statement at the time of the adjustment or would there be a restatement to the prior quarter to reflect that? Kevin J. Yeaman - Dolby Laboratories, Inc.: Yeah, they would be recorded in the period where the adjustment was determined. So, let me give you a clear example for everyone on the call to be crystal clear on this. Let's say in the first quarter, we estimated revenue of $20, and in the following quarter, the actual revenue was $21, that $1 difference would be recorded in Q2, not in Q1, in that example. So to your question, we record the adjustment in the quarter that we determined it, not going back and restating the previous quarter. James Charles Goss - Barrington Research Associates, Inc.: All right. That's what I thought but I wanted to make sure. Thank you. Kevin J. Yeaman - Dolby Laboratories, Inc.: Yeah.

We'll hear next from Eric Wold with B. Riley. Eric Wold - B. Riley FBR, Inc.: Thank you. Good afternoon. Can you give us – I know that – on your guidance for fiscal 2019, can you give us the amount of revenue that was I guess "lost" under ASC 606 that you would have recognized with all the agreements in place prior to year-end fiscal 2018? Lewis Chew - Dolby Laboratories, Inc.: Hey, Eric, this is Lewis. It's a relatively small amount; it's not anywhere near the magnitude of what we saw in 2018, but yeah, there was a small amount of revenue that you could say under old world might have landed in FY 2019, but because of the recast and shift to ASC 606, gets push back to a previous year, but it's nowhere near the scale of FY 2018. 2018 is probably the year most prominently affected by the recast. Eric Wold - B. Riley FBR, Inc.: Okay. And then, on Dolby Cinema, are you at a point now where you can provide a few more metrics around performance of kind of an average screen on kind of a broad sense or is it still too (00:34:56)? Kevin J. Yeaman - Dolby Laboratories, Inc.: Yeah. I think it's fair question, Eric. We're getting closer. I think one of the things we're still dealing with is that we have one major customer that does make up a large portion of that and I'd love to see us get a little more critical mass. So when we use those blended average numbers, we're not necessarily disclosing anything proprietary. So, we'll continue to look for the right moment to disclose some more details around those Dolby Cinema metrics. But happy to report that it is growing nicely. Eric Wold - B. Riley FBR, Inc.: Okay. And then, on kind of speaking with your CE and (00:35:31) TV partners around Dolby Vision kind of versus HDR10+, I guess, had both gained traction in their own right. For your partners that are incorporating Dolby Vision, do they typically plan to also incorporate HDR10+? Are they happy with Dolby Vision only, given that HDR10+ still having some level of incremental development costs? What's kind of the overall general trend of the partners you're working with? Kevin J. Yeaman - Dolby Laboratories, Inc.: Well, most of our partners support Dolby Vision and HDR10 and we offer a combined solution through our implementation. As it relates to HDR10+, there's still not enormous amount of announced support. So, we'll wait and see. And I think that's even more true on the content side than it is on the device side. So right now, we're focused on continuing to help them roll out Dolby Vision, and as you can see, we're getting a lot of momentum with that both on device and content. Eric Wold - B. Riley FBR, Inc.: Perfect. And then, just final question was just the number. So, (00:36:38) I just want to confirm, the tax expense for Q4, excluding the discrete tax true-up, would have been a $14.7 million expense versus the $8.3 million of benefit you recognized. Lewis Chew - Dolby Laboratories, Inc.: Correct. Eric Wold - B. Riley FBR, Inc.: Okay. Thank you. Thanks, guys.

And from JPMorgan, we'll move to Paul Chung. Paul J. Chung - JPMorgan Securities LLC: Hi. Thanks for taking my questions. So first up, just on broadcast, after two years of flattish growth, so what drivers can kind of jumpstart growth in 2019? I know you mentioned it would grow, but can you give us a sense of magnitude and which markets you're bullish about? Kevin J. Yeaman - Dolby Laboratories, Inc.: Well, I think that certainly in terms of the success we're having in Dolby Vision and Dolby Atmos, those are both potential growth drivers there. On the one hand, we have really strong demand and an ecosystem that is gaining support in terms of both content and device. At the same time, most of our television partners were still on their higher end models. VIZIO and TCL have each gone quite a bit deeper than that. So, we still see ourselves at the early stages of adoption for those. I think another dynamic to watch is just the – to the extent that there is an upgrade cycle as it relates to either UHD, 4K or hopefully the desire to get Dolby Vision and Dolby Atmos, then anything that drives upgrades drives all of our technologies beyond Dolby – or many of our technologies, I should say, beyond just Dolby Atmos and Dolby Vision. And that's not really reflected in the analyst estimates that we rely on right now. I would say it's kind of pretty comparable trends to what we've seen in the last couple of years, but that's another thing to watch. Lewis Chew - Dolby Laboratories, Inc.: And hey, Paul, Kevin mentioned in his prepared comments just now – you mentioned, Kevin, in the fourth quarter two set-top boxes with Dolby Vision – we're not even in the first inning. We're in the warm-up circle on that. So, I think that is another element of growth driver. When it happens, we can't know for sure, but clearly, there's going to come a time when there's more adoption there, and that's another example of a growth driver. Kevin J. Yeaman - Dolby Laboratories, Inc.: Yes. Paul J. Chung - JPMorgan Securities LLC: Got you. And then, just on the topic of tariffs, what's been your read-through on your kind of end markets? Any potential impact you're seeing on demand for kind of unit sell-through in any segment? And did tariff effects kind of cause any lower sales in cinema in China? Kevin J. Yeaman - Dolby Laboratories, Inc.: Well, first of all, you're asking a question that's a pretty broad topic. I mean, right now, what we try to track in (00:39:39) things like how the tariff is going to impact our margins, it's not particularly large. We do try to pay attention to if customers are saying that they're not doing something for tariffs. But I think it's too early for us to make any comments by market to say any particular market where we see growth stalling because of the tariffs. We'll just have to watch that like everybody else. I don't think I could add anything more scientific than that. But we are tracking internally the impact of tariffs on us and our cost of goods sold. But beyond that, it's hard to weed through all the various data points out there. Paul J. Chung - JPMorgan Securities LLC: Okay. Great. Thank you.

We'll take a follow-up from Steven Frankel. Steven Frankel - Dougherty & Co. LLC: Let me try to attack the tariff question another way because I keep getting this from investors. Obviously, you have a global business. Do you have a kind of off-the-cuff number of what percent of your customer sales end up in the U.S. and therefore would be subject to the tariff? Lewis Chew - Dolby Laboratories, Inc.: No. I don't have an off-the-cuff. I mean, as you know, we get a variety of data reported by our customers but we've historically not try to report where the end device ended up. Steven Frankel - Dougherty & Co. LLC: Right. That's – yeah. And I guess that's the other point, is you're reporting like some people look in the 10-K. That's where the headquarters is, not where the end device ends up. You just don't have that level of capability. Lewis Chew - Dolby Laboratories, Inc.: Correct. Steven Frankel - Dougherty & Co. LLC: And then, Kevin, to go back to Vision and the TV market one more time, where do you think your penetration rate in the UHD market is this Christmas and kind of how do you see that playing out over the next year or two? Kevin J. Yeaman - Dolby Laboratories, Inc.: Well, like I said earlier, I think we're still at early stages because most of our partners are still in their higher end models. Again, VIZIO and TCL are great examples of partners that have gone quite a bit deeper. But of our dozen or so partners, most of them are still at the higher end models. And I think that's where we are today and I think it'll gradually change, but we probably won't see a market change by Christmas at this point. Lewis Chew - Dolby Laboratories, Inc.: Yeah, yeah. (00:42:11) Steven Frankel - Dougherty & Co. LLC: ...next year, yeah. Kevin J. Yeaman - Dolby Laboratories, Inc.: Yeah. I think going forward, look, our goal is to have Dolby Vision and Dolby Atmos be a part of all in this context UHD experiences. Now obviously, that's a ambitious goal, but when we come to work every day, we believe that Dolby Vision and Dolby Atmos can improve every experience. And you've seen from previous adoption cycles that we have to keep focused on broadening the value proposition in terms of connecting content to devices. It's never easy to predict exactly when we're going to get hit an inflection point. But we leave an inflection point as possible and we believe that we've created the potential for that and we're just going to stay focused on scaling this opportunity. And I think the growth in the ecosystem over this last year is what's most encouraging. And again, on the content side, now having Apple, Netflix, Amazon, Rakuten, iQiYi, Tencent, Youku, it's encouraging. But that, combined with the – now the first pay TV operators and the activity we have going on in the live area that just – it's all about continuing to broaden that value proposition. So, people have as many reasons as possible to include Dolby Vision and Dolby Atmos and so that as many consumers as possible can have their experiences that way. Steven Frankel - Dougherty & Co. LLC: And certainly, that theory of you take what you've done in Apple where you've gotten Vision and there on the phone, what impact has that had on the pipeline in Android? We've seen some announcements, but my hope would have been that there would have been a whole – a lot more activity in the Android market. What's the pipeline of interest like in Android in Vision and Atmos? Kevin J. Yeaman - Dolby Laboratories, Inc.: Yeah. I mean, I don't know that I can ever isolate the impact of any one event on how some other partner is thinking, but there's no doubt that the success that we've had together with Apple over this last year getting Dolby Vision into the Apple ecosystem, ending the year adding Dolby Atmos to the Apple TV 4K, and the amount of content and the growing amount of content on iTunes is significant and people take notice of that. So on the scale of when we go to articulate a value proposition, each one of these wins makes a difference because it becomes more and more compelling that more and more content is going to be coming and that more and more consumers are going to be expecting this kind of experience and the reviews continue to be outstanding. Steven Frankel - Dougherty & Co. LLC: Okay. Great. Thank you so much.

We'll take a follow-up from Eric Wold. Eric Wold - B. Riley FBR, Inc.: Thank you. Just want to drill in on the products and services guide a little bit deeper, I guess. I guess, one, first question is, is there any impact to products and services revenue in fiscal 2018 from the recast? And then, second question is looking at that line item, it's been fairly minimal growth over the past few years, $109 million in 2016; $115 million, 2017; $114 million last year. And now, you're looking for $150 million to $170 million. I guess, you gave three reasons in there, new cinema products, Voice and Dolby Cinema or somebody else line (00:46:09). Maybe give us a sense of magnitude of which of those three is the biggest driver that's really driving that 30% to 50% growth from last year? Lewis Chew - Dolby Laboratories, Inc.: Sure. Hey, Eric, let me take a first crack at it, and then, I'll let Kevin add on to my comments, which are going to be more numeric in nature. But first of all, from a recast standpoint, I think I'll tie it back for a second to a question that Ralph asked about the recast and the impact on FY 2018 licensing. I think what I said to him was that the substantial majority of the – virtually all of the recast in 2018 affected licensing, not in products and services. And that's because of the way ASC 606 and ASC 605 differs on that. Within that, I think I mentioned in my prepared comments that the markets that were most affected by that were mobile, PC and broadcast. And really, mobile is the majority of it. So if I look at the recast of 2018 and spend one second on that, that difference between the $1.172 billion and that range I gave, the majority is mobile, then there's a chunk in PC and a little bit smaller part from broadcast, which then puts me to your question, which is no, the trend in the product and services revenue from 2018 and 2019 is really not affected by what I'm characterizing here as the ASC 606 recast. The growth is coming from a blend of, first, I would point out that the cinema products group released a number of newer products at the beginning of this year and during the year ranging from multi-channel amps to more user-friendly speakers for Atmos installations and things like that. And we've built up a pipeline. We have customers out there who've indicated demand and that demand didn't come as soon as we thought. And Jim Goss asked earlier whether it's all timing, it's hard to know how much of it is all timing, but we do have some confidence that we'll see growth there. So cinema products, we expect, will grow next year. We also expect growth in Dolby Voice. Dolby Voice, they're growing off of a relatively smaller base. So, right near the latter part of this fiscal year was when we released this new product called the Dolby Voice Room, which combines this integrated easy to use camera – visual device with our phone and that's in the very early days. So, we have some expectations for growth there. And then also, I mentioned that a portion of our Dolby Cinema deals in FY 2019 we anticipate will land in products and services, and those would be deals where we're pursuing more hybrid transactions where a chunk of the money is received upfront and that could be classified as a sale at the time of the deal and that would (00:48:59) and services. So, those are three different pieces that go to the growth in products and services and none of those have anything to do with the change from ASC 605 to ASC 606. Eric Wold - B. Riley FBR, Inc.: No, that's perfect. Just one quick follow-up, if I may, so the – what is the behind the desire to pursue more hybrid transactions? I was just trying to be a little more risk adverse in kind of an uncertain world and kind of take a little less – put a little less capital out there into these new installations. Lewis Chew - Dolby Laboratories, Inc.: Yeah. In some cases, it might be the market or the customer where that circumstance worked out better for them. In some cases, it might be a factor of what the profile of that market is and financial considerations for the customer. In some cases, it could be currency. So, I think there's a blend of factors that go into why we do this. Our base model, of course, as you know, is to generate ongoing share of gate receipts. So, this would be a subset of those deals. But there are going to be times where we have an opportunity to do a deal and doing it this way might make good sense. Kevin J. Yeaman - Dolby Laboratories, Inc.: Yeah, I would just add, it's primarily going to be markets where we believe that the financial market conditions make this a better... Lewis Chew - Dolby Laboratories, Inc.: Attractive. Kevin J. Yeaman - Dolby Laboratories, Inc.: ...balance for us. Yeah. Eric Wold - B. Riley FBR, Inc.: Perfect. Thanks, gentlemen.

And at this time, I'd like to turn things back to Kevin Yeaman for any closing remarks. Kevin J. Yeaman - Dolby Laboratories, Inc.: Great. Well, thanks everybody for joining us and we look forward to updating you again soon.

And that will conclude today's conference. Again, thank you all for joining us.