UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 29, 2023

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From              To             

Commission File Number: 001-32431

DOLBY LABORATORIES, INC.

(Exact name of registrant as specified in its charter)

Delaware			90-0199783
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
1275 Market Street	San Francisco	California	94103-1410
(Address of principal executive offices)			(Zip Code)

(415) 558-0200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, $0.001 par value	DLB	The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☒

On January 26, 2024, the registrant had 59,493,054 shares of Class A common stock, par value $0.001 per share, and 36,085,779 shares of Class B common stock, par value $0.001 per share, outstanding.

DOLBY LABORATORIES, INC.

FORM 10-Q

For the Fiscal Quarter Ended December 29, 2023

TABLE OF CONTENTS

 

	PART I – FINANCIAL INFORMATION
Item 1.	Unaudited Interim Condensed Consolidated Financial Statements	4
	Unaudited Interim Condensed Consolidated Balance Sheets	4
	Unaudited Interim Condensed Consolidated Statements of Operations	5
	Unaudited Interim Condensed Consolidated Statements of Comprehensive Income	6
	Unaudited Interim Condensed Consolidated Statements of Stockholders' Equity	7
	Unaudited Interim Condensed Consolidated Statements of Cash Flows	8
	Notes to Unaudited Interim Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	50
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 5.	Other Information	67
Item 6.	Exhibits	68
Signature

2

GLOSSARY OF TERMS

The following table summarizes certain terms and abbreviations that may be used within the text of this report:

Abbreviation	Term
AAC	Advanced Audio Coding
AFS	Available-For-Sale (Securities)
AOCI	Accumulated Other Comprehensive Income (Loss)
API	Application Programming Interface
APIC	Additional Paid In-Capital
ASC	Accounting Standards Codification
ASP	Average Selling Price
ASU	Accounting Standards Update
ATSC	Advanced Television Systems Committee
AVC	Advanced Video Coding
AVR	Audio/Video Receiver
CE	Consumer Electronics
CODM	Chief Operating Decision Maker
COSO	Committee Of Sponsoring Organizations (Of The Treadway Commission)
DD	Dolby Digital®
DD+	Dolby Digital Plus™
DMA	Digital Media Adapter
DTV	Digital Television
DVB	Digital Video Broadcasting
DVD	Digital Versatile Disc
EPS	Earnings Per Share
ESP	Estimated Selling Price
ESPP	Employee Stock Purchase Plan
FASB	Financial Accounting Standards Board
FCPA	Foreign Corrupt Practices Act
G&A	General and Administrative
HD	High Definition
HDR	High-Dynamic Range
HDTV	High Definition Television
HE-AAC	High Efficiency Advanced Audio Coding
HEVC	High Efficiency Video Coding
IC	Integrated Circuit
IBR	Incremental Borrowing Rate
IP	Intellectual Property
LP	Limited Partner/Partnership
NOL	Net Operating Loss
OECD	Organization For Economic Co-Operation & Development
OEM	Original Equipment Manufacturer
OTT	Over-The-Top
PC	Personal Computer
PCS	Post-Contract Support
PP&E	Property, Plant, and Equipment
PSO	Performance-Based Stock Option
PSU	Performance-Based Restricted Stock Unit
R&D	Research and Development
ROU	Right-Of-Use
RSU	Restricted Stock Unit
S&M	Sales and Marketing
SEC	U.S. Securities and Exchange Commission
SERP	Supplemental Executive Retirement Plan
STB	Set-Top Box
TSR	Total Stockholder Return
UHD	Ultra-High Definition
U.S. GAAP	Generally Accepted Accounting Principles In The United States
VVC	Versatile Video Coding

3

PART I – FINANCIAL INFORMATION

ITEM 1. UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DOLBY LABORATORIES, INC.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

	December 29, 2023		September 29, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	656,816	$	745,364
Restricted cash	51,842		72,602
Short-term investments	140,823		139,148
Accounts receivable, net of allowance for credit losses of $7,428 and $9,683	293,228		262,245
Contract assets, net of allowance for credit losses of $108 and $138	217,559		182,130
Inventories, net	37,568		35,623
Prepaid expenses and other current assets	53,519		50,692
Total current assets	1,451,355		1,487,804
Long-term investments	92,876		97,812
Property, plant, and equipment, net	479,321		481,581
Operating lease right-of-use assets	38,001		40,199
Intangible assets, net	159,894		167,427
Goodwill	410,435		408,409
Deferred taxes	206,667		201,860
Other non-current assets	96,980		94,674
Total assets	$	2,935,529	$	2,979,766
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	14,395	$	20,925
Accrued liabilities	327,186		351,399
Income taxes payable	6,189		4,769
Contract liabilities	33,404		31,505
Operating lease liabilities	12,922		13,628
Total current liabilities	394,096		422,226
Non-current contract liabilities	36,994		39,997
Non-current operating lease liabilities	34,319		37,020
Other non-current liabilities	107,810		108,339
Total liabilities	573,219		607,582
Stockholders’ equity:
Class A, $0.001 par value, one vote per share, 500,000,000 shares authorized: 59,765,465 shares issued and outstanding at December 29, 2023 and 59,673,633 at September 29, 2023	53		53
Class B, $0.001 par value, ten votes per share, 500,000,000 shares authorized: 36,085,779 shares issued and outstanding at December 29, 2023 and 36,085,779 at September 29, 2023	41		41
Retained earnings	2,367,182		2,391,990
Accumulated other comprehensive loss	(21,428)		(36,984)
Total stockholders’ equity – Dolby Laboratories, Inc.	2,345,848		2,355,100
Noncontrolling interest	16,462		17,084
Total stockholders’ equity	2,362,310		2,372,184
Total liabilities and stockholders’ equity	$	2,935,529	$	2,979,766

See accompanying notes to unaudited interim condensed consolidated financial statements

4

DOLBY LABORATORIES, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

 

	Fiscal Quarter Ended
	December 29, 2023		December 30, 2022
Revenue:
Licensing	$	293,767	$	308,011
Products and services	21,807		26,910
Total revenue	315,574		334,921
Cost of revenue:
Cost of licensing	15,736		13,359
Cost of products and services	16,324		21,091
Total cost of revenue	32,060		34,450
Gross profit	283,514		300,471
Operating expenses:
Research and development	67,033		64,450
Sales and marketing	79,003		82,205
General and administrative	65,166		59,972
Restructuring charges/(credits)	6,091		(244)
Total operating expenses	217,293		206,383
Operating income	66,221		94,088
Other income/(expense):
Interest income/(expense), net	9,187		4,797
Other income, net	5,425		1,097
Total other income	14,612		5,894
Income before income taxes	80,833		99,982
Provision for income taxes	(13,252)		(20,534)
Net income including noncontrolling interest	67,581		79,448
Less: net income attributable to noncontrolling interest	(600)		(73)
Net income attributable to Dolby Laboratories, Inc.	$	66,981	$	79,375
Net income per share:
Basic	$	0.70	$	0.83
Diluted	$	0.69	$	0.82
Weighted-average shares outstanding:
Basic	95,376		95,905
Diluted	97,439		97,047
Related party rent expense:
Included in net income attributable to noncontrolling interest	$	71	$	71
Cash dividend declared per common share	$	0.30	$	0.27
Cash dividend paid per common share	$	0.30	$	0.27

See accompanying notes to unaudited interim condensed consolidated financial statements

5

DOLBY LABORATORIES, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

	Fiscal Quarter Ended
	December 29, 2023		December 30, 2022
Net income including noncontrolling interest	$	67,581	$	79,448
Other comprehensive income:
Currency translation adjustments gains, net of tax benefit/(expense) of $0 and $0	11,649		14,381
Unrealized gains on investments, net of tax benefit of $12 and $37	1,956		1,356
Unrealized gains on cash flow hedges, net of tax benefit/(expense) of ($684) and $156	2,091		4,332
Total other comprehensive income, net of tax	15,696		20,069
Total comprehensive income	83,277		99,517
Less: comprehensive income attributable to noncontrolling interest	(740)		(376)
Comprehensive income attributable to Dolby Laboratories, Inc.	$	82,537	$	99,141

See accompanying notes to unaudited interim condensed consolidated financial statements

6

DOLBY LABORATORIES, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

	Dolby Laboratories, Inc.
	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity - Dolby Laboratories, Inc.		Noncontrolling Interest		Total Stockholders' Equity
Balance at September 29, 2023	$	94	$	—	$	2,391,990	$	(36,984)	$	2,355,100	$	17,084	$	2,372,184
Net income	—		—		66,981		—		66,981		600		67,581
Other comprehensive income, net of tax	—		—		—		15,556		15,556		140		15,696
Distributions to noncontrolling interest	—		—		—		—		—		(1,047)		(1,047)
Stock-based compensation expense	—		31,894		—		—		31,894		—		31,894
Capitalized stock-based compensation expense	—		95		—		—		95		—		95
Repurchase of common stock	(1)		(16,087)		(63,914)		—		(80,002)		—		(80,002)
Cash dividends declared and paid on common stock	—		—		(28,552)		—		(28,552)		—		(28,552)
Common stock issued under employee stock plans	1		18,300		—		—		18,301		—		18,301
Tax withholdings on vesting of restricted stock	—		(34,562)		—		—		(34,562)		—		(34,562)
Deconsolidation of subsidiary	—		—		677		—		677		(677)		—
Equity issued in connection with business combination	—		360		—		—		360		362		722
Balance at December 29, 2023	$	94	$	—	$	2,367,182	$	(21,428)	$	2,345,848	$	16,462	$	2,362,310

	Dolby Laboratories, Inc.
	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity - Dolby Laboratories, Inc.		Noncontrolling Interest		Total Stockholders' Equity
Balance at September 30, 2022	$	94	$	—	$	2,297,730	$	(51,641)	$	2,246,183	$	4,837	$	2,251,020
Net income	—		—		79,375		—		79,375		73		79,448
Other comprehensive income, net of tax	—		—		—		19,766		19,766		303		20,069
Distributions to noncontrolling interest	—		—		—		—		—		(266)		(266)
Stock-based compensation expense	—		31,240		—		—		31,240		—		31,240
Capitalized stock-based compensation expense	—		341		—		—		341		—		341
Repurchase of common stock	(1)		(17,533)		(31,878)		—		(49,412)		—		(49,412)
Cash dividends declared and paid on common stock	—		—		(25,869)		—		(25,869)		—		(25,869)
Common stock issued under employee stock plans	2		10,952		—		—		10,954		—		10,954
Tax withholdings on vesting of restricted stock	—		(25,000)		—		—		(25,000)		—		(25,000)
Balance at December 30, 2022	$	95	$	—	$	2,319,358	$	(31,875)	$	2,287,578	$	4,947	$	2,292,525

See accompanying notes to unaudited interim condensed consolidated financial statements

7

DOLBY LABORATORIES, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Fiscal Quarter Ended
	December 29, 2023		December 30, 2022
Operating activities:
Net income including noncontrolling interest	$	67,581	$	79,448
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	17,872		19,155
Stock-based compensation	31,894		31,240
Amortization of operating lease right-of-use assets	3,088		3,207
Amortization of premium on investments	(895)		81
Benefit from credit losses	(2,101)		(1,030)
Deferred income taxes	(5,397)		(8,255)
Other non-cash items affecting net income	(1,745)		(3,467)
Changes in operating assets and liabilities:
Accounts receivable, net	(28,935)		(45,153)
Contract assets, net	(35,400)		(39,843)
Inventories	(9,297)		(501)
Operating lease right-of-use assets	570		1,690
Prepaid expenses and other assets	5,866		2,168
Accounts payable and accrued liabilities	(31,993)		5,765
Income taxes, net	6,184		15,292
Contract liabilities	(1,116)		3,277
Operating lease liabilities	(4,264)		(5,430)
Other non-current liabilities	(3,503)		(1,249)
Net cash provided by operating activities	8,409		56,395
Investing activities:
Purchases of marketable securities	(35,753)		(72,790)
Proceeds from sales of marketable securities	1,226		51,782
Proceeds from maturities of marketable securities	41,259		56,525
Purchases of property, plant, and equipment	(6,099)		(7,217)
Net cash provided by investing activities	633		28,300
Financing activities:
Proceeds from issuance of common stock	18,301		10,954
Repurchase of common stock	(80,002)		(49,412)
Payment of cash dividend	(28,552)		(25,869)
Distribution to noncontrolling interest	(1,047)		(266)
Shares repurchased for tax withholdings on vesting of restricted stock	(34,562)		(25,000)
Equity issued in connection with business combination	722		—
Payment of deferred consideration for prior business combinations	—		(500)
Net cash used in financing activities	(125,140)		(90,093)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash	6,790		8,504
Net increase/(decrease) in cash, cash equivalents, and restricted cash	(109,308)		3,106
Cash, cash equivalents, and restricted cash at beginning of period	817,966		628,371
Cash, cash equivalents, and restricted cash at end of period	$	708,658	$	631,477
Supplemental disclosure:
Cash paid for income taxes, net of refunds received	$	11,759	$	12,626
Non-cash investing activities and financing activities:
Change in property, plant, and equipment purchased, unpaid at period-end	$	1,073	$	499

See accompanying notes to unaudited interim condensed consolidated financial statements

8

DOLBY LABORATORIES, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

Unaudited Interim Condensed Consolidated Financial Statements

We have prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with U.S. GAAP, and with SEC rules and regulations, which allow for certain information and footnote disclosures that are normally included in annual financial statements prepared in accordance with U.S. GAAP to be condensed or omitted. In our opinion, these unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements for the fiscal year ended September 29, 2023 and include all adjustments necessary for fair presentation. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with our consolidated financial statements for the fiscal year ended September 29, 2023, which are included in our Annual Report on Form 10-K filed with the SEC.

The results for the fiscal quarter ended December 29, 2023 are not necessarily indicative of the results to be expected for any subsequent quarterly or annual financial period, including the fiscal year ending September 27, 2024.

Principles of Consolidation

The unaudited interim condensed consolidated financial statements include the accounts of Dolby Laboratories, Inc. and our wholly-owned and majority-owned subsidiaries. In addition, we have consolidated the financial results of jointly owned affiliated companies in which our principal stockholder or other entities have a noncontrolling interest. We report these noncontrolling interests as a separate line in our unaudited interim condensed consolidated statements of operations as net income attributable to noncontrolling interest and in our unaudited interim condensed consolidated balance sheets as a noncontrolling interest. We eliminate all intercompany accounts and transactions upon consolidation.

Operating Segments

Since we operate as a single reportable segment, all required financial segment information is included in our unaudited interim condensed consolidated financial statements. This reflects the fact that our CODM, our CEO, evaluates our financial information and resources, and assesses the performance of these resources on a consolidated basis.

Use of Estimates

The preparation of our financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported and disclosed in our unaudited interim condensed consolidated financial statements and accompanying notes.

Significant items subject to such estimates and assumptions include estimated shipments by our licensees for which we are owed a sales-based royalty. These estimates involve the use of historical data and judgment for several key attributes including industry estimates of expected shipments, the percentage of markets using our technologies, and average sale prices. Our estimates of royalty-based revenue also take into consideration the macroeconomic effect of global events that may impact our licensees' supply chain activities as well as demand for shipments.

Additional significant items subject to such estimates and assumptions include ESPs for performance obligations within revenue arrangements; allowance for credit losses for accounts receivable; carrying values of inventories and certain PP&E, goodwill and intangible assets; fair values of investments; accrued liabilities including unrecognized tax benefits, deferred income tax assets and liabilities, and contingent liabilities; and stock-based compensation. Actual results could differ from our estimates.

Fiscal Year

Our fiscal year is a 52 or 53 week period ending on the last Friday in September. The fiscal periods presented herein include the 13 week period ended December 29, 2023 and December 30, 2022. Our fiscal years ending September 27, 2024 (fiscal 2024) and September 29, 2023 (fiscal 2023) each consist of 52 weeks.

9

2. Summary of Significant Accounting Policies

Concentration of Credit Risk

Our financial instruments that are exposed to concentrations of credit risk principally consist of cash, cash equivalents, investments, accounts receivable, and contract assets. We maintain cash, cash equivalents, and investments with multiple financial institutions that have high credit standing, and that we believe are financially sound and have minimal credit risk exposure, although at times our balances may exceed the applicable insurance coverage limits. We monitor and manage the overall counterparty credit risk exposure of our cash balances to individual financial institutions on an ongoing basis. Our investment portfolio consists of investment-grade securities diversified amongst security types, industries, and issuers. All of our securities are held in custody by large national financial institutions. Our investment policy limits the amount of credit exposure to a maximum of 5% of our total portfolio to any one issuer, except for the U.S. Treasury, and we believe no significant concentration risk exists with respect to these investments. We also mitigate counterparty risk through entering into derivative contracts with high-credit-quality financial institutions. Actual or potential defaults of one or more financial institutions could impact our results of operations or financial position, and make it challenging to find alternative qualified counterparties.

The majority of our licensing revenue is generated from customers outside of the United States ("U.S."). We manage the credit risk posed by non-U.S. customers by performing regular evaluations of the creditworthiness of our licensing customers and recognize revenue in accordance with US GAAP.

Recently Issued Accounting Standards

Standards Not Yet Effective

Segment Reporting. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which enhances the disclosures required for operating segments by requiring disclosure of significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss, among other expanded disclosures. This standard will be effective for annual periods beginning September 28, 2024 and interim periods beginning September 27, 2025, with early adoption permitted, and will be applied retrospectively to all periods presented in the financial statements. We are currently in the process of evaluating the impact of the standard's adoption on our unaudited interim condensed consolidated financial statements.

Income Taxes. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires further enhancement of income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This standard is effective for Dolby beginning September 27, 2025 on a prospective basis, but early adoption is permitted. We are currently in the process of evaluating the impact of the standard's adoption on our unaudited interim condensed consolidated financial statements.

3. Revenue Recognition

We enter into revenue arrangements with our customers to license technologies, trademarks and patents for sound and imaging solutions, and to sell products and services. We recognize revenue when we satisfy a performance obligation by transferring control over the use of a license, product, or service to a customer.

A. Identification of the Contract or Contracts with Customers

We generally determine that a contract with a customer exists upon the execution of an agreement and after consideration of collectability, which could include an evaluation of the customer's payment history, the existence of a standby letter-of-credit between the customer’s financial institution and our financial institution, public financial information, and other factors. At contract inception, we also evaluate whether two or more non-standard agreements with a customer should be combined and accounted for as a single contract.

B. Identification of Performance Obligations in a Contract

10

We generate revenue principally from the following sources, which represent performance obligations in our contracts with customers:

•Licensing.   We license our technologies, including patents, to a range of customers who incorporate them into their products for enhanced audio and imaging functionality across broadcast, mobile, CE, PC, gaming, and other markets.

•Product Sales. We design and provide audio and imaging products for the cinema, television, broadcast, and entertainment industries.

•Services.   We provide various services to support theatrical and television production for cinema exhibition, broadcast, and home entertainment, including equipment training, mixing room alignment, equalization, as well as audio, color and light image calibration. We also offer solutions through our platform Dolby.co to companies building real-time digital experiences that increase audience engagement. Our solution provides the capability to stream high quality audiovisual content in ultra-low latency which reduces the delay between the action and the viewer.

•PCS. We provide PCS for products sold and for equipment leased, and we support the implementation of our licensing technologies in our licensees’ products.

•Equipment Leases. We collaborate with established cinema exhibitors to offer Dolby Cinema, a branded premium cinema offering for movie audiences by leasing equipment and licensing our IP.

•Licensing Administration Fees. We generate administrative fees for managing patent pools on behalf of third party patent owners through our subsidiary, Via Licensing Alliance LLC ("Via LA").

Some of our revenue arrangements include multiple performance obligations, such as hardware, software, support and maintenance, and extended warranty services. We evaluate whether promised products and services are distinct performance obligations.

The majority of our arrangements with multiple performance obligations pertain to our digital cinema server and processor sales that include the following distinct performance obligations to which we allocate portions of the transaction price based on their stand-alone selling price:

•Digital cinema server hardware and embedded software, which is dependent on and interrelated with the hardware. Accordingly, the hardware and embedded software represent a single performance obligation.

•The right to support and maintenance, which is included with the purchase of the digital cinema server hardware, is a distinct performance obligation.

•The right to receive commissioning services is a distinct performance obligation within the sale of the Dolby Atmos Cinema Processor. These services consist of the review of venue designs specifying proposed speaker placement as well as calibration services performed for installed speakers to ensure optimal playback.

C. Determination of Transaction Price for Performance Obligations in a Contract

After identifying the distinct performance obligations, we determine the transaction price in accordance with the terms of the underlying executed contract which may include variable consideration such as discounts, rebates, refunds, rights of returns, and incentives. We assess and update, if necessary, the amount of variable consideration to which we are entitled for each reporting period. At the end of each reporting period, we estimate and accrue a liability for returns and adjustments as a reduction to revenue based on several factors, including past returns history.

With the exception of our sales-based royalties, we evaluate whether a significant financing component exists when we recognize revenue in advance of customer payments that occur over time. For example, some of our licensing arrangements include payment terms greater than one year from when we transfer control of our IP to a licensee and the receipt of the final payment for that IP. If a significant financing component exists, we classify a portion of the transaction price as interest income, instead of recognizing all of the transaction price as revenue. We do not adjust the transaction price for the effects of financing if, at contract inception, the period between the transfer of control to a customer and final payment is expected to be one year or less.

D. Allocation of Transaction Price to Distinct Performance Obligations in a Contract

11

For our sales-based royalties where the license is the predominant item to which the royalties relate, we present all revenue as licensing.

For revenue arrangements that include multiple performance obligations, we determine the stand-alone selling price for each distinct performance obligation based on the actual selling prices made to customers. If the performance obligation is not sold separately, we estimate the stand-alone selling price. We do so by considering market conditions such as competitor pricing strategies, customer specific information and industry technology lifecycles, internal conditions such as cost and pricing practices, or applying the residual approach method when the selling price of the good, most commonly a license, is highly variable or uncertain.

Once the transaction price, including any variable consideration, has been determined, we allocate the transaction price to the performance obligations identified in the contract and recognize revenue as or when control is transferred for each distinct performance obligation.

E. Revenue Recognition as Control is Transferred to a Customer

We generate our licensing revenue by licensing our technologies and patents to various types of licensees, such as chip manufacturers ("implementation licensees"), consumer product manufacturers, software vendors, and communications service providers. Our revenue recognition policies for each of these arrangements are summarized below.

Initial fees from implementation licensees. Implementation licensees incorporate our technologies into their chipsets that, once approved by Dolby, are available for purchase by OEMs for use in end-user products. Implementation licensees only pay us a nominal initial fee on contract execution as consideration for the ongoing services that we provide to assist in their implementation process. Revenue from these initial fees is recognized ratably over the contractual term as a component of licensing revenue.

Sales-based licensing fees. In our royalty bearing licensing agreements with OEMs, control is transferred upon the later of contract execution or the contract’s effective date. We apply the royalty exception, which requires that we recognize sales-based royalties when the sales occur based on our estimates. These estimates involve the use of historical data and judgment for several key attributes including industry estimates of expected shipments, the percentage of markets using our technologies, and average sale prices. Generally, our estimates represent the current period’s shipments to which we expect our licensees to submit royalty statements within the following two quarters. Upon receipt of royalty statements from the licensees with the actual reporting of sales-based royalties that we estimated previously, we record a favorable or unfavorable adjustment based on the difference, if any, between estimated and actual sales. In the first quarter of fiscal 2024, we recorded a favorable adjustment of approximately $1 million, which was primarily related to shipments that occurred in the prior two quarters.

Fixed and guaranteed licensing fees.   In certain cases, our arrangements require the licensee to pay fixed, non-refundable fees. In these cases, control is transferred and fees are recognized upon the later of contract execution or the effective date. Additionally and separate from initial fees from implementation licensees, our sales- and usage-based licensing agreements include a nominal fee, which is also recognized at a point in time in which control of the IP has been transferred. Revenue from these arrangements is included as a component of licensing revenue.

Recoveries.   Through compliance efforts, we identify misreported licensed activity related to non-current periods. We may record a favorable or unfavorable revenue adjustment in connection with the findings from these compliance efforts generally upon resolution with the licensee through agreement of the findings, or upon receipt of the licensee’s correction statement. Revenue from these arrangements is included as a component of licensing revenue.

We undertake activities aimed at identifying potential unauthorized uses of our technologies, which, when successful, result in the recognition of revenue. Recoveries stem from third parties who agree to remit payments to us based on past use of our technology. In these scenarios, a legally binding contract did not exist at the time of use of our technology, and therefore, we recognize revenue recoveries upon execution of the agreement as that is the point in time at which a contract exists and control is transferred. This revenue is classified as licensing revenue.

In general, we classify legal costs associated with activities aimed at identifying potential unauthorized uses of our technologies, auditing existing licensees, and on occasion, pursuing litigation as S&M in our unaudited interim condensed consolidated statements of operations.

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We recognize licensing revenue gross of withholding taxes, which our licensees remit directly to their local tax authorities, and for which we receive a partial foreign tax credit in our income tax provision.

In addition to our licensing arrangements, we also enter into arrangements to deliver products and services.

Product Sales.   Revenue from the sale of products is recognized when the customer obtains control of the promised good or service, which is generally upon shipment. Payments are generally made within 90 days of sale.

Services.   We provide various services, such as engineering services related to movie soundtrack print mastering, equipment training and maintenance, mixing room alignment, equalization, and image calibration, which we bill on a fixed fee and time and materials basis. Most of these services are of a short duration and are recognized as control of the performance obligations are transferred which is when the related services are performed.

Cloud Services. We provide access to audio and video APIs through our developer platform as well as cloud encoding services, generally, on either a consumption or subscription basis. Revenue related to cloud services provided on a consumption basis is recognized when the customer utilizes the services, based on the quantity of services consumed. Revenue related to cloud services provided on a subscription basis is recognized ratably over the contract term as the customer receives and consumes the benefits of the cloud services.

Collaborative Arrangements.   We collaborate with established cinema exhibitors to offer Dolby Cinema, a branded premium cinema offering for movie audiences. Under such collaborations, Dolby and the exhibitor are both active participants, and share the risks and rewards associated with the business. Accordingly, these collaborations are governed by revenue sharing arrangements under which Dolby receives revenue based on box office receipts, reported to Dolby by exhibitor partners on a monthly or quarterly basis, our proprietary designs and trademarks as well as for the use of our equipment at the exhibitor's venue. The use of our product solution meets the definition of a lease, and for the related portion of Dolby's share of revenue, we apply ASC 842, Leases, and recognize revenue based on monthly box office reports from exhibitors. Our revenue share is recognized as licensing revenue in our unaudited interim condensed consolidated statements of operations.

In addition, we also enter into hybrid agreements where a portion of our revenue share involves guaranteed payments, which in some cases result in classifying the arrangement as a sales-type lease. In such arrangements, we consider control to transfer at the point in time to which we have installed and tested the equipment, at which point we record such guaranteed payments as product revenue.

Licensing Administration Fee. We generate administrative fees for managing patent pools on behalf of third party patent owners through our subsidiary, Via LA. As an agent to licensors in the patent pool, Via LA receives a share of the sales-based royalty that the patent pool licensors earn from licensees. As such, we apply the sales-based royalty exception as the service provided is directly related to the patent pool licensors’ provision of IP, which results in recognition based on estimates of the licensee’s quarter shipments that use the pool’s patents. In addition to sales-based royalties, Via LA also has contracts where the fees are fixed. The revenue share Via LA receives from licensors on fixed fee contracts is recognized over the term in which we are providing services associated with the fixed fee contract. We recognize our administrative fees net of the consideration paid to the patent licensors in the pool as licensing revenue.

Deferred revenue, which is a component of contract liabilities, represents amounts that are ultimately expected to be recognized as revenue, but for which we have yet to satisfy the performance obligation. As of December 29, 2023, we had $70.4 million of remaining performance obligations, 39% of which we expect to recognize as revenue in fiscal 2024, 23% in fiscal 2025, and the balance of 38% in fiscal years beyond 2025.

F.Disaggregation of Revenue

The following table presents a summary of the composition of our revenue for all periods presented (in thousands, except percentage amounts):

	Fiscal Quarter Ended
Revenue	December 29, 2023				December 30, 2022
Licensing	$	293,767	93	%	$	308,011	92	%
Products and services	21,807		7	%	26,910		8	%
Total revenue	$	315,574	100	%	$	334,921	100	%

The following table presents the composition of our licensing revenue for all periods presented (in thousands, except percentage amounts):

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	Fiscal Quarter Ended
Market	December 29, 2023				December 30, 2022
Broadcast	$	112,416	38	%	$	117,334	38	%
Mobile	35,287		12	%	64,286		21	%
CE	53,220		18	%	55,083		18	%
PC	29,679		10	%	24,286		8	%
Other	63,165		22	%	47,022		15	%
Total licensing revenue	$	293,767	100	%	$	308,011	100	%

We license our technologies in approximately 70 countries, and our licensees distribute products that incorporate our technologies throughout the world. We generate the majority of our revenue from outside the U.S. Geographic data for our licensing revenue is based on the location of our licensees’ headquarters, products revenue is based on the destination to which we ship our products, and services revenue is based on the location where services are performed. The following table presents the composition of our revenue by geographic location for all periods presented (in thousands, except percentage amounts):

	Fiscal Quarter Ended
Geographic Location	December 29, 2023				December 30, 2022
United States	$	115,185	37	%	$	100,262	30	%
International	200,389		63	%	234,659		70	%
Total revenue	$	315,574	100	%	$	334,921	100	%

G. Contract Balances

Our contract assets represent rights to consideration from licensees for the use of our IP that we have estimated in a given period in the absence of receiving actual royalty statements from licensees. These estimates reflect our best judgment at that time, and are developed using a number of inputs, including historical data, industry estimates of expected shipments, anticipated sales price and performance, and third party data supporting the percentage of markets using our technologies. In the event that our estimates differ from actual amounts reported, we record an adjustment in the quarter in which the royalty statement is received, which is typically the quarter following our estimate. Actual amounts reported are typically paid within 60 days following the end of the quarter of shipment. The main drivers for change in the contract assets account are variances in quarterly estimates, and to a lesser degree, timing of receipt of actual royalty statements.

Our contract liabilities consist of advance payments and billings in advance of performance and deferred revenue that is typically satisfied within one year. The non-current portion of contract liabilities is separately disclosed in our unaudited interim condensed consolidated balance sheets. We present the net contract asset or liability when we have both contract assets and contract liabilities for a single contract. We recognized $12.2 million in the first quarter of fiscal 2024 from prior period deferred revenue.

The following table presents a summary of the balances to which contract assets and liabilities related to revenue are recorded for all periods presented (in thousands, except percentage amounts):

	December 29, 2023		September 29, 2023		Change ($)		Change (%)
Accounts receivable, net	$	293,228	$	262,245	$	30,983	12	%
Contract assets, net	217,559		182,130		35,429		19	%
Contract liabilities - current	33,404		31,505		1,899		6	%
Contract liabilities - non-current	36,994		39,997		(3,003)		(8)	%

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4. Composition of Certain Financial Statement Captions

The following tables present detailed information from our unaudited interim condensed consolidated balance sheets as of December 29, 2023 and September 29, 2023 (in thousands).

Accounts Receivable and Contract Assets

	December 29, 2023		September 29, 2023
Trade accounts receivable	$	111,027	$	137,820
Accounts receivable from patent administration program licensees	189,629		134,108
Contract assets	217,667		182,268
Accounts receivable and contract assets, gross	518,323		454,196
Less: allowance for credit losses on accounts receivable and contract assets	(7,536)		(9,821)
Total accounts receivable and contract assets, net	$	510,787	$	444,375

Accounts receivable as of December 29, 2023 and September 29, 2023, respectively, includes unbilled accounts receivable balances of $132.9 million and $150.4 million, related to amounts that are contractually owed. The unbilled balance represents our unconditional right to consideration related to fixed fee contracts which we are entitled to as a result of satisfying, or partially satisfying, performance obligations, as well as Via LA's unconditional right to consideration related to its patent administration programs.

Allowance for Credit Losses	Beginning Balance		Charges/(Credits)  to S&M and G&A		Additions/(Deductions)		Ending Balance
For fiscal year-to-date period ended:
September 29, 2023	$	14,405	$	(793)	$	(2,643)	$	10,969
December 29, 2023	10,969		(2,101)		(233)		8,635

Allowance for credit losses includes the provision for estimated credit losses on our sales-type leases, which was not material as of December 29, 2023 and September 29, 2023.

Inventories

	December 29, 2023		September 29, 2023
Raw materials	$	4,375	$	6,203
Work in process	5,321		3,972
Finished goods	27,872		25,448
Total inventories	$	37,568	$	35,623

Inventories are stated at the lower of cost and net realizable value. Inventory with a consumption period expected to exceed twelve months is recorded within other non-current assets in our unaudited interim condensed consolidated balance sheets. We have included $13.8 million and $8.1 million of inventory within non-current assets as of December 29, 2023 and September 29, 2023, respectively. Based on anticipated inventory consumption rates, and aside from existing write-downs due to excess inventory, we do not believe that material risk of obsolescence exists prior to ultimate sale.

Prepaid Expenses and Other Current Assets

	December 29, 2023		September 29, 2023
Prepaid expenses	$	27,699	$	24,435
Other current assets	25,820		26,257
Total prepaid expenses and other current assets	$	53,519	$	50,692

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Accrued Liabilities

	December 29, 2023		September 29, 2023
Amounts payable to patent administration program partners	$	171,639	$	150,509
Accrued compensation and benefits	79,384		118,728
Accrued professional fees	17,131		18,632
Unpaid property, plant, and equipment additions	18,116		18,002
Accrued customer refunds	3,479		3,878
Accrued market development funds	4,436		5,010
Other accrued liabilities	33,001		36,640
Total accrued liabilities	$	327,186	$	351,399

Other Non-Current Liabilities

	December 29, 2023		September 29, 2023
Supplemental retirement plan obligations	$	4,385	$	4,302
Non-current tax liabilities (1)	77,165		74,482
Other liabilities	26,260		29,555
Total other non-current liabilities	$	107,810	$	108,339

(1)        Refer to Note 12 "Income Taxes" for additional information related to our tax liabilities.

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5. Investments and Fair Value Measurements

We use cash holdings to purchase investment-grade securities diversified among security types, industries, and issuers. All of our investments in debt securities are measured at fair value, and are recorded within cash equivalents and both short-term and long-term investments in our unaudited interim condensed consolidated balance sheets. With the exception of our mutual fund investments held in our SERP and classified as trading securities and our other long-term investments, all of our investments are classified as AFS securities. Derivative contracts are used to hedge currency risk, and these are carried at fair value and classified as other assets and other liabilities.

Our investments in debt securities consist of corporate bonds, government bonds, municipal debt securities, commercial paper, and U.S. agency securities. In addition, our cash and cash equivalents also consist of highly-liquid money market funds and government bonds. Consistent with our investment policy, none of our municipal debt investments are supported by letters of credit or standby purchase agreements. Our cash and investment portfolio consisted of the following (in thousands):

	December 29, 2023
	Cost		Unrealized						Estimated Fair Value
			Gains		Losses		Total		Level 1		Level 2		Level 3
Cash and cash equivalents:
Cash	$	643,276	$	—	$	—	$	643,276	$	643,276	$	—	$	—
Cash equivalents:
Money market funds	3,557		—		—		3,557		3,557		—		—
Government Bonds	9,979		4		—		9,983		9,983		—		—
Cash and cash equivalents	656,812		4		—		656,816		656,816		—		—
Short-term investments:
U.S. agency securities	3,892		1		—		3,893		—		3,893		—
Government bonds	43,998		19		(503)		43,514		40,904		2,610		—
Commercial paper	9,513		5		—		9,518		—		9,518		—
Corporate bonds	68,503		30		(276)		68,257		—		68,257		—
Municipal debt securities	15,749		2		(110)		15,641		—		15,641		—
Short-term investments	141,655		57		(889)		140,823		40,904		99,919		—
Long-term investments:
Government bonds	31,168		82		(194)		31,056		31,056		—		—
Corporate bonds	38,068		212		(196)		38,084		—		38,084		—
Municipal debt securities	11,792		62		(40)		11,814		—		11,814		—
Other investments (1)	11,922		—		—		11,922		—		—		—
Long-term investments	92,950		356		(430)		92,876		31,056		49,898		—
Total cash, cash equivalents, and investments	$	891,417	$	417	$	(1,319)	$	890,515	$	728,776	$	149,817	$	—
Investments held in supplemental retirement plan:
Assets	$	4,483	$	—	$	—	$	4,483	$	4,483	$	—	$	—
Included in prepaid expenses and other current assets and other non-current assets
Liabilities	$	4,483	$	—	$	—	$	4,483	$	4,483	$	—	$	—
Included in accrued liabilities and other non-current liabilities
Currency derivatives as hedge instruments:
Assets: Included in other current assets	$	—	$	2,829	$	—	$	2,829	$	—	$	2,829	$	—

(1)Other investments as of December 29, 2023 is primarily comprised of an equity method investment of $6.5 million and an equity security without a readily determinable fair value, valued at $5.0 million. The equity method investment is measured at cost minus impairment, if any, adjusted for our proportionate share of the investee's net income or loss. Our share of the equity method investee's net income or loss is included in other income/(expense), net on the unaudited interim condensed consolidated statements of operations. Our share of the equity method investee's net income was $3.3 million in the first quarter of fiscal 2024 and was not material in the first quarter of fiscal 2023.

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	September 29, 2023
	Cost		Unrealized						Estimated Fair Value
			Gains		Losses		Total		Level 1		Level 2		Level 3
Cash and cash equivalents:
Cash	$	602,288	$	—	$	—	$	602,288	$	602,288	$	—	$	—
Cash equivalents:
Commercial paper	1,514		—		—		1,514		—		1,514		—
Money market funds	139,831		—		—		139,831		139,831		—		—
Government Bonds	1,731		—		—		1,731		1,731		—		—
Cash and cash equivalents	745,364		—		—		745,364		743,850		1,514		—
Short-term investments:
Certificate of deposit	530		—		—		530		—		530		—
U.S. agency securities	5,956		1		(7)		5,950		—		5,950		—
Government bonds	50,220		3		(384)		49,839		46,246		3,593		—
Commercial paper	5,843		—		(3)		5,840		—		5,840		—
Corporate bonds	61,803		—		(431)		61,372		—		61,372		—
Municipal debt securities	15,801		—		(184)		15,617		—		15,617		—
Short-term investments	140,153		4		(1,009)		139,148		46,246		92,902		—
Long-term investments:
Government bonds	33,227		—		(1,046)		32,181		32,181		—		—
Corporate bonds	39,057		6		(589)		38,474		—		38,474		—
Municipal debt securities	16,137		—		(224)		15,913		—		15,913		—
Other investments (1)	11,244		—		—		11,244		—		—		—
Long-term investments	99,665		6		(1,859)		97,812		32,181		54,387		—
Total cash, cash equivalents, and investments	$	985,182	$	10	$	(2,868)	$	982,324	$	822,277	$	148,803	$	—
Investments held in supplemental retirement plan:
Assets	$	4,400	$	—	$	—	$	4,400	$	4,400	$	—	$	—
Included in prepaid expenses and other current assets and other non-current assets
Liabilities	$	4,400	$	—	$	—	$	4,400	$	4,400	$	—	$	—
Included in accrued liabilities and other non-current liabilities
Currency derivatives as hedge instruments:
Assets: Included in other current assets	$	—	$	144	$	—	$	144	$	—	$	144	$	—
Assets: included in other non-current assets	—		2		—		2		—		2		—
Liabilities: Included in other accrued liabilities	—		—		(618)		(618)		—		(618)		—
Liabilities: Included in other non-current liabilities	—		—		(24)		(24)		—		(24)		—

(1)Other investments as of September 29, 2023 is comprised of an equity method investment of $5.9 million and an equity security without a readily determinable fair value, valued at $5.0 million.

Fair Value Hierarchy.    Fair value is the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. We minimize the use of unobservable inputs and use observable market data, if available, when determining fair value. We classify our inputs to measure fair value using the following three-level hierarchy:

Level 1: Quoted prices in active markets at the measurement date for identical assets and liabilities. We base the fair value of our Level 1 financial instruments, which are traded in active markets, using quoted market prices for identical instruments.

Level 2: Prices may be based upon quoted prices in active markets or inputs not quoted on active markets but are corroborated by market data. We obtain the fair value of our Level 2 financial instruments from a professional pricing service, which may use quoted market prices for identical or comparable instruments, or model driven valuations using observable market data or inputs corroborated by observable market data. To validate the fair value determination provided by our primary pricing service, we perform quality controls over values received which include comparing our pricing service provider’s assessment of the fair values of our investment securities against the fair values of our investment securities obtained from another independent source, reviewing the pricing movement in the context of overall market trends, and reviewing trading information from our investment managers. In addition, we

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assess the inputs and methods used in determining the fair value in order to determine the classification of securities in the fair value hierarchy. The fair value of the currency derivatives are calculated from market spot rates, forward rates, interest rates, and credit ratings at the end of the period.

Level 3: Unobservable inputs are used when little or no market data is available and reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

Securities In Gross Unrealized Loss Position.    We periodically evaluate our investments for impairment by comparing the fair value with the cost basis for each of our investment securities. The unrealized losses on our AFS securities were primarily the result of unfavorable changes in interest rates subsequent to the initial purchase of these securities. The following table presents the gross unrealized losses and fair value for those AFS securities that were in an unrealized loss position for less than twelve months and for greater than twelve months as of December 29, 2023 and September 29, 2023 (in thousands):

	December 29, 2023								September 29, 2023
	Less Than 12 Months				Greater Than 12 Months				Less Than 12 Months				Greater Than 12 Months
Investment Type	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. agency securities	$	—	$	—	$	—	$	—	$	853	$	(7)	$	—	$	—
Government bonds	12,250		(67)		30,457		(629)		26,756		(247)		40,235		(1,183)
Commercial paper	—		—		—		—		5,840		(3)		—		—
Corporate bonds	36,002		(137)		19,546		(335)		79,846		(461)		14,634		(558)
Municipal debt securities	8,222		(52)		6,246		(98)		23,365		(203)		8,166		(206)
Total	$	56,474	$	(256)	$	56,249	$	(1,062)	$	136,660	$	(921)	$	63,035	$	(1,947)

Although we had certain securities that were in an unrealized loss position as of December 29, 2023 and September 29, 2023, we expect to recover the full carrying value of these securities.

Investment Maturities.    The following table summarizes the amortized cost and estimated fair value of the AFS securities within our investment portfolio based on stated maturities as of December 29, 2023 and September 29, 2023, which are recorded within cash equivalents and both short and long-term investments in our unaudited interim condensed consolidated balance sheets (in thousands):

	December 29, 2023				September 29, 2023
Range of maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within 1 year	$	171,054	$	170,477	$	283,229	$	282,225
Due in 1 to 2 years	45,231		44,735		67,679		66,075
Due in 2 to 5 years	19,933		20,105		20,743		20,493
Total	$	236,218	$	235,317	$	371,651	$	368,793

6. Property, Plant, and Equipment

PP&E are recorded at cost, with depreciation expense included in cost of licensing, cost of products and services, R&D, S&M, and G&A expenses in our unaudited interim condensed consolidated statements of operations.

As of December 29, 2023 and September 29, 2023, PP&E consisted of the following (in thousands):

Property, Plant, and Equipment	December 29, 2023		September 29, 2023
Land	$	41,959	$	41,902
Buildings and building improvements