Dolby Laboratories, Inc.
Q3 2017 Earnings Call Transcript

Published: 26 Oct 2017

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories Conference Call Discussing Fiscal Fourth Quarter and Fiscal 2017 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 [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.

[Elena Carr:]

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 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 Web site. As for the content of the call, Lewis will begin with a recap of Dolby's financial results and provide our fiscal 2017 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.

[Lewis Chew:]

Thanks, Elena. And I'm still impressed that you can do the whole thing from memory. So I have try to be in your place. Good afternoon, everyone. I'll cover three 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 our fourth quarter was $242 million, which is right in the range that 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 light of the same 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 to mainly the lower recoveries. PC represented about 14% of total licensing in the fourth quarter. PC was down sequentially by about 36% was 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 is due to higher volume. Consumer electronics. Consumer electronics represented about 12% of total licensing in 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 electronic 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 was mainly due to timing of revenue. By the way, I have highlighted timing in PC, CE and Mobile, and these types of movements were anticipated when we provided our Q4 guidance a quarter ago. Licensing in other markets represented about 17% of total licensing in the fourth quarter. They were about the same on a sequential basis, but they were higher by about 55% over last year’s Q4. And the year-over-year growth was driven by higher than typical recoveries in automotive, along with organic revenue growth from Dolby Cinema. Product and services revenue was $28.7 million in Q4 compared to $27.6 million in Q3 and $29.5 million in last year’s Q4. I will now discuss margins and operating expenses. Total gross margin in the fourth quarter was 87.9% on a GAAP basis and 88.7% on a non-GAAP basis. Product gross margin on a GAAP basis was 38.5% in the fourth quarter compared to 33.9% in Q3. And product gross margin on a non-GAAP basis was 43.3% in the fourth quarter compared to 40.6% in Q3. Operating expenses in the fourth quarter on a GAAP basis were $189.5 million compared to $177.6 million in the third quarter. During Q4, we initiated a plan to reduce certain activities and reallocate those resources towards higher priority investment areas. As a result, we are eliminating about 80 positions, and those employees who are impacted were notified in September. And our Q4 GAAP operating expenses include $12.9 million restructuring charge for severance related costs. Operating expenses on a non-GAAP were $159.9 million in Q4 compared to $161.5 million in the third quarter. Operating income in the fourth quarter was $23.4 million on a GAAP basis or 9.6% of revenue, and operating income was $54.9 million on a non-GAAP basis or 22.7% of revenue. The effective tax rate for the fourth quarter was 17.2% on a GAAP basis and 19.4% on a non-GAAP basis. And so, net income in the fourth quarter was $21.8 million on a GAAP basis or 9% of revenue, and was $46.6 million on a non-GAAP basis or 19.3% of revenue. Diluted earnings per share in the fourth quarter on a GAAP basis were $0.21 compared to $0.73 in the third quarter and $0.23 in Q4 of last year. On a non-GAAP basis, fourth quarter diluted earnings per share were $0.45 compared with $0.86 in Q3 and $0.37 in Q4 of last year. During Q4, we generated over $70 million in cash from operations and ended the quarter with over $1.1 billion in cash and investments. We brought back about 490,000 shares of our common stock in Q4, and ended the year with about $150 million of stock repurchase authorization still available. We also announced today a cash dividend of $0.16 per share, which is an increase from the $0.14 per share that we have been paying per quarter over this past year. The $0.16 dividend will be payable on November 15, 2017 to shareholders of record on November 6, 2017. Let me now provide a recap of full-year results before I move on to the forward outlook. FY '17 total revenue was $1.81 billion, representing an increase of 5% over the FY '16 total revenue of $1.26 billion. Total operating expenses in FY '17 on a GAAP basis were about $715 million compared to $685 million in FY'16. On a non-GAAP basis, total FY17 operating expenses were about $633 million compared to $611 million in FY16. Total operating income in FY17 on a GAAP basis was $249 million or 23% of revenue. And on a non-GAAP basis, it was $339 million or 31.4% of revenue. In both cases, that represents growth of about 7% over the last year's comparable number. Diluted earnings per share on a GAAP basis were $1.95 in FY17 compared to $1.81 in FY16. And on a non-GAAP basis, diluted earnings per share were $2.61 in FY17 compared to $2.43 in FY16. So that’s it on the FY17 results. Let me now cover the FY18 outlook. For the full-year FY '18, we estimate that total revenue will range from $1.140 billion to $1.170 billion. Within the revenue total, we estimate that licensing will range from $1.110 billion to $1.140 billion, while products and services are estimated to be around $130 million for the year. Here are some of the factors that are incorporated into the annual outlook. We anticipate that broadcast revenues will be flat to modestly up as higher revenues from consumer imaging will be somewhat offset by lower recoveries. PC licensing is projected to be down slightly, while CE, Consumer Electronics, is projected to be up modestly. We expect mobile revenue to grow. This will be coming from audio and consumer imaging programs, and also higher recoveries. The other licensing category is projected to be down because of lower recoveries, but that’s partially offset by revenue growth in Dolby Cinema. And the estimated growth in products and services revenue will come from some of our products and from Dolby Voice. Gross margin for the year is projected to be around 88% plus or minus on a GAAP basis and about 89% plus or minus on a non-GAAP basis. Operating expenses are projected to range from $726 million to $736 million on a GAAP basis and from $655 million to $665 million on a non-GAAP basis. Other income is estimated to range from $10 million to $12 million for the year, and the effective tax rate is expected to range from 23% to 24%. For the first quarter, for Q1 of FY18, we anticipate that total revenue will range from $216 million to $217 million. Within that, we estimate that licensing will range from $225 million to $235 million, while products and services is projected to be around $35 million for the quarter. Q1 gross margin on a GAAP basis is estimated to be around 88% and the non-GAAP gross margin is estimated to be around 89%. Operating expenses in Q1 are projected to range from $174 million to $178 million on a GAAP basis, and from a $156 million to $160 million on a non-GAAP basis. Other income is projected to range from $2 million to $3 million for the quarter and the effective tax rate is estimated at 23% to 24%. So, based on a combination of factors I just covered, we estimate that Q1 diluted earnings per share will range from $0.41 to $0.47 on a GAAP basis and from $0.55 to $0.61 on a non-GAAP basis. So that's about all I have. But by the way, this was the second year in a row that we grew revenue by 5% plus and earnings above that. And we are looking to improve upon that in FY '18 the outlook I just gave for revenue growth for the year equates to a range of up 5% to 8% for the year. So with that, let me turn it over to Kevin.

[Kevin Yeaman:]

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 a 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 Phillips, 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 groundwork 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 market, up from four last year. CNET recently noted that Dolby Atmos is one of the most requested Sound Bar features from their readers. Most recently, Orange, the largest telecom provider in France has begun offering a Dolby Atmos Sound Bar to its subscribers, allowing for broader consumption of its growing amount of Dolby Atmos content. This year PCs with Dolby Atmos were launched by Lenovo, Huawei and Xiomi and this quarter, Amazon has expanded its Dolby Atmos support beyond the Fire HDX tablets and into the new Fire TV with 4K. Content, of course, is a key part of building Dolby Atmos and Dolby Vision ecosystems. Netflix began streaming in Dolby Atmos this year and is now offering a combined Dolby Vision and Dolby Atmos experience to its global subscriber base. Today, there are four OTT services streaming in both Dolby Vision and Dolby Atmos, Netflix, Voodoo, Ten Cents and most recently, ITV. There are two additional OTT services streaming in Dolby Vision and four additional services streaming in Dolby Atmos. Paramount, Lionsgate and Sony Pictures, are now released in UHD Blu-rays in Dolby Vision and Dolby Atmos. In this quarter, Disney released its first titles with both Dolby Vision and Dolby Atmos for digital distribution to the home. During the year, Dolby Atmos content expanded beyond premium movie and TV content to gaming and live sports. In gaming, the first Dolby Atmos game for Xbox was released this week, Gears of War 4, and more will be released this quarter, including Assassin's Creed Origins. In live sports, BT started broadcasting in Dolby Atmos this year, and delivered the entire season of Premier League Soccer in Dolby Atmos. This quarter, Sky Sports launched its live 4K services in Dolby Atmos. We are beginning to see activity in live sports of Dolby Vision as well. Last quarter, the French Open was broadcasted in Dolby Atmos, AC-4 and Dolby Vision by France Television. And this quarter, we have several live broadcast trails with Dolby Vision and Dolby Atmos in the UK, France, Spain and Brazil. Let me move on to Dolby Audio. We continue to be focused on expanding the presence of Dolby Audio, particularly in developing markets. In China, we’ve seen an expansion of faster IPnetworks, which creates an acceleration of IPTV adoption. We are well positioned for the China IPTV market with key service providers, such as China Telecom, China Unicom and China Mobile. Also, in India this quarter, Free Dish, the country’s fastest growing satellite TV provider, specified Dolby Audio for its high definition set-tops boxes. We see an increasing number of OTT services streaming local content in Dolby Audio in emerging markets, such as India and Indonesia. Now, let’s turn to Dolby Cinema. We are ending the year with 114 screens open around the world compared to about 40 a year ago. In total, we have over 360 Dolby Cinema locations open or committed, and we expect to open about as many screens this year and we did in fiscal 2017. This growth is a result of working with our existing partners, such AMC and Wanda throughout the year, as well as by adding new partners. One of our newest partners, FA in Europe, just opened its first Dolby Cinema screen in France, last week. We also added new Dolby Cinema partners in China. CGV, one of the largest global exhibitors announced plans today to open 30 locations in China. Additionally, HuayiBrothers planned to open in 10 locations. Together with our existing partners in China, Wanda and Jackie Chan, we now have more than 140 screens open or committed in China. Over 60 movies have been released or announced through Dolby Cinema in China, including 16 China local language titles. The content pipeline for Dolby Cinema continues to grow. A 120 titles in Dolby Vision and Dolby Atmos have been released or announced. Recent releases include the Kingsman

[Operator:]

Thank you [Operator Instructions]. And we’ll take our first question from Mike Olson with Piper Jaffray. Please go ahead.

[Mike Olson:]

I have two questions, if I could. First, could you give us a sense for how much overall new initiative revenue grew in fiscal '17, that it turned out to be the two times growth? 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 you expect the most significant growth to come from within new initiatives for the coming year?

[Kevin Yeaman:]

Sure. So, yes we did end up at about double last year. So we doubled it, so 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 the momentum for each of them with Dolby Vision, that’s obviously a result of the included and additional devices. Just this quarter, of course, we announced Apple. I mentioned earlier that we’ve added BestSell and other TV partner. With Dolby cinema, it's about stream growth. And we look to add a lot of streaming 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.

[Mike Olson:]

And then regarding the Apple deal for Dolby Vision as it always gets that product and product 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 adapting, and that’s when it can become more significant as a revenue contributor?

[Kevin Yeaman:]

Well, Apple is a significant partner of ours. So I think it's an important customer. It always has been and continues to be. And it is also, 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 as it becomes -- we think it becomes a virtuous circle as this ecosystem really begins to develop.

[Mike Olson:]

All right. Thanks a lot.

[Lewis Chew:]

Okay Mike, operator just for a second, I want make something that I want to correct. I said verbally when I gave you guys a breakdown of the revenue, the total ranges, correct ability in $1.140 billion to a $1.170 billion, and product and services of $1.30, which means licensing should be $1.10 billion, a $1.40 billion not a $1.110 billion to $1.140 billion. So just correcting how I broke that down. Anyway, go on operator to the next question.

[Operator:]

Thank you. And we'll take our next question from Steven Frankel with Dougherty. Please go ahead.

[Steven Frankel:]

Good afternoon. Just a couple questions around that guidance. So Kevin, you reiterated again your goal of getting to double digit revenue growth and staying there. So maybe would start with what has to happen to move from this five to eight that you’ve guided to, to double digit revenue growth?

[Kevin Yeaman:]

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’re 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 entertainment devices in the world, all the hundreds of millions of movie goers 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, do it all like, it's about getting more of those devices in market for Dolby Vision, specifically. But obviously, as we 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 skews that do better than we expect. On Dolby Cinema, it’s obviously -- it's about getting more streams 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 level to what we saw last year.

[Steven Frankel:]

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 the 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?

[Kevin Yeaman:]

Steve, definitely not that. There's 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 taking into this year's Q1. That’s primarily driving that downside, we weren’t after that. And I think you see more normal curve. But it is worth noting though that for the full-year, I know, I mean by the way comment in my prepared remarks that we're going from growing the last two 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, it’s not a linear progression.

[Steve Frankel:]

Okay. Thank you. I’ll jump back into queue.

[Operator:]

And we’ll take our next question from Eric Wold with B. Riley. Please go ahead.

[Eric Wold:]

A follow-up question, I’ve got, two questions and one is a follow-up question on the last. Your comments, Lewis, around Dolby Vision on the TV side. If you can update us on where you are in penetration of the UHDTV’s and price points continue to drop? And as you get into the lower price points and into ones that as you characterize that could get in volume. Are your license deal struck since that, it's purely based on volume? Or is it based around price point of TV? And then I have a follow-up after that.

[Kevin Yeaman:]

So as it relates to the first part of your question we, in previous calls, have 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 Visio and from TCL, begin shipping this last year, which are 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 experiences to as many consumers as possible.

[Eric Wold:]

And then last question, on the large customer that is skewing Q3 revenues, we’ve had couple of here from the audio. Should we expect the new vision deal to roll on to that same pattern and just made Q3 even more skewed, or is it going to be a different pattern of recognition?

[Kevin Yeaman:]

Eric, as you know, I would have gives the standard. We don’t comment at a customer level. But at a high level, I would say we still expect that spiky pattern in Q3, but with respect to any new deal and not necessary going to say that makes it any more prominent.

[Operator:]

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

[Ralph Schackart:]

Good afternoon. I have 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, on the reallocation of resources initiative, how should we think about that going forward? Is that an ongoing process, or something that was a one-time event?

[Kevin Yeaman:]

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 it 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, if 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 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.

[Operator:]

And we’ll take our next question from Jim Goss with Barrington Research. Your line is open.

[Jim Goss:]

Thanks. I was wondering with Vision and Atmos, beyond the theater sector, cinema sector, do you try to sell them together versus a part or does it just as it's just whichever will sale in the streaming application?

[Kevin Yeaman:]

Great question, Jim. I would say we always go in looking to sale the total Dolby experience. And so in our dream world, everybody would navigate launch with Dolby Vision and Dolby Atmos, and they 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 our 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 they each begin to scale and they each have ecosystems strength of their own, we will look to bring the complete experience to life as quickly as we can.

[Jim Goss:]

And you’ve talked about vision maybe moving beyond the premium applications to our broader application TVs. But the Atmos, you mentioned Sound Bars. Is that pretty much the game right now? Or are there more applications with traditional receivers and street speakers, and that sort of thing?

[Kevin Yeaman:]

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 end 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 example 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 use cases. And this year was a big step forward in that.

[Jim Goss:]

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?

[Lewis Chew:]

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 the 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.

[Operator:]

And we'll take our next question from Paul Chung with J. P. Morgan. Please go ahead.

[Paul Chung:]

Hi thanks for taking my question. Can you just talk about the dynamics going on in 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 premium should be increasing on top of your existing audio solutions. So why the modest guide on what seems to be an easier comp? And how has the dynamics really changed since fiscal year '16? We saw a big step up in revenues and then fiscal year '17 now '18 guide is expected to be flattish? Thanks.

[Lewis Chew:]

Paul, that has to be the longest question on record. So why don't I start off to somewhere [indiscernible] and then I’ll turn it over to Kevin to talk about business dynamics, because we feel great about our broadcast business and that is a very valuable part of this Company, but lot of the innovation happening there is probably underestimated by people. But in fiscal '18, we've got a couple of dynamics inside. And one, we have organic growth coming from some of our imaging technologies, which flow through broadcast, cause 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've seen in the offerings. And I think even Kevin you mentioned in your comments that there was a IPTV set top box, it just got announced and we see more of those things coming in future sale.

[Kevin Yeaman:]

Yes, I mean, I’ve talked quite a lot about our presence on televisions. We’re excited about the Huawei set top box as the first set top box to go to market. Again, I would point out that these are early days and they tend to be the premium skew. So you’re not talking about the high volume skews. It certainly -- we certainly plan on getting into more higher volume skews 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 at Dolby Vision. But in the long haul, we see 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, this is a year where, as Lewis said, in 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 we might, otherwise the sector would be used is offsetting the growth we’re seeing from Dolby Vision.

[Paul Chung:]

And then on $60 million split in 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 three initiatives? Thank you.

[Lewis Chew:]

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 three of those legs of the stool would contribute to growth for the year. So what we look forward this some days, all of those big enough to break out separately. But right now we don’t -- within the $60 million number, we’re not break that out that kind of a detail.

[Operator:]

[Operator Instructions] We’ll take a follow-up question from Steve Frankel with Dougherty. Please go ahead.

[Steve Frankel:]

Thank you. Kevin, I wonder if you might give us an update on timing of ATFC 3.0 roll out in the states and then AC-4 adoption among customers globally?

[Kevin Yeaman:]

Sure. As you know, AC-4 has been included in the ATFC 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 number of TV providers, including Samsung and LG, which are shipping AC-4. We had a number of trials this year and some live stream 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 experiences into market quickly often times. We were centering that around large events, sports championships and Olympic opening ceremonies and those sorts of things. And all that’s coming along very nicely. And we’re optimistic that the ATFC 3.0 specification will become adapted quickly. Either way, it has -- I think it's certainly influential in terms of people looking at that -- at those specifications as the way the future.

[Steve Frankel:]

And then on HDR10 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’re looking at maybe adopting Dolby Vision and then you’ve got this HDR10/HDR10 plus effort that’s out there?

[Kevin Yeaman:]

Yes, so far, we’ve seen the press releases. I think our take on it is that it affirm something that we’ve always believed, which is the importance of having metadata as a way of optimizing in this experience. And on the case of Dolby Vision, as you know, worry both to identify what the capabilities of the television are and optimize the Dolby Vision stream for those capabilities, so that you’re not stretching or shrinking the content. 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 echo system will be supportive and built out. But in the meantime, in Dolby Vision, we have the highest quality solution with a robust ecosystem and that’s growing. So we just continue to be focused on that.

[Operator:]

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

[Kevin Yeaman:]

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

[Operator:]

And that conclude today's presentation. We thank you all for your participation. And you may now disconnect.