Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories Conference Call discussing Fiscal Third Quarter 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 Thursday, July 29, 20 21.
I would now like to turn the conference call over to Jason Deeb, Senior Director of Finance and Investor Relations for Dolby Laboratories. Please go ahead, Jason.
Good afternoon. Welcome Dolby Laboratories' 3rd quarter 2021 earnings conference call. Joining me today are Kevin Yeaman, Dolby Laboratories' President and CEO and Louis Hsu, Executive Vice President and Chief Financial Officer. As a reminder, today's Discussion will include forward looking statements, including our Q4, second half and fiscal twenty twenty one outlook and our assumptions underlying that outlook. These statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today.
In particular, the extent of the continued impact of COVID-nineteen on our business remains uncertain at this time. A discussion of these and additional risk and uncertainties can be found in the earnings press release that we issued today under the section caption Forward Looking Statements as well as in the Risk Factors section of our most recent quarterly 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 for 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 today's call, Kevin will start with a discussion of the business and Louis will follow with a recap of Dolby's financial results and provide our Q4, second half and fiscal twenty twenty one outlook. So with that introduction behind us, I will now turn the call over to Kevin. Kevin?
Thank you, Jason, and good afternoon, everyone. Q3 was another strong quarter for Dolby. Our revenue and earnings for the quarter were solid, And we are on track to deliver annual revenue growth of over 10% and year over year earnings growth at an even higher rate. At the same time, Dolby experiences are accessible to a growing number of people around the world, highlighted by the launch of Dolby Atmos on Apple Music and the Tokyo Olympics broadcasted in Dolby Vision and Dolby Atmos. Before Louis takes you through the numbers, I wanted to highlight the recent progress we have made in enabling Dolby experiences across a much broader range of content, which creates opportunities for continued revenue and earnings growth.
The inclusion of Dolby Atmos and Apple Music marks a significant step forward in bringing Dolby Atmos Music to a much larger audience and establishing it as the best way to create and listen to music. The Dolby Atmos music experience has been prominently featured by Apple and has been met with that support the combined Dolby experience. And recently, Dolby Atmos enabled Android devices can also enjoy Dolby Atmos on Apple Music. Beyond Apple Music, Mavor Vibe, a music streaming service in South Korea, launched support for Dolby Atmos this quarter. And additionally, our partners like Tidal, Amazon Music, Hungama and Angami continue to grow the number of songs available in Dolby Atmos on their streaming services.
As the ways in which consumers can enjoy Dolby Atmos Music expands, We are also focused on growing the library of music through our engagement with artists and music distributors. DistroKid, a leading distributor of independent music, Announced that they will be delivering songs in Dolby Atmos on both Apple Music and Tidal. We see enthusiastic engagement from Popular artists, including Ariana Grande, BTS, Billie Eilish and Glass Animals, who are among the many artists highlighting the availability of their music in Dolby. As we expand the availability of Dolby Atmos music to consumers, We add to the reasons to adopt Dolby Atmos in mobile, PC and automotive. We also had some exciting wins in live broadcast this quarter.
Comcast is currently delivering NBC's live Tokyo coverage in both Dolby Vision and Dolby Atmos to their X1 customers. This marks the first time that the Olympics can now be enjoyed in the combined experience. Also this quarter, Euro 2020 broadcasted in Dolby Atmos across multiple to viewers in the Netherlands. By enabling a growing number of live broadcast events, we build upon our strong presence in movie and TV content and add to the value proposition for deeper adoption of Dolby in TVs, set top boxes, DMAs and mobile applications. The momentum of Dolby Vision and Dolby Atmos content across streaming services continues to be strong as our partners bring new titles in Dolby Vision and Dolby Atmos.
Paramount Plus added support for Dolby Atmos when they recently released A Quiet Place 2 in the combined Dolby experience. We have also seen our partners expand the amount of original local content that is enabled in Dolby. IQIYI recently announced for Thailand in Dolby Vision this quarter and Disney plus Hotstar is enabling new local content for India in Dolby. Stan, a leading OTT service in Australia, now supports the combined Dolby experience on their platform. Enabling relevant local content in Dolby is another important factor in driving more adoption across the global markets that our OEM partners serve.
This quarter, Xiaomi and Skyworth released new TV models highlighting both Dolby Vision and Dolby Atmos. In Japan, rigs have launched their first TV with Dolby Vision IQ, adding to a growing list of partners that includes LG, Panasonic, TCL, Xiaomi and Hisense. Sage and Com recently launched their all in one video sound box, which combines set top And LG announced the rollout of updates coming to their OLED TVs that optimize for the best gaming experience in Dolby Vision. Gaming is another area we are on growing the number of experiences in Dolby. And we began to see momentum with mobile games becoming available in Dolby Atmos.
With gaming and music, we are enabling more of the relevant content for mobile phones and PCs to now be Dolby experiences, adding to the reasons for adoption on these devices. This quarter, we saw Dolby Atmos highlighted across several mobile phone launches in India, including Oppo and their Realme branded phones and Xiaomi's Redmi gaming smartphone. Within PC, Samsung recently launched a new Galaxy Book lineup featuring Dolby Atmos. We continue to build on our momentum of Dolby Vision and Dolby Atmos across content, services and devices. At the same time, we still see significant opportunity to increase adoption as we grow the amount of content experiences available in Dolby.
Let me shift to cinema. We now have about 95% of our Dolby Cinemas open globally, and our partners remain deeply engaged. In recent months, more content has returned to the big screen, and we have seen positive signs in box office performance. This was highlighted in the U. S.
With strong opening weekends from titles like Black Widow and F9: The Fast Saga that were both available in Dolby Cinema. We continue to see moviegoers seeking to enjoy these movies in the best way possible with box office skewing more towards Dolby Cinema We are very excited to have welcomed Marie Hoovey to the Dolby team this quarter to lead our dolby. Io efforts. Marie brings strong leadership experience and a track record of leading engagement with developer communities, including most recently at DocuSign, where she established the company's 1st class developer experience. During our 1st year with Dolby.
Io and market, Our focus has been on building our engagement with the developer community, learning from these interactions and continually evolving our offerings to best meet the needs of developers. Since launch, we have seen strong demand for higher quality real time experiences. We have now begun to roll out a significant update that will enable larger scale interactions with more participants. We have positive feedback from current customers who are now live with this release, and we are actively engaging a significant pipeline of potential customers that these increased capabilities can directly address. We see engagement across a variety of use cases, including podcasting, remote collaboration tools, virtual meetings and online education.
We are excited by the many ways developers are engaging with our APIs, and we are just at the beginning of what Dolby. Io can enable in creating higher quality Everyday Audio Visual Experiences. So to wrap up, Dolby is available to a much larger audience across a wider range of content today than ever before. As we build upon our presence in movie and TV content With more Dolby experiences in music, gaming and live events, we increased the reasons for deeper adoption of Dolby across devices. And with dolby.
Io, we are building the momentum to bring the Dolby Magic to a wide range of use cases and experiences. All of this gives us confidence in our ability to drive revenue and earnings growth into the future. And with that, I'd like to hand it over to Louis to take us through the financials.
Good afternoon. And as Kevin said in his opening comments, we did have another Solid quarter. So let me go through the Q3 numbers and then I'll walk you through the outlook for Q4. So starting off with revenue. Revenue in the Q3 was $287,000,000 which was at the higher end of our guidance range and included a true up of about $14,000,000 for Q2 shipments reported that were above the original estimates and that item is not uncommon.
On a year over year basis, 3rd quarter revenue was about $40,000,000 above last year's Q3 as we benefited from Higher market TAMs along with greater adoption of our Dolby Technologies. And then on a sequential basis, revenue was down from Q2, mainly due to timing of revenues from contracts and from patent licensing programs and both of these topics were anticipated when we gave guidance. So Q3 revenue was comprised of $272,000,000 in licensing $15,000,000 in products and services. So let's discuss the Trends in licensing revenue by end market, starting with broadcast. Broadcast represented about 46% of total licensing in the 3rd quarter.
Broadcast revenues increased by about 40% year over year and that was driven by higher market volume, higher recoveries and higher adoption of our Dolby Technologies. And then on a sequential basis, broadcast increased by about 18%, and that was due mostly to higher recoveries. In the mobile space, mobile represented about 18% of total licensing Q3. Mobile declined by about 36% year over year, mainly due to lower recoveries and that was offset partially by higher market volume. And then on a sequential basis, mobile was down by about 24% due mostly to timing of revenue under contracts, and we did anticipate that.
Consumer Electronics represented about 14% of total licensing in Q3. And on a year over year basis, CE Licensing increased by about 86%, driven by higher market volume, higher adoption of Dolby and higher recoveries. On a sequential basis, CE went down by about 22% and that was due mainly to timing of revenue under contracts. TC represented about 9% of total licensing in the 3rd quarter. TC was higher than last year by about 6% due to higher market volume along with increased adoption of Dolby Vision and Dolby Atmos, offset partially by lower recoveries.
And sequentially, PC was down by about 51% due mostly to timing of revenue, and that lines up with some of the comments I made last quarter about Other markets represented about 13% of total licensing in the 3rd quarter. They were up about 42% year over year and that was driven by higher revenue from Dolby Cinema via admin fees and gaming. And on a sequential basis, other markets increased by about 4% due mostly to Dolby Cinema and to gaming. So if I go beyond licensing, our products and services revenue was about $15,200,000 in Q3 compared to $16,000,000 in Q2 and $11,800,000 in last year's Q3. The year over year increase reflects just modestly higher demand in the cinema industry.
So now I'd like to discuss Q3 margins and our operating expenses. Total gross margin in the 3rd quarter was 89 on a GAAP basis was minus $3,900,000 in Q3 compared to minus $345,000 in the 2nd quarter. And products and services gross margin on a non GAAP basis was minus $2,600,000 in Q3 compared to a positive $1,100,000 in
in the Q2.
Both GAAP and non GAAP product gross margins were lower than what I had guided, and that was due to write downs we took during the 3rd quarter for conferencing hardware. Operating expenses in the 3rd quarter on a GAAP basis were $199,100,000 compared $204,000,000 in Q2. And our operating expenses in the 3rd quarter on a non GAAP basis were $173,600,000 compared to $178,400,000 in the 2nd quarter. Now operating expenses were below guidance in Q3 And that was mainly due to some of our marketing programs that shifted in timing from Q3 into Q4. And you will see that sort of mirrored back and reflected in our Q4 expense guidance where the delta from Q3 to Q4 will be driven mostly by our marketing programs.
And then our operating income in the 3rd quarter was $56,100,000 on a GAAP basis or 19.6 percent of revenue compared to $34,100,000 or 13.8 percent of revenue in Q3 of last year. Operating income in the 3rd quarter on a non GAAP basis This was $83,600,000 or 29.1 percent of revenue compared to $60,500,000 or 24.5 percent of revenue in Q3 of last year. Income tax in Q3 with 7.7% on a GAAP basis and 13.7% on a non GAAP basis. So Net income. Net income on a GAAP basis in the 3rd quarter was $54,600,000 or $0.52 per diluted share compared to $67,300,000 or $0.66 per diluted share in last year's Q3.
Now I'd like to point out as a reminder, Last year's Q3 net income, and that's both GAAP and non GAAP, included $36,000,000 of discrete tax benefits, which It does affect the year over year comparisons. So our net income on a non GAAP basis in the 3rd quarter was $74,800,000 or $0.71 per diluted share compared to $87,500,000 or $0.86 per diluted share in Q3 of last year. And again, that benefits the last year number benefits from that one time tax credit. For both GAAP and non GAAP, Net income in the 3rd quarter was above guidance due to revenue landing at the higher end of our range and expenses coming in below the range. During the Q3, we generated $172,000,000 in cash from operations compared to $134,000,000 generated in last year's Q3.
We ended the Q3 with about $1,300,000,000 in cash and investments. During the Q3, we bought back about 400,000 shares of our common stock and ended the quarter with about $37,000,000 Today, we announced that the Board of Directors has approved and additional $350,000,000 of stock repurchase authorization. So if I combine that new approval With the remaining balance that was at the end of June means that as of today, we have $387,000,000 of stock We also announced today a cash dividend of $0.22 per share. The dividend will be payable on August 19, 2021 to shareholders of record on August 11, 2021. So So now let's discuss the forward outlook.
Last quarter, when I discussed guidance for Q3, I laid out a scenario that said our second half revenue could range from $560,000,000 to $600,000,000 Now with Q3 under our belt and having landed in the range, We are updating the second half revenue range to $570,000,000 to $600,000,000 In other words, bumping up the lower end by $10,000,000 which means we are anticipating Q4 revenue to range from $280,000,000 to $310,000,000 Within that, Licensing could range from $265,000,000 to $290,000,000 while products and services could range from $15,000,000 to 20,000,000 With respect to market conditions and industry analyst reports that look out over the horizon, there's still a fair amount of uncertainty out there, and so we are Maintaining similar assumptions as what we talked about last quarter, namely that TC TAMs in the second half could be higher on a year over year basis, while TAMs for TVs and other consumer devices could be down in the second half. We also continue to anticipate that we'll see organic growth on a year over year basis from broader adoption of Dolby Technologies across various markets. And we also anticipate some higher revenue from Dolby Cinema as that industry looks to improve, which we have seen some signs of in recent And Kevin made a couple of comments about that with some of the titles that came out.
So let me move on to the rest of the P and L outlook for Q4. Q4 gross margin on a GAAP basis is estimated to range from 88% to 89% and the non GAAP gross margin Q4 gross margin on a GAAP basis is estimated to range from 88% to 89% and the non GAAP gross margin is estimated to range from 89% to 90%. Within that, products and services gross margin is estimated to range from about breakeven to $1,000,000 on a GAAP basis and from about $1,000,000 to $2,000,000 on a non GAAP basis. Operating expenses in Q4 on a GAAP basis Our estimated range from $216,000,000 to $226,000,000 and operating expenses in Q4 on a non GAAP basis are estimated to range from $190,000,000 to $200,000,000 As I mentioned earlier, the increase from Q3 to Q4 would be driven primarily Specific marketing programs, some of which shifted in timing from Q3 into Q4. But in total, Q3 plus Q4 marketing is expected to land at a similar amount as we were thinking last quarter.
And to repeat a comment I made last quarter, marketing expenses for the full year FY 2021 Would be similar to what they were last year or maybe a bit lower depending on how Q4 turns out. So let's finish up the Q4 guidance. Other income is projected to range from $1,000,000 to $2,000,000 for the 4th quarter, and our effective tax rate for Q4 projected to range from 19% to 20% on both a GAAP and non GAAP basis. Based on a combination of the factors I just covered, We estimate that Q4 diluted earnings per share could range from $0.25 to $0.40 on a GAAP basis and from $0.47 to $0.62 on a non GAAP basis. And now that we've provided guidance for Q4, here's a full year outlook that would correspond to FY 'twenty one revenue is anticipated to range from 1,280,000,000 to $1,310,000,000 with gross margin ranging from 89% to 90% on a GAAP basis and 90% to 91% on a non GAAP basis.
Total operating expenses for the year are estimated to range from $810,000,000 to 820,000,000 And full year diluted earnings per share are estimated to range from $2.79 to $2.94 on a GAAP basis and from $3.57 to $3.72 on a non GAAP basis. So with that, let me move on to Q and A and turn it over to the operator. So operator, hopefully my phone is working okay now. Can you queue up the first question? Thank you.
Thank you, ladies and gentlemen. Please be sure to identify yourself and your firm at the outset. To be fair to all participants, we ask that you limit yourself to one question and a follow-up question until all participants have had a chance in the first round. If time allows, we will then come back to answer any remaining questions. One moment please for the first question.
Good afternoon. Thanks for taking the question. First question is on IOW. Kevin, in the prepared remarks, you talked about a significant update. I think you said more specifically, it allows larger interactions with more participants.
Just curious, was this sort of a limitation of the IO offering? Does Sort of widen the aperture for new customers, just trying to gauge how significant this update is.
Well, it significantly increases the number of participants we can support in audiovideo events. And so we launched with our APIs about a year ago. We started out with a number of features that improve capture quality. We have, of course, Dolby Voice embedded in the service. And yes, we began engaging with customers who had And so the significance of this release is that it's going to enable us to engage with more developers for larger events and more usage.
So we're excited to bring this to life.
Great. I guess now that you
have the new release and then you've had, I guess another quarter or 2 with partnerships such as Box. Can you maybe just sort of help us understand the monetization opportunities? And I know it's tough to put a number on The market opportunity, but any sort of methods or methodologies you sort of help us think about how to gauge this opportunity, I think, would be helpful.
Well, starting at the very highest level, Ralph, there's 100 of 1,000,000,000 of audio video interactions going on every month and there's 100 of 1,000,000,000 of Minutes of media content in the cloud. And we strongly believe at Dolby that people want to have The best quality experiences and that's what we're seeing from the developers that are engaging with us today. So we're confident that there's a very large addressable market. And so today, what we're focused on is, And so today, what we're focused on is continuing to evolve the platform based on what we're hearing and bringing on more developers and getting more usage. We've seen some really great use cases developing.
And so the monetization model, as you know, is a usage basis and that's we're seeing that now. So it's all about getting more adoption and more usage.
Great. Last one, I'll turn it over. Just curious if there's any updates on the CFO
Serge? Well, we are in the process. I'm confident that there There's a lot of great candidates out there. We also have a great team here at Dolby. So we're progressing and we'll keep you updated.
Okay, great. Thanks, Kevin.
Thank you, Mr. Schackart. The next question is from Steven Ranks with Collier Securities. Please proceed.
So to follow-up on the last question on Ohio,
maybe give us
Yes. So thanks, Steve. You are cutting out quite a bit, not quite as silent as Louis went on me, but I think I got
Just
to confirm, you're asking about new Marie joining and kind of what the focus is? Is that the Yes. So Well, look, I think, 1st and foremost, she's diving right into the roadmap we have. Like I said, This was a big release for us, which obviously was in the works even as Marie joined. And she's working with the team to look at the roadmap for our platform, to look at areas that we can accelerate, those that we think will Create the most engagement with developers and increased usage.
She also has spent decades involved in Businesses that are centered around developer communities. So you can expect to see us engaging in stepping up our efforts
Congratulations on the progress of running live events and have those decisions.
Are there any
I'm sorry, Steve, you're really cutting in and out, but I gather that the question is centered around live broadcast at the Olympics. And I think your question was about kind of what work has to be done in the future to Accelerate that? Is that kind of do you keep that moving?
It was that the
I was getting more towards, but not all of them. How do we make it more commonplace, I guess, what you just said, right?
Right.
Right. Okay, good. Well, look, first of all, of course, we're thrilled that Comcast is making the Olympics available in both Vision and Atmos. And as you know, we've been working with Comcast for some time. Look, each event like this It is a step toward making it more commonplace.
It's a matter of making sure that the supporting cast that is supporting these live events. Some of them are obviously doing it for the first time. They're getting the right equipment and software in place. So each time that we go through an event like this, that's another step toward Getting more events. So, we're excited about that.
We're excited about the other events we talked about in Dolby Atmos, and it's a big focus for our organization. So yes, there's definitely a certain amount of work that goes along with for people doing it for the first time, but high profile events like this are a really big step forward. And of course, you get people who will move from this event to other events. And so you'll get people who are familiar, who aren't doing it for the first time.
Thank you, Mr. Ranks. The next question is from James Goss with Barrington Research. Please proceed.
Thank you. I'd like to start with Dolby Music. You've talked about a lot of devices and services where there's availability and people can sample this. I'm wondering if you could synthesize it into, 1st, like what is required then for individuals to be able To take advantage of the service and what do you think would be a currently enabled TAM, if you will, and taking advantage of music. And are there unit sales beyond the existing sales of AV receivers, soundbars, PCs that would benefit from The music development.
Sure. Yes. Thanks for the question. Well, Anybody who is a subscriber of 1 of our service partners that has a Dolby Atmos Most device that supports that service is able to get the benefit of the Dolby Atmos experience. And of course, I've been through the names, but since you brought it up, we're very excited to have Apple Music.
We've added NeighborVibe, which is South Korea. So you've noticed We've had a regional focus as well with companies like Hungama and Ongami. So the number of people that can The service is growing that can receive the service is growing significantly. The significance, Jim, is that, in the mobile phone and PC space, I mean, you've seen us continue to garner wins at the high end that start with the movies and TV Value proposition is being bolstered by our progress in mobile gaming. Music has very broad appeal and we think it really expands the addressable market of mobile devices and PCs that are going to see value in supporting Dolby Atmos.
In terms of new categories, which is where you, I think, ended your question, I would point to the automotive space because automotive is an experience where artists, service Everybody is really focused on that as a really important experience in the realm of music. And So we think that this really gives us an opportunity to make some headway in the automotive space.
And in that regard, are you developing relationships at the OEM level And the way SiriusXM would to try to get in the new systems and cars. Is that part of
Yes, that's right. So you saw that we last quarter announced that Lucid Air would be bringing the Dolby Atmos music experience to life. We are engaged across the industry looking to bring the Dolby Atmos to more cars.
Okay. And one other thing in cinema. Obviously, you're in the middle of All of the Windows issues and that sort of thing with Dolby Cinema. And today there was a lawsuit with Scarlett Johansson trying to look at Disney To maybe pull back a little bit on the day and date and maybe help a business like yours and IMAX With the theatrical window, I wonder if you might comment on any reaction you have. It's a relatively it's a brand new event, but Perhaps you had some thoughts.
I don't think so. I mean, honestly, I haven't I had not seen that news. But our belief is that for these blockbuster movies that are the ones that show in Dolby Cinema People are going to want to see them in the big screen experience and that what we've seen is that As we begin to see box office return, we have seen the percentage of box office Trending toward premium experiences and Dolby Cinema specifically, commanding more of the box office than it was at pre pandemic. And I believe that stands through as I think as people come back to the cinema, they want to have the best experience possible.
Thank you, Mr. Goff. The next question is from Paul Chung with JPMorgan. Please proceed.
Hi. Thanks for taking my questions. So your free cash flow has been very strong this year, driven mostly by Strong net income. So I don't really see any real kind of working cap benefits this year. Your free cash flow margin is kind of hitting levels last seen in 2011.
Is this the new normal moving forward? Is this
You want to take that one, Kevin?
Yes, please.
I guess the first wonder was whether my phone is working. Hey, Paul, how is
it going? Good. How are you?
I guess you're always very focused on the free cash flow. So a couple of comments I would make is, 1, You see now that our cash flow generation is now running fairly consistent with the business operations. Obviously, there's a ebb and flow to working capital quarter to quarter. But you'll also notice that this year, our operating margins are very strong and part of that is because our gross margins have And the gross margin improvement is because the mix of our revenue has been stronger than maybe what we would have anticipated at the beginning of the year. So I think that all Well, I am can you guys still hear me?
Yes, no? Okay.
Yes, we can hear you, Louis.
Okay, good. The funny thing about this, Paul, is believe it or not, I'm on a landline. So I'm not sure why it's cutting it out because I'm looking at my phone and it says Connected, so we'll have to I don't know that I'll ever be able to figure this out. Anyway, I'll wrap up by saying that the strong cash flow that you see is very heavily linked to our Our operating performance, obviously, the timing from quarter to quarter does depend on when we collect those receivables and also the fact that this year you see that our gross margins have ticked up Our operating margins are stronger than they've been historically. So I think that all ties together, it's a I think it's a very good story right now.
And your OpEx levels are kind of in this 55% range of sales. Is that the right level to kind of think about, I mean, it's ranged anywhere between the mid-50s to 60s.
Yes. Couple of comments on that. One is that we, like so many companies, we are seeing some expenses that are lower because of pandemic, the most obvious thing being travel. And I don't Yes. I'm not sure if there are you hearing me okay on this phone call right now?
Yes. Paul?
Okay, good. No, we do. The The second thing I'd like to point out too is just as a side note that FY 'twenty two, every 6 years or so, we have a 53 week year Like many companies do, we'll have a 53rd week next year. So that will be a little one time blip next year in expenses. And so I think the OpEx to revenue Range that you see right now is probably at the lower point of what we would normally run, but Kevin and I have talked quite a bit about the fact that we've always committed Keeping operating margins at or above that sort of 31% level.
And now this year with the improvement in gross margin, we see that ticking up a little bit. Probably some of that will come back a little bit, Paul, in terms of the OpEx ratio, not all of it. And think about it as just the A little bit of a bounce back in COVID, but also next year we'll have that extra week, which also then in the following year that will go away. So a lot of things to think about. I know we're not Ready to give FY 2022 guidance yet, but your question kind of almost goes beyond Q4.
So I thought it'd be worth getting you thinking about that.
Great. Thanks. And then Kevin, on Vision, where are you on adoption rates in TVs today? Update there would be nice. And then kind of What's your penetration rate come trending in PCs and smartphones?
Do you see opportunities in auto? And then separately, Atmos and auto, given kind of the longer sales cycle, would adoption really take time for Atmos to take off in car speakers?
Yes. So, well, I guess at the highest level, I would start by saying that With the wins we've garnered throughout this year around music, around gaming, around services like Bilibili, more recently live We feel really good about the sales proposition we have to continue to bring the Dolby experience To more devices across all of the areas that you just went through. We I have continued to increase the penetration on TVs with Dolby Vision and with Dolby Atmos. You've heard Today and throughout the quarters talk about a number of wins in PC and mobile. And automotive is an area where we expect to make progress.
And I mean, of course, There's a lead time to implementation that lead time has come down from what it might have been 3 to 5 years ago. And And even with the traditional car manufacturers, you can get timeframes that are within a year or so, I think, From when? I mean, obviously mileage varies, but a lot of what we're going to be doing is through the software. So, it will vary, but we're out there engaged. We think it's a really compelling experience, and we'll keep you updated As we go.
And then last kind of housekeeping question, what was the segment in which the back payment came in from Q2 would be helpful? Thank you.
The back payment that came in Q2 shipment Can you give me a little more color on that question?
I thought you recognized a back payment in Q3 from Q2 shipments. Is that not the case?
Oh, I'm sorry. Yes, You talked about the true up. We don't break out the true up by category generally, although I would say that Our strongest segment market segment, if you will, is broadcast, and broadcast did benefit from That true up. Yes, so sort of TV the TVs and set top boxes would have benefited significantly from that true up.
Great. Thank you.
Yes.
Thank you, Mr. There are no additional questions waiting at this time. I will now pass the conference back to Kevin Neiman for closing remarks.
Well, thank you, everybody, for joining, and we look forward to keeping you up to date on our progress. Thank you.
That concludes the conference call. Enjoy the rest of