Dolby Laboratories Beats Forecasts and Raises 2026 Outlook

Dolby Laboratories ((DLB)) has held its Q1 earnings call. Read on for the main highlights of the call.

Dolby Laboratories Delivers Beat-and-Raise Quarter Amid Mixed End Markets

Dolby Laboratories’ latest earnings call struck an overall positive tone, as the company delivered revenue and earnings per share above guidance, raised its full-year outlook, and highlighted strong momentum in core growth areas such as mobile, automotive, Dolby Vision 2 and OptiView. While management acknowledged weaknesses in certain legacy end markets, restructuring charges, and macro-related uncertainty, the message was that Dolby’s foundational technologies and expanding ecosystem partnerships are increasingly driving sustainable growth and profitability.

Revenue and EPS Outperform Guidance

Dolby opened the quarter with a clean beat: Q1 revenue reached $347 million, topping the high end of guidance, while non-GAAP EPS of $1.06 likewise exceeded expectations. Licensing contributed $320 million and Products & Services $27 million. Management noted that a roughly $7 million favorable true-up related to prior shipments added to the upside, but the underlying performance still reflected solid demand and execution across key licensing categories.

Full-Year Outlook Raised on Stronger Licensing Trajectory

On the back of its Q1 performance, Dolby raised full-year fiscal 2026 revenue guidance to a range of $1.40 billion–$1.45 billion, with licensing revenue now expected between $1.295 billion and $1.345 billion. Non-GAAP EPS is projected at $4.30–$4.45, underpinned by a non-GAAP operating expense target of $780–$800 million and an implied operating margin improvement of 50–100 basis points. The tone around the outlook was confident, driven largely by growth in Dolby Atmos, Dolby Vision and imaging patents, which are becoming the main engine of the model.

Mobile Growth Accelerates Despite Macro Uncertainty

The mobile end market was a standout, growing more than 20% year over year in Q1. Management attributed the strength to broader adoption of Dolby technologies in smartphones and related devices, though it also cautioned that some of the jump reflected deal timing. For the full year, mobile is expected to grow in the mid-single digits once timing is normalized. Dolby did flag memory pricing and other macro variables as potential sources of near-term variability, particularly in mobile, but current momentum is clearly positive.

Foundational Technologies Near Half of Licensing Revenue

Dolby emphasized the growing importance of its foundational technologies—Dolby Atmos, Dolby Vision and related imaging patents—which are expected to grow roughly 15% and now sit close to 50% of total licensing revenue. This mix shift is strategically important: these higher-growth, higher-influence technologies are increasingly determining the company’s overall growth profile. Management reiterated its long-term view that these assets can grow at mid-teens rates and form the core of Dolby’s value proposition as content and devices converge around premium audio and video experiences.

Automotive Partnerships Expand Rapidly

Automotive is emerging as a significant growth vector. Dolby has expanded its auto partnerships to more than 35 OEMs, up from around 20 a year ago—an increase of roughly 75%. At CES, the company showcased in-car Dolby Atmos and Dolby Vision experiences, underscoring its ambition to make premium audio and visual capabilities a differentiator for carmakers. Dolby also highlighted its collaboration with Qualcomm’s Gen 5 Snapdragon Automotive platform and noted launches with Mahindra and Hyundai as tangible proof points of its deepening automotive footprint.

Streaming and Distribution Deals Broaden the Ecosystem

Dolby announced several notable content and distribution partnerships that expand its reach. Roku became the first U.S. streaming platform to join the company’s video distribution patent pool, signaling broader acceptance of Dolby’s IP framework. Peacock committed to Dolby Vision 2 and Dolby Atmos across both movies and live sports, enhancing the quality of premium streaming experiences. Meanwhile, Meta extended Dolby Vision support to Facebook, widening consumer exposure to Dolby-enhanced video. Taken together, these deals expand the addressable market and embed Dolby’s technologies more deeply across platforms.

Dolby Vision 2 Opens New TV Revenue Opportunities

Dolby Vision 2 generated strong industry interest at CES, with management expecting the first Dolby Vision 2-enabled TVs to hit the market by year-end. The company believes the new standard meaningfully increases its TV revenue opportunity by making advanced HDR features more accessible to midrange TVs, not just high-end sets. This upgrade potential could drive broader adoption by TV OEMs and create a multi-year monetization path as consumers refresh their screens.

Robust Cash Returns and Solid Balance Sheet

Financially, Dolby remains well-capitalized and shareholder-friendly. In Q1, the company generated approximately $55 million in operating cash flow, repurchased $70 million of stock—with about $207 million still authorized—and ended the quarter with roughly $730 million in cash and investments. Dolby also declared a quarterly dividend of $0.36, up 9% year over year. Management did caution that operating cash flow can fluctuate from quarter to quarter due to deal timing and collections, but the underlying balance sheet strength provides ample flexibility for both investment and capital returns.

High-Margin Profile Reinforced by Q2 Outlook

Guidance for Q2 underscores Dolby’s high-margin business model. The company expects revenue between $375 million and $405 million, including licensing revenue of $350 million–$380 million, which incorporates a large recovery item. Non-GAAP gross margin is projected at around 91%, with non-GAAP operating expenses of $195 million–$205 million and non-GAAP EPS in the $1.29–$1.44 range. These figures highlight the leverage in Dolby’s licensing-driven model and support the broader narrative of gradual margin expansion.

OptiView and Low-Latency Offer New Monetization Avenues

Dolby also spotlighted progress in newer product initiatives, particularly OptiView and low-latency streaming. OptiView delivered NFL RedZone via NFL+, delivering what management described as record streaming quality, while new deals with Veikkaus and SIS showcased subsecond latency capabilities for live content. These wins illustrate how Dolby is moving beyond pure codec licensing into product-driven solutions aimed at improving streaming performance and engagement, creating additional monetization levers.

Broadcast, PC and CE End Markets Under Pressure

Not all segments are growing. Broadcast licensing revenue declined by mid-teens year over year in Q1, largely due to deal timing. Management still expects broadcast to grow mid-single digits for the full year, but the quarterly dip underscores how timing can skew short-term results. Meanwhile, PC and consumer electronics are expected to decline over the full year, reflecting softer demand and mature device cycles. These headwinds will weigh on some licensing categories even as foundational technologies and newer verticals offset the weakness.

Quarterly Volatility and Restructuring Efforts

Dolby warned investors to expect some quarter-to-quarter volatility due to the timing of license recoveries, minimum volume commitments, and true-up adjustments. These factors can make short-term trends choppy even when the underlying trajectory is positive. The company also recorded a $10 million restructuring charge in Q1 as it streamlines operations and reallocates resources toward higher-priority growth areas. While this weighs on GAAP operating expenses in the near term, management framed the restructuring as part of a broader push to sharpen focus and improve efficiency.

Macro and Cash Flow Variability Remain Watchpoints

Beyond segment-specific trends, Dolby flagged macro risks such as memory pricing, which most directly affects the mobile market, and broader economic uncertainties that could affect customers’ spending patterns. These factors led to slight tweaks in portions of the outlook, and management indicated it will continue to closely monitor customer-level exposure. Operating cash flow, which was about $55 million in Q1, is also expected to fluctuate from quarter to quarter in line with deal timing and collections, underscoring the importance of looking at cash generation over a multi-quarter horizon.

Forward-Looking Guidance Highlights

Looking ahead, Dolby’s guidance paints a picture of steady top-line growth and gradual margin expansion, driven by its foundational technologies and expanding ecosystem. For FY 2026, management is targeting revenue of $1.40–$1.45 billion, licensing revenue of $1.295–$1.345 billion, and non-GAAP EPS of $4.30–$4.45, with operating margins improving by 50–100 basis points. Q2 is guided to $375–$405 million in revenue and EPS of $1.29–$1.44, supported by a roughly 91% gross margin. Mobile is expected to grow mid-single digits for the year after a strong Q1, broadcast is forecast to rebound to mid-single-digit growth for the full year, while PC and consumer electronics are expected to contract. Management continues to expect Dolby Atmos, Dolby Vision and imaging patents to grow around 15% and to represent nearly half of licensing revenue, reinforcing their central role in the company’s long-term growth story.

In summary, Dolby’s earnings call conveyed a constructive outlook: a beat-and-raise quarter, strengthening mobile and automotive demand, expanding streaming and distribution partnerships, and a growing contribution from high-value technologies. While certain legacy markets remain under pressure and macro factors introduce some volatility, the company’s high-margin licensing model, robust balance sheet, and accelerating adoption of Dolby Atmos and Dolby Vision suggest a favorable risk-reward profile for investors focused on long-term structural growth in premium media experiences.