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 June 28, 2024

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 July 26, 2024, the registrant had 59,676,844 shares of Class A common stock, par value $0.001 per share, and 35,670,779 shares of Class B common stock, par value $0.001 per share, outstanding.

DOLBY LABORATORIES, INC.

FORM 10-Q

For the Fiscal Quarter Ended June 28, 2024

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	9
	Notes to Unaudited Interim Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 4.	Controls and Procedures	55
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71
Item 5.	Other Information	71
Item 6.	Exhibits	72
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)

	June 28, 2024		September 29, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	741,636	$	745,364
Restricted cash	36,988		72,602
Short-term investments	127,321		139,148
Accounts receivable, net of allowance for credit losses of $4,723 and $9,683	285,843		262,245
Contract assets, net of allowance for credit losses of $104 and $138	190,803		182,130
Inventories, net	34,716		35,623
Prepaid expenses and other current assets	51,348		50,692
Total current assets	1,468,655		1,487,804
Long-term investments	117,901		97,812
Property, plant, and equipment, net	477,686		481,581
Operating lease right-of-use assets	39,857		40,199
Intangible assets, net	144,639		167,427
Goodwill	408,457		408,409
Deferred taxes	219,822		201,860
Other non-current assets	96,618		94,674
Total assets	$	2,973,635	$	2,979,766
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	16,413	$	20,925
Accrued liabilities	280,611		351,399
Income taxes payable	12,294		4,769
Contract liabilities	32,650		31,505
Operating lease liabilities	12,568		13,628
Total current liabilities	354,536		422,226
Non-current contract liabilities	35,647		39,997
Non-current operating lease liabilities	35,619		37,020
Other non-current liabilities	100,401		108,339
Total liabilities	526,203		607,582
Stockholders’ equity:
Class A, $0.001 par value, one vote per share, 500,000,000 shares authorized: 59,914,035 shares issued and outstanding at June 28, 2024 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: 35,670,779 shares issued and outstanding at June 28, 2024 and 36,085,779 at September 29, 2023	41		41
Retained earnings	2,462,928		2,391,990
Accumulated other comprehensive loss	(30,172)		(36,984)
Total stockholders’ equity – Dolby Laboratories, Inc.	2,432,850		2,355,100
Noncontrolling interest	14,582		17,084
Total stockholders’ equity	2,447,432		2,372,184
Total liabilities and stockholders’ equity	$	2,973,635	$	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				Fiscal Year-To-Date Ended
	June 28, 2024		June 30, 2023		June 28, 2024		June 30, 2023
Revenue:
Licensing	$	267,082	$	273,108	$	899,089	$	932,727
Products and services	21,736		25,262		69,826		76,455
Total revenue	288,818		298,370		968,915		1,009,182
Cost of revenue:
Cost of licensing	17,386		15,610		48,440		50,334
Cost of products and services	18,277		25,905		58,060		66,680
Total cost of revenue	35,663		41,515		106,500		117,014
Gross profit	253,155		256,855		862,415		892,168
Operating expenses:
Research and development	65,501		68,696		195,027		201,097
Sales and marketing	77,518		85,594		246,559		263,494
General and administrative	69,275		69,954		201,183		191,865
Restructuring charges	4,078		16,676		7,674		16,465
Total operating expenses	216,372		240,920		650,443		672,921
Operating income	36,783		15,935		211,972		219,247
Other income/(expense):
Interest income/(expense), net	9,439		7,202		27,223		18,806
Other income, net	3,942		620		13,550		2,967
Total other income	13,381		7,822		40,773		21,773
Income before income taxes	50,164		23,757		252,745		241,020
Provision for income taxes	(10,509)		(7,352)		(47,295)		(49,284)
Net income including noncontrolling interest	39,655		16,405		205,450		191,736
Less: net income attributable to noncontrolling interest	(1,211)		(6)		(2,195)		(266)
Net income attributable to Dolby Laboratories, Inc.	$	38,444	$	16,399	$	203,255	$	191,470
Net income per share:
Basic	$	0.40	$	0.17	$	2.13	$	2.00
Diluted	$	0.40	$	0.17	$	2.09	$	1.96
Weighted-average shares outstanding:
Basic	95,686		95,658		95,593		95,794
Diluted	96,959		97,459		97,412		97,588
Related party rent expense:
Included in net income attributable to noncontrolling interest	$	71	$	84	$	213	$	226
Cash dividend declared per common share	$	0.30	$	0.27	$	0.90	$	0.81
Cash dividend paid per common share	$	0.30	$	0.27	$	0.90	$	0.81

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				Fiscal Year-To-Date Ended
	June 28, 2024		June 30, 2023		June 28, 2024		June 30, 2023
Net income including noncontrolling interest	$	39,655	$	16,405	$	205,450	$	191,736
Other comprehensive income:
Currency translation adjustments gains/(losses), net of tax benefit/(expense) of $0, $0, $0, and $0	(837)		(3,199)		4,547		13,679
Unrealized gains/(losses) on investments, net of tax benefit/(expense) of $0, $12, $4, and $50	172		(250)		1,944		2,741
Unrealized gains/(losses) on cash flow hedges, net of tax benefit/(expense) of $17, $26, $(335), and $115	(393)		(211)		446		4,512
Total other comprehensive income/(loss), net of tax	(1,058)		(3,660)		6,937		20,932
Total comprehensive income	38,597		12,745		212,387		212,668
Less: comprehensive income attributable to noncontrolling interest	(1,257)		(83)		(2,320)		(720)
Comprehensive income attributable to Dolby Laboratories, Inc.	$	37,340	$	12,662	$	210,067	$	211,948

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 March 29, 2024	$	94	$	—	$	2,449,876	$	(29,068)	$	2,420,902	$	16,785	$	2,437,687
Net income	—		—		38,444		—		38,444		1,211		39,655
Other comprehensive loss, net of tax	—		—		—		(1,104)		(1,104)		46		(1,058)
Distributions to noncontrolling interest	—		—		—		—		—		(3,448)		(3,448)
Stock-based compensation expense	—		29,337		—		—		29,337		—		29,337
Capitalized stock-based compensation expense	—		206		—		—		206		—		206
Repurchase of common stock	(1)		(38,310)		3,311		—		(35,000)		—		(35,000)
Cash dividends declared and paid on common stock	—		—		(28,703)		—		(28,703)		—		(28,703)
Common stock issued under employee stock plans	1		10,141		—		—		10,142		—		10,142
Tax withholdings on vesting of restricted stock	—		(1,374)		—		—		(1,374)		—		(1,374)
Equity issued in connection with business combination	—		—		—		—		—		(12)		(12)
Balance at June 28, 2024	$	94	$	—	$	2,462,928	$	(30,172)	$	2,432,850	$	14,582	$	2,447,432

	Dolby Laboratories, Inc.
	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income/(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	—		—		203,255		—		203,255		2,195		205,450
Other comprehensive income, net of tax	—		—		—		6,812		6,812		125		6,937
Distributions to noncontrolling interest	—		—		—		—		—		(4,495)		(4,495)
Stock-based compensation expense	—		90,146		—		—		90,146		—		90,146
Capitalized stock-based compensation expense	—		411		—		—		411		—		411
Repurchase of common stock	(2)		(92,974)		(47,023)		—		(139,999)		—		(139,999)
Cash dividends declared and paid on common stock	—		—		(85,971)		—		(85,971)		—		(85,971)
Common stock issued under employee stock plans	2		39,485		—		—		39,487		—		39,487
Tax withholdings on vesting of restricted stock	—		(37,428)		—		—		(37,428)		—		(37,428)
Deconsolidation of subsidiary	—		—		677		—		677		(677)		—
Equity issued in connection with business combination	—		360		—		—		360		350		710
Balance at June 28, 2024	$	94	$	—	$	2,462,928	$	(30,172)	$	2,432,850	$	14,582	$	2,447,432

7

	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 March 31, 2023	$	95	$	—	$	2,378,115	$	(27,426)	$	2,350,784	$	5,208	$	2,355,992
Net income	—		—		16,399		—		16,399		6		16,405
Other comprehensive income, net of tax	—		—		—		(3,737)		(3,737)		77		(3,660)
Stock-based compensation expense	—		29,224		—		—		29,224		—		29,224
Capitalized stock-based compensation expense	—		389		—		—		389		—		389
Repurchase of common stock	(1)		(53,635)		28,636		—		(25,000)		—		(25,000)
Cash dividends declared and paid on common stock	—		—		(25,843)		—		(25,843)		—		(25,843)
Common stock issued under employee stock plans	—		15,837		—		—		15,837		—		15,837
Tax withholdings on vesting of restricted stock	—		(1,819)		—		—		(1,819)		—		(1,819)
Equity issued in connection with business combination	—		10,004		—		—		10,004		11,194		21,198
Balance at June 30, 2023	$	94	$	—	$	2,397,307	$	(31,163)	$	2,366,238	$	16,485	$	2,382,723

	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	—		—		191,470		—		191,470		266		191,736
Other comprehensive income, net of tax	—		—		—		20,478		20,478		454		20,932
Distributions to noncontrolling interest	—		—		—		—		—		(266)		(266)
Stock-based compensation expense	—		90,291		—		—		90,291		—		90,291
Capitalized stock-based compensation expense	—		1,060		—		—		1,060		—		1,060
Repurchase of common stock	(2)		(109,965)		(14,309)		—		(124,276)		—		(124,276)
Cash dividends declared and paid on common stock	—		—		(77,584)		—		(77,584)		—		(77,584)
Common stock issued under employee stock plans	2		37,229		—		—		37,231		—		37,231
Tax withholdings on vesting of restricted stock	—		(28,619)		—		—		(28,619)		—		(28,619)
Equity issued in connection with business combination	—		10,004		—		—		10,004		11,194		21,198
Balance at June 30, 2023	$	94	$	—	$	2,397,307	$	(31,163)	$	2,366,238	$	16,485	$	2,382,723

See accompanying notes to unaudited interim condensed consolidated financial statements

8

DOLBY LABORATORIES, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Fiscal Year-To-Date Ended
	June 28, 2024		June 30, 2023
Operating activities:
Net income including noncontrolling interest	$	205,450	$	191,736
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	54,199		61,428
Stock-based compensation	90,146		90,291
Amortization of operating lease right-of-use assets	8,745		9,829
Amortization of premium on investments	(2,586)		(179)
Benefit from (provision for) credit losses	(2,382)		(348)
Deferred income taxes	(18,009)		(21,653)
Other non-cash items affecting net income	(6,181)		(1,751)
Changes in operating assets and liabilities:
Accounts receivable, net	(21,319)		43,546
Contract assets, net	(8,642)		(10,105)
Inventories	(4,615)		(2,425)
Operating lease right-of-use assets	(7,681)		(3,799)
Prepaid expenses and other assets	7,527		775
Accounts payable and accrued liabilities	(80,837)		(83,737)
Income taxes, net	15,265		14,975
Contract liabilities	(3,189)		(1,686)
Operating lease liabilities	(2,577)		(7,452)
Other non-current liabilities	(12,232)		2,621
Net cash provided by operating activities	211,082		282,066
Investing activities:
Purchases of marketable securities	(147,646)		(123,075)
Proceeds from sales of marketable securities	4,451		54,020
Proceeds from maturities of marketable securities	140,839		139,423
Purchases of property, plant, and equipment	(22,628)		(22,154)
Business combinations, net of cash and restricted cash acquired	—		25,703
Net cash provided by (used in) investing activities	(24,984)		73,917
Financing activities:
Proceeds from issuance of common stock	39,487		37,231
Repurchase of common stock	(139,999)		(124,276)
Payment of cash dividend	(85,971)		(77,584)
Distribution to noncontrolling interest	(4,507)		(266)
Shares repurchased for tax withholdings on vesting of restricted stock	(37,428)		(28,619)
Equity issued in connection with business combination	722		—
Payment of deferred consideration for prior business combinations	—		(500)
Net cash used in financing activities	(227,696)		(194,014)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash	2,256		8,819
Net increase/(decrease) in cash, cash equivalents, and restricted cash	(39,342)		170,788
Cash, cash equivalents, and restricted cash at beginning of period	817,966		628,371
Cash, cash equivalents, and restricted cash at end of period	$	778,624	$	799,159
Supplemental disclosure:
Cash paid for income taxes, net of refunds received	$	50,763	$	40,461
Non-cash investing activities and financing activities:
Change in property, plant, and equipment purchased, unpaid at period-end	6,146		412
Equity issued in connection with business combination	—		21,198

See accompanying notes to unaudited interim condensed consolidated financial statements

9

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 and year-to-date period ended June 28, 2024 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 June 28, 2024 and June 30, 2023. Our fiscal years ending September 27, 2024 (fiscal 2024) and September 29, 2023 (fiscal 2023) each consist of 52 weeks.

10

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 Dolby's annual period 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 consolidated financial statements and related disclosures.

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 consolidated financial statements and related disclosures.

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

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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.io 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

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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 third quarter of fiscal 2024, we recorded an unfavorable adjustment of approximately $7 million, which was primarily related to our estimates of 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 June 28, 2024, we had $68.3 million of remaining performance obligations, 20% of which we expect to recognize as revenue in fiscal 2024, 33% in fiscal 2025, and the balance of 47% 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								Fiscal Year-To-Date Ended
Revenue	June 28, 2024				June 30, 2023				June 28, 2024				June 30, 2023
Licensing	$	267,082	92	%	$	273,108	92	%	$	899,089	93	%	$	932,727	92	%
Products and services	21,736		8	%	25,262		8	%	69,826		7	%	76,455		8	%
Total revenue	$	288,818	100	%	$	298,370	100	%	$	968,915	100	%	$	1,009,182	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								Fiscal Year-To-Date Ended
Market	June 28, 2024				June 30, 2023				June 28, 2024				June 30, 2023
Broadcast	$	95,430	36	%	$	102,966	38	%	$	313,326	35	%	$	349,271	37	%
Mobile	63,096		24	%	50,363		18	%	187,073		21	%	207,775		22	%
CE	28,352		11	%	34,417		13	%	123,793		14	%	128,515		14	%
PC	27,606		10	%	29,489		11	%	107,223		12	%	97,122		10	%
Other	52,598		19	%	55,873		20	%	167,674		18	%	150,044		17	%
Total licensing revenue	$	267,082	100	%	$	273,108	100	%	$	899,089	100	%	$	932,727	100	%

We license our technologies in approximately 60 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								Fiscal Year-To-Date Ended
Geographic Location	June 28, 2024				June 30, 2023				June 28, 2024				June 30, 2023
United States	$	76,656	27	%	$	84,371	28	%	$	338,479	35	%	$	361,715	36	%
International	212,162		73	%	213,999		72	%	630,436		65	%	647,467		64	%
Total revenue	$	288,818	100	%	$	298,370	100	%	$	968,915	100	%	$	1,009,182	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 $5.8 million in the third quarter of fiscal 2024 and $25.3 million in the fiscal year-to-date period ended June 28, 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):

	June 28, 2024		September 29, 2023		Change ($)		Change (%)
Accounts receivable, net	$	285,843	$	262,245	$	23,598	9	%
Contract assets, net	190,803		182,130		8,673		5	%
Contract liabilities - current	32,650		31,505		1,145		4	%
Contract liabilities - non-current	35,647		39,997		(4,350)		(11)	%

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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 June 28, 2024 and September 29, 2023 (in thousands).

Accounts Receivable and Contract Assets

	June 28, 2024		September 29, 2023
Trade accounts receivable	$	166,095	$	137,820
Accounts receivable from patent administration program licensees	124,471		134,108
Contract assets	190,907		182,268
Accounts receivable and contract assets, gross	481,473		454,196
Less: allowance for credit losses on accounts receivable and contract assets	(4,827)		(9,821)
Total accounts receivable and contract assets, net	$	476,646	$	444,375

Accounts receivable as of June 28, 2024 and September 29, 2023, respectively, includes unbilled accounts receivable balances of $137.0 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 June 28, 2024	10,969	(2,382)	(2,671)	5,916

Allowance for credit losses includes the provision for estimated credit losses on our sales-type leases, which was not material as of June 28, 2024 and September 29, 2023.

Inventories

	June 28, 2024		September 29, 2023
Raw materials	$	3,255	$	6,203
Work in process	5,166		3,972
Finished goods	26,295		25,448
Total inventories	$	34,716	$	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 $10.8 million and $8.1 million of inventory within non-current assets as of June 28, 2024 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

	June 28, 2024		September 29, 2023
Prepaid expenses	$	29,624	$	24,435
Other current assets	21,724		26,257
Total prepaid expenses and other current assets	$	51,348	$	50,692

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Accrued Liabilities

	June 28, 2024		September 29, 2023
Amounts payable to patent administration program partners	$	127,339	$	150,509
Accrued compensation and benefits	83,405		118,728
Accrued professional fees	13,667		18,632
Unpaid property, plant, and equipment additions	24,230		18,002
Accrued customer refunds	2,551		3,878
Accrued market development funds	4,607		5,010
Other accrued liabilities	24,812		36,640
Total accrued liabilities	$	280,611	$	351,399

Other Non-Current Liabilities

	June 28, 2024		September 29, 2023
Supplemental retirement plan obligations	$	4,681	$	4,302
Non-current tax liabilities (1)	79,035		74,482
Other liabilities	16,685		29,555
Total other non-current liabilities	$	100,401	$	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. 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):

	June 28, 2024
	Cost		Unrealized						Estimated Fair Value
			Gains		Losses		Total		Level 1		Level 2		Level 3
Cash and cash equivalents:
Cash	$	663,209	$	—	$	—	$	663,209	$	663,209	$	—	$	—
Cash equivalents:
Commercial paper	2,594		1		—		2,595		—		2,595		—
Money market funds	74,247		—		—		74,247		74,247		—		—
Government Bonds	1,584		1		—		1,585		1,585		—		—
Cash and cash equivalents	741,634		2		—		741,636		739,041		2,595		—
Short-term investments:
Certificate of deposit	1,098		—		—		1,098		—		1,098		—
U.S. agency securities	1,225		—		—		1,225		—		1,225		—
Government bonds	51,096		6		(332)		50,770		49,873		897		—
Commercial paper	12,009		1		(12)		11,998		—		11,998		—
Corporate bonds	49,234		13		(181)		49,066		—		49,066		—
Municipal debt securities	13,222		1		(59)		13,164		—		13,164		—
Short-term investments	127,884		21		(584)		127,321		49,873		77,448		—
Long-term investments:
Government bonds	24,466		1		(195)		24,272		24,272		—		—
Corporate bonds	75,263		95		(291)		75,067		—		75,067		—
Municipal debt securities	5,885		4		(12)		5,877		—		5,877		—
Other investments (1)	12,685		—		—		12,685		—		12,685		—
Long-term investments	118,299		100		(498)		117,901		24,272		93,629		—
Total cash, cash equivalents, and investments	$	987,817	$	123	$	(1,082)	$	986,858	$	813,186	$	173,672	$	—
Investments held in supplemental retirement plan:
Assets	$	4,779	$	—	$	—	$	4,779	$	4,779